Embedded finance is rapidly changing the way consumers and businesses alike interact with financial services. As traditional banking processes are replaced by more integrated financial solutions, companies across industries are embedding payment processing, lending, insurance, and investment services directly into their platforms.
The need for traditional banks to digitise has never been more apparent. As consumers increasingly look for the most personalised experience, banks are at risk of losing consumers to more digitally native competitors willing to partner and create an all-inclusive, personalised experience through embedded finance. In the last few years, fintechs have stolen the limelight with embedded finance; however, banks can still ensure they remain relevant in the market.
We hear from industry experts on how banks are keeping up with embedded finance offerings in the new digital finance era.
Keeping up relies on strong partnerships
While legacy tech could be holding banks back from fully adopting embedded finance, Nick Maynard, VP of fintech market research, Juniper Research, the market research firm, notes that with partnerships, banks are given an opportunity to advance their offerings without having to do everything themselves.
“The past year has seen numerous traditional banks capitalising on the embedded finance market; JPMorgan Chase and Goldman Sachs recently formed partnerships with embedded finance fintechs Gusto and Modern Treasury, respectively, to offer banking customers the ability to embed payroll services, help companies add payments to products, and more. A similar partnership was seen with the UK’s NatWest partnering with a market leader for embedded finance, Vodeno.
“The strategic partnership will enable businesses to embed financial services products such as payments, deposits, point-of-sale credit and merchant cash advances directly into their ecosystem by leveraging Vodeno’s BaaS technology, NatWest Group’s banking technology and NatWest’s UK banking licence. As a result of the partnership, Vodeno’s European clients will have direct access to the UK market through NatWest, as well as enabling clients access to the rest of the region.
“The common theme amongst these partnerships is that there are new opportunities for banks to capitalise on, whether through increasing the scope of clients or potential earnings through existing clients.
“However, overall, traditional banks are still in the early phases of market exploration – digital and neo banks, and fintechs are still much more likely to enter the market, with traditional banks falling behind if they fail to up their game.”
Moving from owning a customer relationship to enabling it
Karine Martinez, head of sales at Edenred Payment Solutions, the embedded finance platform, explores how legacy tech is holding banks back. Instead of trying to instantly change this tech, which will drain resources and take time, banks need to change their mentality.
She said: “Some traditional banks are adapting well, but some are struggling to keep up. The challenge is that embedded finance requires a different mindset. It’s not about building bigger, better banking apps. It’s about letting financial services live inside other platforms. That shift from owning the customer relationship to enabling it is where some banks get stuck.
“The progressive players are leaning in. Take Goldman Sachs, powering the Apple Card, or JPMorgan offering embedded treasury services to platforms. These banks see embedded finance not as a threat, but as a growth channel, and one that helps them reach new audiences at lower cost.
“On the flip side, many institutions are still held back by legacy tech, siloed teams, and regulatory caution. That makes it hard to offer the API-first, real-time solutions that embedded finance demands. And it means fintechs and non-bank players are often first to market with better, more intuitive solutions.
“But this isn’t a story of banks versus fintechs. It’s about banks that adapt versus those that don’t. According to McKinsey, the embedded finance market could surpass €100billion and account for 10 to 15 per cent of banking revenue pools by 2030. The opportunity is huge.
“Embedded finance needs trusted, regulated partners to power it behind the scenes. Traditional banks are well positioned, if they move quickly and think like enablers. Those that do will find new relevance in a fast-changing market. Those that don’t may still be here, but increasingly in the background.”
Giving up full customer ownership
Sharing similar views, Tom Spraggs, director and head of financial institutions – UK Retail, BMS Group, the direct broker of specialty insurance and reinsurance, also explained how a change in attitude is needed.
Explaining the ultimatum banks face, Spraggs said: “The rise of embedded finance presents a clear dilemma for traditional banks: opt in and share revenue with partners, or opt out and concede ground to tech players stepping into the financial space – think Square, SoFi, and Twitter Payments.
“Some banks have chosen to collaborate, as seen in Uber’s partnership with Evolve Bank & Trust and Branch to launch their own debit Mastercard. But this approach comes at a cost: losing direct customer relationships and reducing their unique offerings to basic commodities. Businesses also sacrifice full control when entering such partnerships.
“Still, sticking with legacy systems doesn’t mean fading into irrelevance. Traditional banks can remain competitive – so long as they embrace the global shift toward digital transformation.
“Consider Chile, where over 20 per cent of bank branches have closed in the past three years, according to La Comisión del Mercado Financiero (CMF). Much like the decline of Blockbuster, the face-to-face model is being replaced by more connected, inclusive, and digital-first access to financial services. With embedded finance offering speed, simplicity, and convenience, customers now expect this seamless experience in every interaction.
