# Any business can now offer their customers financial services: How embedded finance is reinventing the wheel when it comes to banking Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-02-20 Category: BANKING Category URL: https://financedigest.com/category/banking Meta Title: The Future of Retail: Embracing Embedded Finance Meta Description: Learn why embedded finance is the future of retail and how traditional banks are adapting to stay relevant in a rapidly evolving industry. URL: https://financedigest.com/any-business-can-now-offer-their-customers-financial-services-how-embedded-finance-is-reinventing-the-wheel-when-it-comes-to-bankinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-940074006-1-1736816203540-compressed.jpg) _By_ **_Philipp Buschmann,_** _CEO and Co-Founder AAZZUR_ ![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/philipp-buschmann-ceo-and-co-founder-aazzur-450x436-1736816203522-compressed.jpg) Philipp Buschmann, CEO and Co-Founder AAZZUR In the late 90s, I worked at Razorfish. We spent our days helping American retail giants like Walmart and Walgreens take their services online. It was an odd time. Some companies would welcome us with open arms, acutely aware of the potential of these new things called websites. Others would raise their eyebrows and ask us “a webwhat?”. Back then we all knew how huge the internet would be for retail and history has proven us right. Those who embraced it surged ahead. Those who did not were left behind. “Innovate or Perish” is what held true. Embedded finance is going to be seismic. Retailers/Platforms who choose to ignore it will be left behind once again. First, a brief explainer on embedded finance. It simply means offering [financial and banking](https://www.financedigest.com/73-of-employees-in-the-banking-and-financial-services-industries-are-looking-for-better-physical-and-mental-wellbeing-support-in-the-workplace.html "73% of employees in the banking and financial services industries are looking for better physical and mental wellbeing support in the workplace") products into traditionally non-banking spaces. I.e. retail and e-commerce businesses. Usually **at the point of need**. Short term point of sale loans from brands like Klarna are an example. At its peak, embedded finance is about offering an ecosystem of personalised services based on spending data. Insurance. Loans. Investment. Wealth management. All offered exactly when a [customer needs](https://www.financedigest.com/knowing-your-customers-needs-is-essential-for-banking-innovation.html "KNOWING YOUR CUSTOMERS’ NEEDS IS ESSENTIAL FOR BANKING INNOVATION") them. But what does embedded finance [mean for banking](https://www.financedigest.com/banking-turmoil-means-recession-fears-are-creeping-back.html "Banking turmoil means recession fears are creeping back") itself? For those focussing on embedded finance, there’s huge potential but challenges too. For those yet to get involved, there’s a lot of ground to make up. In fact, now any business can offer [financial services](https://www.financedigest.com/trends-in-the-financial-service-landscape-and-the-impact-on-fraud.html "Trends in the financial service landscape and the impact on fraud"). What does it even mean to be a bank? **Traditional banks are having to transform again** After years of little to no change, traditional banks find themselves facing back to back decades of reinvention. The 2010s saw them desperately scrambling to catch up with the [rise of challenger banks](https://www.financedigest.com/in-a-rising-market-are-banking-outsourcers-pulling-their-weight.html "In a rising market, are banking outsourcers pulling their weight?") like Starling, Monzo and Revolut. Innovative, tech-first, [customer friendly banking](https://www.financedigest.com/insight-into-tomorrows-retail-banking-customers.html "INSIGHT INTO TOMORROW’S RETAIL BANKING CUSTOMERS") is now the norm and the world’s biggest banks have had to spend a lot of money to catch up with the more agile challengers. Most have now broadly caught up. The infrastructure is up to date. Mobile and [online banking](https://www.financedigest.com/dutch-online-bank-bunq-applies-for-u-s-banking-licence.html "Dutch online bank Bunq applies for U.S. banking licence") is front and centre and the feature lists put the customer first. But just like that, the game changed again. In the 2020s, the fintechs started evolving and integrating with each other to create vast new ecosystems of products. [Banks like Starling are offering the services](https://www.financedigest.com/how-to-enhance-banking-services-with-digital-performance-intelligence.html "HOW TO ENHANCE BANKING SERVICES WITH DIGITAL PERFORMANCE INTELLIGENCE") of fellow fintechs like Pensionbee to their users. All while offering out their own services and payment rails. Furthermore, they’re offering those services to non-banking businesses. [One report](https://flourishventures.com/perspectives/consumer-reports-will-give-financial-apps-same-scrutiny-it-gives-appliances-american-banker/) found that 52% of financial relationships for all consumers were with **non-bank** providers. For Gen- Z, this rises to **69%.