Why Your Bank Should Join the Embedded Finance Trend

By Veritran - Sept. 8, 2021 - Category : Without category

Integrated finance represents an growth opportunity for banking, in addition to providing differentiating value to the customer experience

The distribution of financial services is changing rapidly. Embedded finance is becoming an increasingly popular practice in the industry, both for traditional banks and for new players.

This model incorporates financial products and services into mobile applications and in the business processes of non-banking entities, thus representing a huge opportunity for expansion and scale for those involved.

Finance is leaving its comfort zone within banks to explore other commercial spaces, such as telecommunications, for example.

This year Movistar and Banco Sabadell joined forces in Mexico to create Movistar Money, a credit service for the telephone company’s clients. The company said the program was part of its strategy to offer new digital services to its users and offer them additional value.

Adding on a credit solution is a recurring feature of embedded finance models, especially since they help retain customers by offering them new purchasing options and personalizing their experience.

But integrated loans are just one subsector of embedded finance. The outsourcing of financial solutions can serve needs ranging from wallets and credit cards to payments, thanks to the intersection of finance and technology.

Although fintech companies have embraced this new practice - some are even leading innovation - development is still at an early stage and banks shouldn’t miss the opportunity to become the main leaders in this trend.

Many companies are still looking to form alliances with financial institutions that provide these types of solutions; it’s an advantage if the banks are knowledgeable about the subject, facilitate the work, have expertise in coding and - a big plus – are backed up by robust regulatory compliance.


With financial services emerging as a growing part of non-banks’ revenue, it’s becoming increasingly important for banks to join the trend.

Banks have the ability to apply this business model and provide other firms with access to accounts, payments and loans - even to fintech companies unable to “become” banks.

So how can banks get started with embedded finance? The greatest opportunity that embedded finance offers is to meet the new needs of clients, with simpler, more comprehensive and direct financial experiences.

The so-called financial “ecosystems” are the answer. Customers need financial products at certain moments. Nobody wants to buy a car and then leave the dealership for the bank to get a loan, or visit the insurance company to buy insurance. Financial institutions must bring the product closer to the user.

Another area of opportunity is alongside fintech companies. These new players are looking for banking partners so they can scale and grow faster, as well as have access to bank accounts, for example.

With embedded finance, banks can adopt models such as Banking as a Service (BaaS) to offer financial services through the leasing of infrastructure and with regulatory support to back it up.

And this is where another spectrum of opportunity is emerging. Banking as a Service allows financial institutions to provide products or bundled offerings to non-bank companies. This service comes with the support of the financial institution through a white label or shared brand, which the adopting companies can use to serve their clients.

Financial entities – through the BaaS model – have every possibility of positioning themselves in the market as a hub of integrated services, capable of providing a complete financial offering tailored to the needs of each associated company.


Now that all sorts of companies can provide financial services via integrations, banks should identify niches of opportunity to be competitive and relevant.

In that sense, one advantage for banks that opt for integrated finance is that they can enrich the level of personalization of their client offering. This is achieved with better segmentation, thanks to the analysis of the data shared between the partners and knowledge about the client provided by the counterpart in the alliance.

In addition, the use of transactional data also makes it possible to offer other products, such as loans or mortgages, thanks to better risk assessment.

Another advantage for banks is the opportunity to connect with new population niches that weren’t previously part of their customer base.

An embedded finance strategy opens up the possibility of reaching millions of new clients with whom the bank has yet to establish a relationship of service and trust, and therefore the use of a shared brand emerges as an opportunity to forge ties.

In short, the mere fact of opting for integrated finance allows the entity to experiment with alternative models of revenue and product growth, hand-in-hand with technology companies and retailers.

Remember, too, that many companies are considering adding these new services to their operations also as a way of avoiding the development of solutions from scratch that, in many cases, lengthens the time for building projects. Banks already have the expertise and regulatory compliance to make it happen.

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