From savings propositions to SME lending, embedded finance is quietly reshaping how banks operate – and where they choose to compete
Embedded finance is becoming an almost invisible part of everyday life for consumers and something that is taken for granted by many. However, the technology is slowly allowing banks to get back to doing what they do best, according to industry experts speaking on a panel at Pay360 titled “Embedded finance – from buzzword to business model”.
At its core, embedded finance is the integration of financial services into non-financial platforms – removing the need for customers to leave an app or environment to complete a payment, access credit, or manage money.
As Gareth Anderson, Head of Business Management at Allica Bank, put it: “It’s placing a financial services solution at the point of need, rather than asking the customer to come out of that environment into a siloed process. When it’s done well, there’s no friction, and you end up with better outcomes.”
Alyona Shevtsova, CEO of Sends, pointed to Uber‘s evolution as a case in point. “Twenty years ago Uber was just about transferring from A to B. Since then it has become a super app – finance, banking, food delivery, all inside one application. The more services that are embedded, the higher the realisation of value becomes, for the platform and for the user.”
Embedded finance: Growing use cases
On the commercial side, the conversation has moved on from savings and wealth management into something more deeply embedded in users’ daily lives.
Anderson said that over the past six months the focus has shifted toward current account-style propositions: “With that type of account, you’re more ingrained into that user’s daily experience. They come into your application more often, they stay longer, and that can have non-financial benefits too, such as informing where you spend your marketing budget.”
Anderson noted that in the late 1990s, 30% of all SME financing came through commercial channels. Today, that figure is less than 5%, leaving what he estimated to be a £65bn working capital gap. Platforms that already hold customer relationships and transaction data are well placed to help close it – and unlike traditional lenders, they often have the behavioural data to price risk more accurately from the outset.
Aligning on risk
Banks operate with deep risk frameworks, committee-driven decision making and a compliance posture built over decades. Platforms, by contrast, are typically founder-led, fast-moving and oriented around the customer experience above all else.
Anderson said: “The platform may be saying, ‘I want to move yesterday and see what happens. I’ve got great APIs, I’ve got a wonderful customer journey. Why are you slowing me down?’ So it comes down to making sure that everybody is aligned on what the problem is and what they are trying to achieve.”
Getting product, technology and risk people from both sides in a room together from the outset is where that alignment starts, he said: “That’s where you get innovation.” Chris Newman, Head of Corporates, ClearBank agreed that banks need to accept rather than compete with the fact that fintechs often have better UI and UX – and that the smarter move is to lean into what banks are actually good at.
Notwithstanding the above, as more financial activity moves onto third-party platforms, identity verification still becomes both more important and more difficult. Shevtsova referenced a case in which a company lost $20m through a deepfake video verification call using fake documents and fake identification.
“This is not just happening to companies we read about in the news,” she said. “It is a call to all of us.”