** This is bad news for traditional [banks in more ways](https://www.financedigest.com/5-ways-banks-can-compete-in-payments.html "5 ways banks can compete in payments") than one. Obviously, they want those relationships for themselves but moreover, embedded finance is enabling the challenger banks to finally make some money. If you don’t love the customer, you are going to have a bad time. And the [customer cares](https://www.financedigest.com/10-tips-to-help-with-your-social-media-customer-care.html "10 TIPS TO HELP WITH YOUR SOCIAL MEDIA CUSTOMER CARE") about convenience and service – usually not your ratings. **Challenger banks are turning a profit** As previously said, challenger banks have completely transformed banking, making it far better for the consumer and causing everyone in the sector to up their game. There’s only one little problem. They’re famously unprofitable. In fact, despite there being around 250 challenger banks in the world, [only 5%](https://fintechnews.sg/52217/virtual-banking/only-5-of-the-world-challenger-banks-are-profitable-and-most-of-them-are-from-asia/) have broken even. Embedded finance is changing this. Now challenger banks can turn a profit by making commission from the embedding of other [financial services](https://www.financedigest.com/the-future-for-financial-services-is-digital-engagement.html "The future for financial services is digital engagement") into their own products. They have the infrastructure to integrate them and the data to create triggers to cross sell useful products right at the point of need. For example, if a customer purchases a flight or a hotel, they can then be offered travel insurance or foreign exchange. This is one of the main [things my team and I at AAZZUR help challenger banks](https://www.financedigest.com/5-things-to-consider-when-choosing-a-challenger-bank.html "5 Things to Consider When Choosing a Challenger Bank") with. Further to this, they can embed their own services into other systems and make money on their uptake. Starling is the perfect example of this. Having utilised both sides of embedded finance, it’s the only challenger out of itself, Monzo and Revolut that’s consistently profitable. Banks have always tried to cross sell products through schemes like bancassurance but often with limited success. Why then, are these ecosystems so hugely profitable? One word: PERSONALISATION. **Banking is now all about personalisation** The first [fintech revolution was about making banking](https://www.financedigest.com/britain-seeks-to-boost-banking-services-from-fintechs.html "Britain seeks to boost banking services from fintechs") better for customers in general. This new one is about making it personal. Not just when customers are using their bank, but whenever they’re using their cards. Think how Google monetises search and [social media](https://www.financedigest.com/3-ways-financial-institutionscan-leverage-live-engagement-on-social-media.html "3 ways financial institutions can leverage Live Engagement on social media") platforms monetise relationships. [Financial service](https://www.financedigest.com/how-crowdsourcing-can-help-drive-the-benefits-of-advanced-analytics-in-financial-services.html "HOW CROWDSOURCING CAN HELP DRIVE THE BENEFITS OF ADVANCED ANALYTICS IN FINANCIAL SERVICES") providers can now do the same thing but with spending data. All thanks to the Open Banking, Insurance and Investment initiatives and the ecosystems of services embedded finance can offer. While previous cross selling schemes have fallen short due to a slow sales process, these sort of hyper personalised services, offered exactly at the point of need, are far more likely to be picked up. Take our partner, [bsurance,](https://www.bsurance.com/en/) for example. They embed specialist insurance into banking and retail journeys. By utilising spending and even geolocation data, they see a massively impressive 10% closing rate on the policies they cross sell. Earlier, I spoke about offering other travel products after the booking of a holiday but that’s just one option. Think of a card that pays its own parking tickets. A digital ski-pass merchant that offers its own short term extreme sport insurance. Wealth management services triggered by high value purchases. 