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Embedded finance has become a dominant force among the highly varied landscape of financial services. And widespread adoption of these solutions will only accelerate more over the coming years, argues Juniper Research.

In research published this week, Juniper projects that the total value of embedded finance will increase exponentially between 2024 and 2028, with three key trends highlighted as advancing embedded finance adoption.

Diversifying product offerings is a common practice across many business segments and embedded finance plays into this well. The term essentially means the incorporation of financial services into platforms that do not traditionally offer such services.

Juniper has drawn parallels between embedded finance and banking-as-a-service (BaaS), although noting that many many embedded finance solutions also offer BaaS capabilities, and that the two often target different markets.

Embedded finance solutions tend to target consumer-focused platforms like e-commerce sites and gig workers, such as independent workers or freelancers by offering flexibility in payments, and small businesses by offering targeted payments and lending solutions into their own product ranges.

“B2B embedded financial services have strong potential,” said Matt Purnell, Research Author. “Comprehensive product suites are being deployed due to the utilisation of newly developed technologies. 

“This encourages businesses to adopt embedded finance offerings; for example, expansive cross-border capabilities utilising consolidated APIs or cloud accounting solutions using artificial intelligence.”

Juniper’s report projects three key trends that will shape the adoption of embedded finance – greater prevalence of multi-level payments, the entry of traditional banks into the ecosystem, and a great role for emerging technologies.

On multi-level payments, the report noted that many countries and regional authorities have adopted payments rails, prompting embedded finance firms to work for greater seamlessness between these rails.

Balance and Marqeta, which use rails such as SEPA, CHAPS, BACS, ACH and SWIFT, have been cited as examples of this. As a result, new business models have emerged in embedded finance, such as the use of BNPL and digital wallets.

The report explained: “These are likely to rise in the coming years as embedded financial services become optimised and increasingly prevalent, in addition to becoming more normalised within society, especially in the case of BNPL, which is seeing increasing discussion of regulation across key markets.”

Meanwhile, traditional banks have already been engaging with embedded finance. JPMorgan Chase and Goldman Sachs, for example, have formed partnerships with Gusto and Modern Treasury.

In the UK, NatWest partnered with Vodeno, integrating the firm’s BaaS technology with its own banking tech through the  utilisation of its banking licence. This has enabled Vodeno’s European clients to access the UK market via NatWest – the bank’s BaaS provider, NatWest Boxed, which made its own projections regarding embedded finance in a report last week.

Partnerships between embedded finance firms and traditional banks will continue, Purnell argues, but banks will have to increase the number of partnerships to improve their access to embedded finance. He asserted that as this occurs ‘the opportunities for growth for both banks and the market itself will become evident’.

Finally, regarding emerging technologies, two familiar terms came to the forefront in Purnell’s report – artificial intelligence (AI) and machine learning (ML). Adoption of this tech has boomed, he wrote, with use for risk assessments, fraud detection and personalisation.

Generative AI is being used for training models and system evaluation, fraud detection by mirroring bad actors, as well as in the familiar area of customer service through customer chatbots.

“As the capabilities of these technologies grow, the opportunities for embedded finance will develop alongside it,” Purnell said.

As embedded finance adoption continues, the practice and the tech behind it will unlock more opportunities. This includes opening of new revenue streams, streamlining of customer management and acquisition, and the overall improvement of the user experience. 

This will not come without challenges, however. Purnell expects banks to have to overcome hurdles in consumer trust, difficulties in solution integration, market preferences and fractured offerings, and lastly, a need to address the prevalence of fraud.

Banks and embedded finance providers will need to overcome these challenges to fully grasp the opportunities of the sector, which Prunell expects to generate revenue of $228.6bn by 2028, marking growth of 148% from $92.2bn in 2024.