Big banks need to swiftly adopt embedded finance

Recent surveys have illuminated the potential impact of embedded finance on the revenues of small and medium-sized enterprises (SMEs), suggesting a substantial increase of up to US$92 billion by 2025. Embedded finance, a burgeoning trend, presents commercial banks with a golden opportunity to fortify their business prospects.

With the landscape of banking evolving at an accelerated pace, commercial banks find themselves amidst a fervent race against emerging competitors, notably powerful digital platform providers and a plethora of specialised fintech firms. These new entrants are swiftly winning over business customers by delivering superlative digital experiences, unparalleled convenience, and a diverse array of value-added services.

Embedded finance emerges as an invaluable tool for commercial banks to safeguard their customer bases and leverage novel avenues for growth. Particularly tailored for SMEs, this innovative approach demands immediate attention from commercial banks serving this segment. The integration of embedded finance solutions could potentially escalate global bank revenues by an impressive US$92 billion within the next three years.

But what exactly is embedded finance? At its core, embedded finance encapsulates a suite of technology-enabled financial services seamlessly integrated into various digital environments. While services such as payments, unsecured lending, and asset finance currently dominate the landscape, the scope of embedded finance is rapidly expanding.

Already, digital platform giants like Amazon, Google, and Apple are harnessing the potential of embedded finance to enrich and diversify their consumer offerings. By embedding banking and payment features seamlessly into their platforms, these tech giants are captivating both consumers and businesses, leveraging the allure of convenience and cost-effectiveness. For instance, WeChat facilitated transactions amounting to US$3.8 billion last year, leveraging its seamless payments feature integrated within its immensely popular messaging app, boasting a user base exceeding a billion.

As digital platforms like Xero, QuickBooks, and Amazon gain traction among SMEs, they are capitalising on their modern, API-enabled infrastructures and vast pools of data to offer an array of embedded finance solutions. Intuit's QuickBooks recently collaborated with Green Dot Bank to introduce 'Money by QuickBooks' in the US, a facility offering SMEs cash flow management, debit cards, and bill payments, accruing cash balances exceeding $100 million within a year of its 2020 launch.

The significant potential shift of US$32 billion in banking revenue from traditional offerings to embedded finance experiences by 2025, with over 40 percent of SMEs expressing interest in receiving banking services through their existing digital platforms.

To confront the mounting competition from digital service providers and fintech firms, forward-thinking commercial banks must glean insights from their rivals. While some institutions may hesitate to acknowledge the transformative impact of digital technologies and abundant data sources, proactive banks must seize the initiative to redefine user experiences, attract new customers, and unlock fresh revenue streams.