A tale of Open Banking to Embedded Finance

Embracing Embedded Finance: the next step in Open Banking

EBAday 2022 is in full swing, and it’s invigorating as always. Longer-running trends that continue to evolve and new trends that emerge each year never cease to trigger my curiosity. Take Open Banking as an example. I recall writing a blog last year during EBAday 2021, debating the potential of Open Banking. The conclusion then was that we were at the beginning of a long and exciting journey and that, even though Open Banking has been around for a while, it continues to be an area with huge potential. One year later, now that I am writing a new blog on this topic, I still stand by what I previously said.  

One of the EBAday sessions I followed covered the development of Open Banking and introduced a new topic: embedded finance. Embedded Finance can be seen as an evolution of how Open Banking is delivered. Where Open Banking forced banks to open Application Programming Interfaces (APIs) to access partner and customer data, embedded finance is there to provide further seamless integration of banking services. During the session, Mark Lohweber, CEO of CoCoNet, Michael Niczyporuk, Global Head of Open Banking at Visa, Craig Ramsay, Managing Director, Global Innovation and Partnership Lead at HSBC and Paul Thomalla, Global Head of Payments at Finastra entered the discussion. 

Even though we may still be in the early stages, the next chapter of Open Banking will be determined by two requirements: financial services must provide a super smooth user experience and, at the same time, must be perceived as highly safe. Meeting both needs is still considered a challenge for many financial service providers. Can embedded finance offer a solution to bring convenience and security together in one place?

Indispensable factor 
In short, Open Banking aims to facilitate more competition and innovation within financial services. With Open Banking, banks can release their data through API so that third parties can offer new, innovative financial services. Since its introduction, Open Banking has grown fast as consumers have become increasingly comfortable interacting with digital technology and services. Although further growth has yet to come, the concept has become indispensable in the financial sector. An essential next step of Open Banking highlighted during the EBAday session is the shift from Open Banking to Open Finance. Open Finance helps access a broader range of financial services, provides more control over data, and enables better financial decisions.

Embracing Embedded Finance 
Digitising existing services is no longer enough to meet consumer expectations. The next step in Open Banking is centred on embracing embedded finance. Embedded finance can be seen as Open Finance from the consumer's point of view. With embedded finance, financial services are integrated into non-financial products or technologies that consumers and businesses already use. Consumers spend a large part of their time using non-financial applications to which they are accustomed and comfortable using. This creates a considerable growth opportunity for financial service providers, as it allows them to establish a familiar user experience embedded within easy-to-use non-financial applications. It's all about the seamless integration of payments and other financial services.

Financial institutions should integrate themselves into every phase of the customer journey, as it provides them with an excellent opportunity to serve their customers and understand them better. 

APIs are the holy grail of payment integration 
Embedded finance will bring great innovation, but in addition to that also a significant challenge. For instance, the implementation of Open Banking was seen as a burden by financial institutions due to the introduction of PSD2. Embedded finance, in its turn, also requires many integration efforts. Existing software systems must be expanded to integrate finance into the customer journey.  

APIs are essential for embedding services into a partner’s solution, app, or website. Yet, many financial institutions haven’t unlocked APIs to their full potential. APIs provide the missing link – quite literally – and enable financial institutions to keep up with the demands of the digital age without having to restructure their entire IT infrastructure. Financial institutions can hugely benefit from adopting an API-first strategy. Banks can easily create new capabilities or adapt existing ones by using APIs. They only need to build a new functionality once, and from then on, use APIs to make it available across all platforms and channels. It allows financial institutions to create a strategic ecosystem that offers more flexibility and a seamless experience to end-users. 

Better serve customers 
The financial services sector is in flux as it increasingly shifts to digitally embedded finance to optimise customer service. This shift is not a luxury, but a dire necessity to meet customer demands for better, safer, and faster service without user convenience having to suffer for it. Through APIs, financial institutions can generate revenue streams and better serve customers. Financial service providers that use embedded finance set up their businesses for significant growth. However, switching to embedded finance is only step one of the process. As is often the case, it is ultimately the customer who is in control: they have the right to consent.

As a leading and fast-growing paytech company, our mission is to support our clients to flourish in the API-driven economy beyond their regional markets, help them grasp opportunities from Open Banking and Open Finance and navigate them through the constantly evolving technology.

Find out what our Open Banking solutions can do for your business.