“In today’s economic climate, both startups and established businesses are focused on reducing costs and maximising scale. Embedded finance supports this by letting companies add services like banking and payment cards without the heavy investment of building them in-house.”
Banks can ensure regulatory compliance
George Toumbev, chief commercial officer, NatWest Boxed, the embedded finance platform, notes that embedded finance can be extremely helpful for organisations. However, without the expertise and knowledge of banks, fintechs may be at risk of making regulatory errors. He explains: “Traditionally, fintechs have been at the forefront of embedded finance, often associated with newer technology, greater innovation and faster implementation than traditional banks.
“However, the ‘golden age’ of BaaS and embedded finance has not come without regulatory scrutiny. A recent run of compliance failures means regulators have become interested in the most prominent BaaS players. At the core of the problem is governance. Many fintechs have had to rely on banking licenses from partners who themselves have compliance gaps and deal with a number of operational and customer support issues.
“Whilst embedded finance can create new revenue streams, increase conversion and boost customer loyalty, large brands that are looking to implement financial services and products must ensure that they don’t risk their brand reputation and customer loyalty they’ve worked so hard to build. For embedded finance to work, consumers must trust both the brand and the financial institution behind it.
“Admittedly, large banks were initially slow to embrace embedded finance due to legacy technology, but they’re slowly putting the ‘B’ back into BaaS. Today, banks bring not only deep regulatory, operational, and customer expertise, but also cutting-edge technology and the balance sheet strength to support services at scale. As trusted household names, banks also benefit from strong brand credibility, which in turn makes it easier for major brands to partner with them. And when big brands come on board, scale naturally follows.”
Strategic alliances are the key to success
Echoing the views that banks cannot go this alone, Elie Bertha, chief product officer at Thunes, the cross-border payment provider, highlights the importance of working with other entities to ensure a major part of the market isn’t lost.
“Traditional banks can benefit from embedded finance by accessing new customer segments and gaining enhanced data insights for personalised offerings. Their established trust with consumers is a valuable asset in this landscape.
“However, mass adoption faces challenges due to associated costs and risks. For example, significant investment in technology, particularly robust and secure API infrastructures is required, which can be difficult for banks with legacy systems. Increased competition from fintech and non-financial enterprises may also diminish banks’ market share. Ensuring compliance and security in a distributed ecosystem with multiple partners is complex, necessitating robust frameworks for authentication, data protection, and fraud detection.
“Banks are overcoming these challenges by forming strategic alliances with fintech companies, e-commerce platforms, and non-financial businesses to integrate their services. They are developing and enhancing APIs to allow third-party developers to access their financial services and embed them into their platforms. Additionally, some banks are offering Banking-as-a-Service (BaaS) capabilities, providing the underlying financial infrastructure for other companies to build and offer embedded finance products.”
Banking apps aren’t going to go out of business
Meron Colbeci, chief product officer at Checkout.com, the payments provider, compares how banking apps are going to fare in the current market, highlighting that while embedded finance does have some unique offerings banks cannot provide by themselves, the core value of banking apps is still strongly recognised.
“Embedded finance is transforming the finance industry, enabling non-finance companies to become fintech brands. In turn, this has increased competition. Customers now have many tools to choose from when it comes to applying for a loan or borrowing credit through a BNPL scheme rather than their bank. Standalone banking apps are under more pressure to diversify the financial services they can offer as a result.
“However, while some of the financial activities will be performed in context through embedded finance, the rise of more options is unlikely to make standalone banking apps obsolete. Ultimately, a consumer or a small business will want to see a consolidated financial overview in a single place and that is likely to still be some form of banking app.”
Banks are embracing change
Ultimately, banks aren’t out of the digital finance race. Exploring how they are adapting embedded finance, Tribh Grewal, head of international products strategy and business development, Discover Global Network, the payments provider, said: ”It’s evident that the rapid ascent of embedded finance is reshaping the financial services landscape.
“Digital platforms are increasingly attracting SMEs with integrated financial offerings, posing both a competitive challenge and an opportunity for incumbent banks. The growing appeal of embedded finance is acting as a catalyst for traditional banks to adapt.
“In response, many banks are proactively embracing Banking-as-a-Service (BaaS) models to integrate their services within third-party platforms. However, the pace of adoption varies among traditional banks.
“Embedded finance can be a powerful tool for driving growth, enhancing customer relationships, and optimising operations. So, collaboration between banks and FinTechs has become a crucial strategy for maintaining a competitive edge. Partnerships, often facilitated by industry leaders like Discover Global Network, help connect the right providers and programs to deliver seamless embedded finance experiences
“By leveraging embedded finance, banks and financial services providers can create more value for customers while boosting operational efficiency and profitability.”
