The Role of Core Modernization in Enabling Embedded Finance at Scale
Introduction: Embedded Finance and the Technology Imperative
Embedded finance is rapidly transforming the financial services landscape, allowing banks and non-banks to deliver financial products—such as payments, lending, and insurance—directly within non-financial digital experiences. From e-commerce checkouts to ERP platforms, embedded finance brings banking to the point of need, creating seamless, contextual journeys for end-users and unlocking new revenue streams for both banks and their partners.
Yet, as the embedded finance opportunity grows, so too does the complexity of delivering it at scale. The ability to serve multiple partners, iterate products rapidly, and integrate with diverse technology stacks is now a strategic differentiator. At the heart of this challenge lies the bank’s core technology: legacy core banking systems, once the backbone of stability, are now a primary barrier to agility, scalability, and innovation.
Why Legacy Core Systems Are a Barrier to Embedded Finance
Traditional core banking systems were designed for a different era—one of standardized products, slow release cycles, and direct customer relationships. These monolithic platforms are often:
- Rigid and Siloed: Making it difficult to expose banking capabilities via APIs or adapt to new partner requirements.
- Costly to Change: Requiring significant time and resources to launch new products or onboard partners, stifling innovation.
- Limited in Real-Time Data Access: Hindering the ability to deliver personalized, contextual experiences or support real-time decisioning.
- Challenged by Scale: Struggling to support the high transaction volumes and multi-tenancy required for embedded finance ecosystems.
As a result, banks relying on legacy cores find themselves unable to move at the speed of digital-native fintechs or meet the expectations of non-financial partners who demand rapid integration and continuous product evolution.
The Power of Modern, Cloud-Native, API-Driven Architectures
To unlock the full potential of embedded finance, banks must embrace core modernization—transitioning to modular, cloud-native, and API-first architectures. This new foundation enables:
- Rapid Partner Onboarding: Standardized, secure APIs allow banks to connect with multiple partners efficiently, reducing integration times from months to weeks or even days.
- Product Agility: Decoupled, composable architectures make it possible to launch, iterate, and scale new products quickly, responding to market feedback and partner needs in real time.
- Operational Efficiency: Automation, real-time data streaming, and best-of-breed SaaS components lower operating costs and free up resources for innovation.
- Scalability and Resilience: Cloud-native platforms can handle high transaction volumes, support multi-tenancy, and ensure robust performance as the embedded finance business grows.
- Enhanced Security and Compliance: Modern platforms are built with security, data privacy, and regulatory requirements in mind, supporting safe expansion into new markets and use cases.
Practical Steps for Core Modernization: A Four-Step Playbook
Modernizing the core is a complex, high-stakes journey—but with the right approach, banks can mitigate risks and accelerate value realization. A proven four-step playbook includes:
1. Confirm Your Ambitions
- Align on the Case for Change: Ensure leadership buy-in by articulating how core modernization will enable embedded finance growth, improve agility, and unlock new revenue streams.
- Assess Readiness: Evaluate organizational, cultural, and technical readiness, including risk, compliance, and migration complexity.
2. Mobilize the Program
- Build the Right Team: Assemble cross-functional teams with business, technology, and partner management expertise.
- Design the Target Architecture: Embrace coreless, modular principles; select best-of-breed vendors; and define the API and data strategy.
- Develop a Roadmap: Prioritize quick wins and iterative releases, avoiding big-bang approaches that delay value realization.
3. Prove the Platform
- Launch a Pathfinder: Deliver a customer-facing MVP (minimum viable product) to demonstrate new capabilities, gather feedback, and build organizational confidence.
- Manage Coexistence: Run new and legacy systems in parallel, using automation and robust migration strategies to minimize risk.
4. Scale Progressively
- Expand Capabilities: Accelerate the rollout of new features, partners, and customer segments, leveraging feedback loops for continuous improvement.
- Decommission Legacy: Gradually migrate products and customers, decommissioning old systems to realize cost and efficiency gains.
- Sustain Change: Embed new skills, operating models, and metrics to ensure ongoing agility and innovation.
Common Pitfalls and How to Avoid Them
- Lack of Leadership Alignment: Without a clear, organization-wide commitment, modernization efforts stall. Secure buy-in early and maintain momentum through transparent communication.
- Overly Ambitious Scope: Attempting to replace everything at once increases risk. Focus on iterative, value-driven releases.
- Neglecting Partner and Customer Needs: Core modernization should be guided by the requirements of embedded finance partners and end-users, not just internal IT priorities.
- Underestimating Migration Complexity: Data migration and coexistence require careful planning, automation, and robust testing.
- Failure to Build New Capabilities: Success depends on new skills—API management, partner onboarding, agile delivery—not just new technology.
Success Stories: Modernization in Action
- SME Banking at Scale: A new commercial SME bank was launched in just nine months, orchestrating 22 fintech partners on a cloud-native, API-driven platform. The result: fully automated operations, rapid partner integration, and the ability to serve 350,000 SMEs with tailored, embedded finance solutions.
- Platform Joint Ventures: Strategic partnerships have enabled banks to deliver both banking and non-banking services—such as food delivery and travel booking—on scalable, modern platforms, accelerating time-to-market and driving business growth.
Conclusion: Core Modernization as the Foundation for Embedded Finance
The future of embedded finance belongs to those who can move at speed, scale efficiently, and adapt to the needs of diverse partners and customers. Legacy core systems are no longer fit for this purpose. By embracing core modernization—cloud-native, API-first, and modular—banks can unlock the agility, scalability, and innovation required to lead in the embedded finance era.
With a clear strategy, disciplined execution, and the right partners, banks can transform their core, differentiate their embedded finance offerings, and capture the full value of this rapidly expanding market.
Ready to modernize your core and scale embedded finance? Publicis Sapient stands ready to guide you on this journey.