PUBLISHED DATE: 2025-08-13 01:34:25

How to Make Embedded Banking Work – At Scale

Authors

KORBINIAN KRAINAU
Associate Managing Director, Strategy & Consulting
korbinian.krainau@publicissapient.com

RONNIE MITRA
Director, Technology & Head of APIs
ronnie.mitra@publicissapient.com

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Introduction

Embedded finance is on the march. Over the past few years, banking has spread further beyond banks and has been progressively integrated into a multitude of other, non-financial customer journeys.

Financial services, especially payments and credit products such as buy-now-pay-later (BNPL), have become standard elements of the retail e-commerce experience. In commercial environments, payments and other services such as revenue-based lending or trade finance are now integrated into digital marketplaces or ERP software so that users do not need to switch into their online banking portal. Retail customers and companies are consuming financial services alongside non-financial products and services with no visible join.

It is, of course, important to recognize that this concept is far from new. More traditional partnership distribution models such as co-branded credit cards and point-of-sale finance have been around for decades. But the relentless march of commerce and services into digital channels has given this established idea fresh relevance and momentum. The degree to which finance can be integrated into digital journeys is unprecedented and this allows finance to play its external, enabling role more effectively than ever. But it also poses new challenges for banks as they seek to engage with consumers and build their business in the digital economy.

The great advantage of embedded finance is that it brings banking services to where the customer is, creating simple, linear journeys that can be completed without opening a banking app or website, or inputting card details. Seamless journeys like this offer consumers and professionals an important value add in terms of user experience and efficiency. There are major advantages for the providers as well. In e-commerce environments, embedded finance functions as a sales enhancement tool that increases propensity to purchase and delivers higher basket values and reduced dropout rates. For commercial service providers it brings opportunities to access additional income streams through revenue sharing between the partners or increase the attractiveness of a software proposition.

To run a viable embedded finance business, financial institutions need to operate in an ecosystem and efficiently serve multiple distribution partners. This paper lays out challenges and opportunities for banks. Unless banks can successfully scale their embedded finance proposition to serve multiple commercial partners, it will never get off the ground. This paper explains how to do it.

Embedded Finance Revenues Will Disproportionately Grow Over the Next Few Years

Global embedded banking projections (Total product revenue, $Bn):
Selected Embedded Finance Players:
VC Investment Volumes in Embedded Finance and Fintech Overall, 2016 to 2021 ($Bn):
Although fintechs currently dominate the conversation about embedded finance, banks are starting to engage, particularly in retail BNPL.

Banks Have Recognized This Opportunity and Early Movers Have Positioned Themselves – Starting with BNPL Plays, with Wholesale Propositions

Banks have several potential commercial strategies for embedded finance. Whichever they choose, however, a key challenge will be to scale the proposition quickly and efficiently.

Underpinning Embedded Finance Model is a Modular Capability Stack

Key Layers:

  1. Distributor/Partner: Has an existing customer base and creates the experience, into which financial services are only embedded into its customer and supplier journeys. Strategic focus: Creates attractive propositions by blending financial and nonfinancial products. Examples: Amazon, Oracle, Shopify.
  2. API Layer: Provides APIs so that financial services can be delivered within the customer context for technology platforms or partners. Needs to be able to offer partners seamless services from the same APIs. Strategic focus: Create and provide composable, developer-friendly, open banking APIs. Examples: Railsbank, Marqeta.
  3. Financial Product Manufacturer/Monoline Banking Provider: Designs and builds the financial products to be provided to the end customer through the partner context. Strategic focus: Create and provide the underlying financial products, often as white-label, for partners to offer. Examples: Goldman Sachs, Barclays, Santander.
  4. Regulated Provider Entity/Balance Sheet Provider: Is the regulated financial entity which books the embedded financial products onto its balance sheet and carries the associated exposure. Strategic focus: Manage risk/capital and maintain license. Examples: Solarisbank.
Wholesale funding providers also play a role in this ecosystem.

How Banks Can Take Different Roles in the Embedded Finance Stack

Typical Archetypes:


Ignite: Getting the Right Idea

Validate and Refine: Getting the Right Idea

Launch MVP: Testing the Proposition

Scale: Growing and Evolving the Business


Built a BaaS-first Commercial SME Bank in 9 Months

Highlights:

Platform Perspective:


Strategic Joint Venture with Siam Commercial Bank Creates Leading Fintech

Publicis Sapient, SCB Tech X, SCB
People: 450, 1,100, 650
Customers as of early 2022: 10m+

A platform to deliver:

Combined capabilities and experience to:
Delivered through:

Conclusion

Embedded finance is on course to become a much more important way for people to consume financial services. It therefore represents a key strategic issue for banks that have built their business on direct relationships with individual customers. Embedded finance represents a new business model in which the bank must form strong, mutually beneficial partnerships with non-financial distributors of its services and understand how it will engage with the end-customer under this model.

The product development process looks different. Banks must rethink traditional approaches and learn to develop propositions in close co-operation with both a commercial partner and that partner’s customers. They must design propositions that help their partner achieve its commercial goals and must seek early feedback from both versions of the proposition to ensure it provides a high-quality customer experience.

To achieve this, banks must rethink their delivery model and draw on the capabilities of the fintech ecosystem. This is critically important given that in building a presence in embedded finance, banks are working with partners that view the challenge chiefly from a technology perspective: how to integrate a financial product seamlessly into a non-financial customer journey. Operating in this environment places a new set of demands on banks that are quite different to those required for their traditional approach to product development.

However, even if banks can successfully develop an embedded finance proposition with a single partner, the central challenge in building a viable business remains: how to scale and adapt the proposition to work smoothly with multiple partners that have different commercial goals and technology platforms. Without the capability to scale an embedded finance proposition, it will never become economically viable.

To achieve this, it is essential to retain the flexibility that the modular approach to service design and development brings: in effect, banks need to become expert in “efficient customization”, able to adapt their offering to fit the needs of multiple partners, each with a distinct set of objectives and economic model.

This plays to the strengths that Publicis Sapient has gained from working on multiple embedded finance projects: the ability to provide end-to-end support for banks from shaping the strategic “north star” to defining propositions, target customer and partner segments, designing, building and launching the minimum viable product – including the underlying organization – and then scaling the proposition to multiple partners with the level of service they require. And – crucially – the ability to help banks increase the pace at which they design, build and iterate products so that they can move at the speed their commercial partners expect.