Following this announcement, the Euro Banking Association’s new report is entitled “Navigating the path to embedded finance”, and it was based on research made by the EBA’s Open Finance Working Group (OFWG).
The report was developed with the aim set on providing guidance for the enterprise’s members to understand the fundamental mechanisms of Embedded Finance, grasp the opportunities it offers, identify promising Embedded Finance use cases, as well as accelerate the development of their own journey toward the use of Embedded Finance and the possible threat of not participating in it.
Embedded Finance integrates financial solutions into non-financial platforms and businesses, focusing on providing secure and efficient experiences for clients, as well as monetisation opportunities for providers. BaaS and Open Banking are also closely linked with Embedded Finance, with the aim to provide the technological foundation needed for its implementation. It also benefits all stakeholders, enabling financial institutions to extend their reach safely, as well as giving platforms the possibility to optimise their offerings and customers the capability to enjoy integrated and comprehensive tools.
With the Embedded Finance market being projected to grow rapidly, FIs need to understand the dynamics of it, as well as its market impact and the strategic implications of shifting from traditional to Embedded Finance channels. In addition, the scope is broad, with potential applications across payments, lending, accounts, saving, and investing insurance, including use cases to be uncovered in a wealth of different vertical spaces.
In the process of developing Embedded Finance capabilities, it is required for financial institutions to adopt and integrate customer-centric product development, agile processes, effective collaboration development, and an API-first approach. FIs and enterprises are also expected to foster more deals, collaborations, customer centricity, and development. At the same time, lending financial institutions are now shifting their API programmers as well to Embedded Finance use cases, or to develop complete BaaS capabilities in order to optimise overall solution delivery.
A collaborative approach to Embedded Finance is also expected, as it could offer cost efficiencies and optimal synergies for the participating financial institutions. In addition, existing models and initiatives also provide precedents for joint efforts in the Embedded Finance enabling process. The benefits include cost savings, shared innovation, as well as control over the enabling layer. Challenges and difficulties of such an approach could include agreeing on a common vision, managing complex stakeholders' interests, as well as addressing data security concerns.
The EBA was designed with the aim to structure and inform a discussion about how financial institutions will likely be affected by the Embedded Finance trend, as well as what a strategic response could look like. The thoughts on a collaborative approach are set as an impulse for discussion on where partnerships in the Embedded Finance landscape would make sense.
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