The continuing impact of embedded finance in 2024

The concept of embedded finance can be described as the integration of financial products and services into non-banking platforms. As 2023 comes to an end, new-age technologies are digging their hooks into the payment landscape, and the changes are expected to be extensive.

To be clear, it’s not the growing popularity of embedded finance that’s making the impact, it’s the overwhelming acceptance of it. That said, it’s the fintech companies that are expected to see the most growth in the upcoming year. These particular fintech companies (think Square, CashApp, Robinhood, Venmo for starters) have become disruptive in finance by offering solutions that challenge traditional banking. Because of the normalization of these fintech applications, trad-banking companies are seizing on their popularity and switching some of their offerings to give a similar appearance (think Wells Fargo/Zelle).

Banking as a Service (BaaS) is another example of embedded finance that’s reaching normalization. To briefly explain, BaaS enables non-bank companies to offer financial services without having to obtain a banking license (think Uber’s partnership with Green Dot), which is seemingly a miraculous workaround in 2024. As the concept stabilizes, the trend is expected to grow even further, with more non-banking platforms integrating financial services into their actual business models.

Where do trad-banks go from here?

In 2024, it’ll be interesting to keep an eye on traditional banks in the changing landscape. Without question, these institutions will have to adapt to stay relevant in today’s market. With non-banking platforms now offering financial services, banks will need to rethink their strategies and find ways to compete with the innovation.

In my opinion…

1. Multichannel payment systems will become stronger

Financial services providers will continue to integrate payment services across different platforms, with the goal of providing customers with multiple payment options. Paying for products and services through social media platforms, eCommerce sites or in-store payment terminals will become normal.

2. Let’s make it personal

At this point, it’s safe to say that financial service providers will offer updated products while backing off of an outdated approach to financial products. However, these providers (think big banks, credit card companies, global financial institutions) have the advantage of multiple years of data collection, allowing them to offer tailor-made solutions to accommodate to each customer based on their unique financial capabilities.

3. Smart contracts will proliferate

With the introduction of decentralized finance solutions (think blockchain), the benefits of smart contracts, (the automation of transactions across parties without requiring a personal presence), will become more streamlined. Providers are now able to offer even more efficient services, (mainly lending and insurance), through automation of repetitive tasks. Thus, customers will benefit from an easier payment experience.

4. Partnerships will enhance stability

For the foreseeable future, embedded finance will be boosted by more collaboration between technology providers and financial services companies. These partnerships will bridge the gap between the customer, the financial services, and the technology that promotes the core functionality of service. I can only imagine that these partnerships will lead to a more integrated, customized, and cost-effective delivery of service.

5. Increased security for customers

Let’s face it, yourself or someone you know has been of victim of some type of financial fraud over the last few years. That said, the general public is becoming more accepting of ways to keep their financial transactions to themselves. As a result, biometric technology (think facial recognition, fingerprints, voice recognition) are being more readily implemented for improved security purposes.

Conclusion

The growth of embedded finance has become vital for banks and financial services providers to remain relevant and meet customer needs. Payments and transactions are becoming more secure, flexible, and adaptable to more platforms, enabling companies to provide financial services where customers need them, not just in traditional banking channels.

With the future looking bright, businesses must adapt as quickly as the technology changes in order to stay ahead of the game. By offering varied payment methods, keeping data secure, and focusing on personalized experiences, the financial services sector will adapt to embedded finance throughout 2024 and beyond.