51% of consumers surveyed by Salesforce expect [banks will now anticipate their needs](https://www.financedigest.com/banks-need-to-become-a-lifestyle-brand.html "Banks need to become a lifestyle brand") and make relevant suggestions before they even make contact. Due to this, [banks are now competing – but also collaborating – to create these huge ecosystems of services](https://www.financedigest.com/20-billion-in-bank-service-fees-are-you-overpaying.html " Billion in Bank Service Fees: Are You Overpaying?"). This race to add these [services is upending the entire banking](https://www.financedigest.com/30-per-cent-of-uk-consumers-would-use-amazon-google-facebook-or-apple-for-banking-services.html "30 Per Cent of UK Consumers Would Use Amazon, Google, Facebook or Apple for Banking Services") supply chain. **The banking [supply chain](https://www.financedigest.com/g7-finance-leaders-pledge-financial-stability-supply-chain-diversity.html "G7 finance leaders pledge financial stability, supply chain diversity") is shifting… again** Before last decade’s fintech revolution, a bank traditionally controlled almost every step of its supply chain. They had their own payment rails, monitored their own customer spending, provided their own accounts and services. Banking-as-a-Service and embedded finance have completely changed that. Now most [financial services](https://www.financedigest.com/boom-or-bust-how-the-financial-services-sector-is-coping.html " Boom or Bust: how the financial services sector is coping") rely on huge infrastructure providers like Railsbank to provide payment rails, data service providers (DSP) for data and then companies like Tinq and Solarisbank to provide their additional services. But even this is changing. As banks look to tap into the opportunities embedded finance presents, they’re building networks that can compete with infrastructure providers like Railsbank. While the sheer amount of data these ecosystems gather sets them up to genuinely challenge existing DPSs. **The wheel has been reinvented and the race is on** Despite the huge impact embedded finance is evidently having on banking, many in retail and even banking itself still ignore it. Just like websites in the 90s, this is a huge mistake. Its projected market size by 2025 is estimated to be [€230bn](https://sifted.eu/intelligence/reports). Time to join the race. The starting gun has already been fired. **_Author Bio_** **:** _Philipp Buschmann_ _is co-Founder and CEO at_ [_AAZZUR_](https://www.aazzur.com/) _, a one-stop-shop for smart embedded finance experience.  Recognised as a rising star in the FinTech space, AAZZUR’s mission is to build profitable banking whilst at the same time empowering [consumers to have access to better informed financial](https://www.financedigest.com/50-of-consumers-wont-spend-more-than-20-minutes-applying-for-financial-products-online.html "50% of consumers won’t spend more than 20 minutes applying for financial products online") choices._ _Philipp is a serial entrepreneur with extensive experience of working in Challenger Banking, [Financial Services](https://www.financedigest.com/how-green-are-your-investments-why-esg-data-integration-is-key-for-financial-services-firms.html "“How green are your investments?” – Why ESG data integration is key for financial services firms"), IT and Energy across the world.  He took one of his businesses public – Ignis Petroleum was publicly listed in the US and Germany._ _Having started as a developer in Financial Services, Philipp has first-hand experience of the banking revolution from both a [technology and financial](https://www.financedigest.com/financial-firms-can-use-technology-combat-todays-cybercriminals.html "How financial firms can use technology to combat today’s cybercriminals") perspective. His interest in behavioural economics helped inspire AAZZUR’s revolutionary work on [customer centricity in banking](https://www.financedigest.com/the-bank-of-me-why-banks-need-to-be-totally-customer-centric.html "The bank of me – why banks need to be totally customer centric")._ _Philipp holds an MBA from the London Business School. He is passionate about entrepreneurship and loves exchanging ideas, insights and discussing FinTech’s future.  He has spoken at major Fintech events including Money 20/20, MoneyLive, Finovate, Fintech Matters, and the Future of Retail Banking._ --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---