While the top line for customers has proven resilient in the retail banking space, with growth of approximately 3-4% on a per customer basis, we need to focus on another factor of importance: Within the banks analyzed in the Retail Banking Monitor, we observed that several banks are gradually losing customers rather than adding new ones.
This raises the question of where these customers are shifting towards. As pressure from Embedded Finance is growing, the retail banks’ share of the retail banking revenue pool is decreasing. Non-banks are driving the business within Embedded Finance, reducing the banks’ relevance in the retail banking segment. Based on our estimates, Embedded Finance is expected to account for >15% of the share of the revenue pool in Europe in 2030.
The integration of financial tools and services into user journeys is changing the way people are consuming financial services. Tailored financial solutions are now offered to consumers directly when they need them most: Be it as part of a media or communications subscription, via the car, or through an online or offline retailer – Embedded Finance is becoming an integral part of the user journey.
By embedding financial services into the sale of another product or service, these distributors or producers are seeking an improved customer experience (and resulting sales conversion), stronger customer loyalty and relationships, and a slice of the cake in respect of payment, insurance or lending revenues. Apple’s venturing into Buy-Now-Pay-Later or retailers’ setting up their own payment divisions (e.g. Zalando, Otto, MercadoLibre) are prominent examples.
For financial services providers, Embedded Finance offers a growth opportunity beyond mature and saturated traditional sales channels that still sits within their core value proposition. In addition, understanding emerging customer needs and benefitting from the image and trustworthiness of the partner’s brand helps Financial Services providers to emancipate themselves from the dusty image of being e.g., an “insurer” or a “bricks and mortar bank”.
Especially in recent years, the topic of Embedded Finance has gained traction, based on an increasing range of offerings and examples. This is driven by customers who are increasingly welcoming attractive, one-stop shopping experiences - powered by Embedded Finance. At the same time, an increasing number of companies has started to integrate financial offerings into their service portfolio, fueling the opportunities for users to consume financial services.
The market for embedded finance is currently estimated at USD 22.5bn in the United States alone and is expected to grow by more than 10 times to USD 230 bn in terms of new revenue volume by 2025.
While there is a great variety of use cases across areas, we want to highlight a few selected use cases as part of Embedded Finance:
So, how to keep up with Embedded Finance? Succeeding in Embedded Finance requires adding a new skill set and approach to the core direct-to-consumer business traditionally known to retail banks. In addition, banks are under pressure to sustain their unique identity, given that bank brands are fading as consumers are primarily driven by their brand loyalty to businesses rather than banks.
In this context, we use the B-U-I-L-D framework in our work to identify key requirements for staying competitive within Embedded Finance:
As shown, there is a plethora of future opportunities within Embedded Finance, in line with strong expected growth in the market. Banks and payment players now need to carefully assess how they have to reposition themselves and adapt their value proposition to address these trends, stay relevant and participate in the growth.
Timm Niethammer also contributed to this report.