Embedded finance (EF) has emerged as a transformative trend in the financial services industry over the past few years, with mainstream attention skyrocketing in the last two years. By integrating financial services into non-financial platforms and experiences, embedded finance aims to redefine how we interact with money, payments, insurance, and banking.
Embedded finance refers to the integration of financial services and products into non-financial platforms or applications, allowing customers to access financial services seamlessly within the context of their everyday activities. It essentially means bringing banking and financial services to where customers already are, rather than requiring them to visit traditional financial institutions (like 'Buy Now, Pay Later' (BNPL) services).
Traditional financial institutions and challengers have the power to provide consumers with a frictionless financial future. But how can banks seize this opportunity and create a clear strategy that reshapes customer experience and drives growth?
The market opportunity for embedded finance is significant and has been rapidly growing in recent years. Here are some key factors contributing to its rise:
The rise of embedded finance is not just a threat to traditional financial institutions—it is also a significant opportunity. Incumbents have the advantage of established trust, regulatory expertise, and access to capital. By embracing embedded finance, they can extend their reach, deepen customer relationships, and unlock new revenue streams.
To succeed, incumbents must:
For more on the opportunity for incumbents, see our deep dive on embedded finance use cases.
In their pursuit of the “next” phase of embedded finance, financial institutions must focus on developing the following capabilities:
Moving beyond a traditional financial product mindset, banks should collaborate closely with partners to create blended propositions—ones that combine financial services with non-financial offerings. This customer-centric approach will unlock new value propositions and enhance the user experience.
Strengthening partner management and internal coordination capabilities is critical to surface banking capabilities effectively. Establishing a clear path to integrate Banking-as-a-Service (BaaS) capabilities into the existing infrastructure is also necessary, enabling seamless coordination between embedded finance and core banking functions.
To ensure readiness for BaaS integration and future scalability, incumbents should transition toward decoupled, modern architecture that can scale. This architecture should be flexible, interoperable, and aligned with broader technology modernization efforts within the financial institution. This will empower financial institutions to adapt to evolving customer expectations while efficiently supporting a network of BaaS partners profitably.
The market opportunity for embedded finance is vast, with the potential to impact multiple sectors. It ranges from small businesses integrating payment processing to large platforms offering a full suite of financial services. The size of the opportunity can be seen in the valuation of companies operating in this space, as well as the investments and partnerships being formed between fintech startups, established financial institutions, and non-financial companies.
Overall, embedded finance represents a powerful trend that enables businesses to enhance customer experiences, drive revenue growth, and reach new market segments by seamlessly integrating financial services into their existing platforms or applications.
To capitalize on the potential of embedded finance, incumbents must focus on key areas to differentiate themselves and scale effectively. There is a clear roadmap for banks to seize this opportunity:
Embedded finance holds tremendous potential for reshaping the financial services landscape, offering innovative customer experiences and unlocking new revenue streams. We believe that those who are early to market stand a better chance of succeeding. Publicis Sapient can help financial institutions drive successful adoption and build modern architecture to pave the way for a future where financial services are seamlessly integrated into our everyday lives.
Learn more at publicissapient.com/FS
In recent years, the concept of a “super app” has emerged as a disruptive force in the mobile/smartphone industry, particularly in Asia, where platforms like WeChat and Alipay have transformed the way people interact with digital banking.
Super apps are multi-functional, all-in-one digital platforms that can integrate a wide range of services delivered directly to consumer smartphones. But can this one-stop shop super app concept translate to banking apps?
Surprisingly, the concept of super apps isn’t entirely new; the idea was introduced by BlackBerry’s founder, Mike Lazaridis, over 10 years ago. With consumers leading the charge on a mobile-first future, the demand for an all-in-one platform has continued to evolve, and looking ahead, in 2024 demand will continue to rise as will the level of complexity needed by customers from digital banking apps.
The success of super apps is convenience and simplicity for consumers. As an all-in-one platform, users can use the app for messaging, shopping, transportation (like Uber and Lyft), food delivery, and paying bills. The question remains: with the number of apps downloaded on consumers’ smartphones growing daily, can all consumer needs really fit under one umbrella?
U.S. Financial Service App Usage:
Sources: Daxue Consulting; Finder; Associated Press; Boston Herald; Global Payments
Mobile banking is no longer a luxury, as more than half of consumers are using a full-service banking app (with even more taking advantage of digital wallets).
