Financial institutions facing challenges in the current phase of embedded finance growth need the capabilities described herein.
To stay competitive, there is an opportunity for incumbents to:
- expand their presence through organic and inorganic capability building, exploring new digital platform models, building partnerships to open distribution channels, and embracing non-traditional revenue streams.
- introduce new product and service offerings (like digital wallets), retain and increase customer loyalty, gain access to a new customer base, and increase revenue through additional financial services, such as lending and insurance.
Three capabilities needed
To fully capitalize on the opportunities offered by embedded finance in its next phase of growth, financial institutions can focus on developing three key capabilities:
- Collaborate: To move beyond a traditional financial product mindset, banks need to collaborate closely with partners to create blended propositions — ones that combine financial services with non-financial offerings. This customer-centric approach will unlock new value propositions and enhance the user experience.
- Build the right people and operating model: Strengthening partner management and internal coordination capabilities is critical for surfacing banking capabilities effectively. By establishing a clear path to integrate Banking-as-a-Service (BaaS) capabilities into the existing infrastructure, seamless coordination between embedded finance and core banking functions can be made possible.
- Have the right technology capabilities: To ensure readiness for BaaS integration and future scalability, incumbents should transition toward decoupled, modern architecture that can scale with the needs of the business. This architecture should be flexible, interoperable, and aligned with broader technology modernization efforts within the financial institution. This will empower the latter to adapt to evolving customer expectations while efficiently supporting a network of BaaS partners viably.