Embedded Finance: A Collaborative Approach for Cost Efficiencies and Innovation Synergies


The Euro Banking Association (EBA) today released a report “Navigating the path to embedded finance”.

The report is based on research by the EBA’s Open Finance Working Group (OFWG) and aims to provide guidance for EBA members to understand the fundamental mechanisms of embedded finance, grasp the opportunities it provides, identify promising embedded finance use cases, and shape their own journey towards embedded finance.

Embedded finance integrates financial services into non-financial platforms, offering seamless experiences for customers and monetisation opportunities for providers. BaaS and open banking are closely linked with embedded finance, providing the technological foundation for its implementation.

Financial institutions can play various roles in the embedded finance value chain, including as providers, enablers, and distributors of financial services. Embedded finance benefits all stakeholders, enabling financial institutions to extend their reach, platforms to enhance their offerings, and consumers to enjoy integrated services.

The embedded finance market is projected to grow significantly, with an emphasis on consumer payments, POS lending, and B2B payments. Financial institutions need to understand the dynamics of embedded finance, its market impact, and strategic implications of shifting from traditional to embedded finance channels.

The scope for embedded finance is broad, with potential applications across payments, accounts, lending, saving, and investing insurance as well as use cases to be uncovered in a wealth of different vertical spaces.

Financial institutions need to choose from various value chain scenarios and identify strategic areas to engage in embedded finance based on their strengths, market presence, and customer needs.

Developing embedded finance capabilities requires financial institutions to adopt customer-centric product development, an API-first approach, agile innovation processes, and effective partnership development. Financial institutions also need to foster a culture of innovation, collaboration, and customer centricity.

Leading financial institutions are now shifting their API programmes to embedded finance use cases or to develop complete Banking-as-a-Service (BaaS) offerings. This strategic focus on collaboration aims to enhance overall service delivery.

A collaborative approach to embedded finance could offer cost efficiencies and innovation synergies for participating financial institutions. Existing collaborative models and initiatives provide precedents for joint efforts in embedded finance enabling.

Benefits of a collaborative approach include cost savings, shared innovation, control over the enabling layer, and while the challenges of such an approach include agreeing on a common vision, managing complex stakeholder interests, and addressing data security concerns.

Further exploration of collaborative models in embedded finance could offer financial institutions a pathway to innovate and serve their customers in the evolving financial services landscape more effectively.

“Embedded finance is more than a hype and should be on the board agenda of any bank or other financial institution,” said Jose Vicente, Chairman of the OFWG. “A first step towards developing a strategic approach is understanding the basics: how embedded finance works, its significance in relation to the overall market, the effect on value chain dynamics and the potential benefits – as well as the possible threat of not participating in an evolving market.”

The report aims to spark, structure, and inform a discussion about how financial institutions will likely be affected by the embedded finance trend and what a strategic response could look like.

The thoughts on a collaborative approach to embedded finance do not claim to provide a feasible solution for a joint enabling service but are meant as an impulse for discussions on where collaboration in the realm of embedded finance could make sense. Whether navigating the path individually or collaboratively, the future of financial service delivery will be – to a growing degree – “embedded”.

The report “Navigating the path to embedded finance” is available for download for EBA Members.

About the EBA Open Finance Working Group (OFWG)
The EBA Open Finance Working Group currently focuses on the strategic move from open to embedded finance. The working group has published several papers dealing with various aspects of open banking, especially for corporates and SMEs.

Most recent episodes