Even so, consumers are struggling to manage their finances across multiple banking platforms, which is something the super app is trying to solve. The convenience factor of a one-stop shop plays a vital role, offering 24/7 access, personalized experiences, and enhanced security—all of which have continually attracted consumers to seek out alternatives to traditional banking.
This all-in-one solution provides a broad range of services within a single app, which can help financial institutions enable:
Despite the clear benefits, the path to building a successful super app is not without challenges. Banks face several hurdles, including:
So, what can banks do to stay relevant?
According to Grand View Research, the global super apps market size is expected to reach $426 billion by 2030. Financial institutions will be left with one question: Do they join the party (embed within a super app) or create their own?
Embed is best for FIs that want to…
Develop is best for FIs that can…
Super apps represent a paradigm shift in mobile application development by consolidating multiple functionalities and services into a single, seamless platform. With their convenience, user engagement potential, monetization opportunities, and ability to enhance financial inclusion, super apps have become a significant trend in the mobile technology landscape.
— Dave Donovan, Executive Vice President, Operations
Whether a bank chooses to embed or develop their own super app, the banking app of the future will focus on personalization and customer-centricity. Advanced analytics and AI-driven insights will enable tailored recommendations. To stay relevant in the market, traditional financial institutions will need to make a decision to provide the back-end for all embedded financial services or develop their own super app to improve customer engagement, increase revenue streams, and promote potential growth.
With all financial products and services living in one place, users will be empowered to make more informed decisions, whether that’s through cryptocurrency or stock trading, lending, credit services, Buy Now, Pay Later (BNPL) services, personal finance management, and beyond.
Traditional banks must adapt and embrace the rise of super apps across industries to remain competitive. By investing in the right digital capabilities, banks can drive innovation and transformation in financial services.
It is crucial for financial institutions to anticipate and leverage future advancements, like AI, to meet customer expectations. Publicis Sapient is ready to partner with banks to help them navigate this digital transformation and help drive success in the evolving mobile-banking landscape.
Learn more at publicissapient.com/FS
The financial services industry has witnessed a remarkable shift toward the adoption of artificial intelligence technologies to combat fraud, enhance security, mitigate risk, and optimize customer experience.
These tools have allowed financial institutions to improve their “cost to serve” in an operational capacity, streamlining business practices and allowing executives to focus on more strategic initiatives. Further, generative AI gives organizations the opportunity to better understand their customers—and turn those learnings into tailored, personalized experiences.
As organizations increasingly recognize the potential of AI and seek to keep pace with the market, can financial organizations navigate through all the hype surrounding this emerging technology and capitalize on the right opportunities?
‘AI’ as a term was first coined in 1956. For the last couple of decades, it’s been increasingly relied upon within financial services institutions for largely operational use cases, including fraud detection and credit decisioning. Generative AI exploded onto the scene with the fastest viral rate of adoption of any technology—taking just 60 days to get to 100 million users.
Generative AI’s rapid adoption is unprecedented, outpacing even the most successful consumer apps in history. For example, ChatGPT reached 100 million users in just 60 days, far faster than platforms like Instagram, Spotify, Facebook, Twitter, or Netflix.
This explosive growth is due to a confluence of factors: advances in deep learning, the availability of large datasets, and the proliferation of hardware accelerators. As a result, generative AI (gAI) is now capable of creative tasks that were previously the exclusive domain of humans.
Operational (For the last 20 years):
Creative:
Generative AI is not a single technology, but a set of capabilities that can be applied across the value chain. Financial institutions should focus on six key areas where generative AI can drive value and enable better customer experiences:
Creating new innovative propositions for customers that transform the value model.
While there is an incredible breadth of opportunities to consider, it’s important to have a means of assessing the benefits, as well as the challenges, to prioritize them.
Examples of organizations innovating in this space include Klarna, MSE Chat, Morgan Stanley, Publicis Sapient, Bank of America, Trovata, GMS, Deutsche Bank, and JPMC.
When evaluating where to play, organizations should consider both the drivers and barriers to adoption:
Drivers:
Barriers:
Estimated Savings (addressable): ranges from none to high
Difficulty to Implement: ranges from harder to easier
Generative AI has the power to shape the future of banking by transforming customer experiences and business processes at scale across different lines of business. While use cases are still emerging on an almost daily basis, the biggest question to keep in mind is not ‘what’ to innovate within but ‘where,’ as there will be a big variance in the suitability of opportunities for any financial services institution.
However, with the right strategic approach to generative AI, financial companies can prioritize resources and effectively leverage this transformative technology to create a genuine competitive advantage with measurable impact.
Learn more at publicissapient.com/FS