# Embedded finance is the new ‘norm’ in banking, but what is needed to unleash its full potential? 
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-19
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: The Future of Banking: Embracing Embedded Finance for
Meta Description: Learn how embedded finance is transforming the way we access financial products at the point of purchase, and why Gen Z and millennials are leading the charge.
URL: https://financedigest.com/embedded-finance-is-the-new-norm-in-banking-but-what-is-needed-to-unleash-its-full-potentialhtml

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_By_ **_Rivo Uibo,_** _Co-Founder and CBO at Tuum_

Convenient banking services when and where we most [need](https://www.financedigest.com/knowing-your-customers-needs-is-essential-for-banking-innovation.html "KNOWING YOUR CUSTOMERS’ NEEDS IS ESSENTIAL FOR BANKING INNOVATION") them is where banking appears to be heading. Rather than banking being a separate process carried out by the end [customer](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") and their chosen bank, the concept of embedded finance enables consumers to access financing, payments or other financial products through a non-financial provider directly at the point of purchase. Payment through embedded finance makes for a much more simple, convenient process for the customer while also enabling third parties to offer an enhanced [service](https://www.financedigest.com/id-fraud-is-on-the-rise-can-financial-services-do-more-to-protect-their-customers.html "ID fraud is on the rise: can financial services do more to protect their customers?") which in turn helps to increase customer ‘stickiness’. And the advantages of embedded finance products are not limited to consumers and the third parties offering them, [banks too stand](https://www.financedigest.com/kpmg-stands-by-audits-of-silicon-valley-bank-and-signature-bank-ft.html "KPMG stands by audits of Silicon Valley Bank and Signature Bank – FT") to gain from embracing embedded finance and extending their products to end customers via indirect channels. But will it [become the new standard way](https://www.financedigest.com/ways-to-become-a-millionaire.html "Ways to become a millionaire") of making purchases? What factors are [holding it back](https://www.financedigest.com/fear-of-failure-holding-back-british-entrepreneurs-new-research-finds.html "Fear Of Failure Holding Back British Entrepreneurs, New Research Finds")?

**Who is saying yes to embedded?**

The appeal of financial [services at the point](https://www.financedigest.com/service-the-cfo-why-context-is-worth-80-iq-points.html "Service & The CFO: Why Context Is Worth 80 IQ Points") of sale for consumers lies in the fact that it makes processes easier, quicker and more seamless. Increasingly people are showing less allegiance to their [bank and are more disposed to taking out financial](https://www.financedigest.com/financial-crime-is-the-chink-in-the-banks-armour.html "Financial crime is the chink in the banks’ armour") services with other providers. This is particularly true for younger demographics. Our recent survey found that it is Gen Z and millennials that are more receptive to new and convenient [embedded finance](https://www.financedigest.com/why-embedded-finance-will-be-integral-in-the-future-of-b2b-marketplaces.html "Why embedded finance will be integral in the future of B2B Marketplaces") offerings. For example, when buying a high-value item, people between the ages of 18-38 are approximately 10% more likely to take these out using an embedded [finance product such as buy now pay](https://www.financedigest.com/best-paying-jobs-in-finance-consumer-services.html "Best Paying Jobs in Finance Consumer Services") later (BNPL)  than people aged 39-54 – and more than twice as likely as people over the age of 55. Nevertheless, the overall demand for embedded services is very encouraging. The research also found that 44% of people are likely to take out embedded insurance at the checkout, 42% are likely to take out BNPL and 39% are likely to take out a [loan for a high-value item such as a car](https://www.financedigest.com/6-reasons-to-take-a-car-loan-from-a-credit-union.html "6 Reasons to Take a Car Loan From a Credit Union") at the point of checkout.

**The drawback of embedded services**

Despite an overall promising reception to [embedded finance](https://www.financedigest.com/online-marketplaces-embracing-embedded-finance-to-benefit-both-customers-and-vendors.html "Online marketplaces: embracing embedded finance to benefit both customers and vendors     ") products, there are still hesitations among some, namely older generations. The level of trust attributed to third party providers that are not [financial institutions remains a key](https://www.financedigest.com/4-key-financial-trends-as-we-approach-2021.html "4 Key Financial Trends as we Approach 2021") concern among consumers. As part of this, both non-financial companies offering embedded services as well as [banks should seek](https://www.financedigest.com/seven-out-of-ten-uk-adults-aged-25-44-never-seek-advice-on-dealing-with-debts-despite-depending-on-the-bank-of-mum-and-dad.html "Seven out of ten UK adults aged 25-44 never seek advice on dealing with debts despite depending on the bank of mum and dad") to educate and inform people that products taken out directly with third parties at the point of sale still abide to the relevant regulation (e.g. the Financial Conduct Authority (FCA) in the UK) and are underpinned by established, [licenced banks](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"). Another hurdle that was identified in the survey, was the [need for simpler and slicker processes and technologies to avoid discouraging customers from taking out financial services](https://www.financedigest.com/do-you-need-to-buy-guest-post-services-why.html " Do You Need to Buy Guest Post Services? why?") at ‘the checkout’. Across age groups, 40% of [people who had already considered taking out a financial](https://www.financedigest.com/31972social-engineering-in-the-financial-services-people-are-the-weakest-link-in-the-security-chain.html "Social engineering in the Financial Services : People Are The  Weakest Link in the Security Chain") product at the point of purchase said they ultimately decided against it. Critically, aside from simply forgetting or deciding the product wasn’t needed, nearly a quarter (22%) cited the reason for not [continuing with their selected embedded financial](https://www.financedigest.com/inflation-trumps-financial-risks-as-central-bank-tightening-set-to-continue.html "Inflation trumps financial risks as central bank tightening set to continue") product at checkout as being because the process was too complicated. There is therefore still work to be done to get [financial services](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") offered by non-financial companies to be adopted with open arms, particularly among older demographics who find the concept of embedded finance more complex.

**Looking to the** [future of banking style=”font-weight: 400;”>](https://www.financedigest.com/communicating-with-the-customer-is-the-future-of-mobile-banking.html "Communicating with the customer is the future of mobile banking")

[Communicating with the customer is the future of mobile banking](https://www.financedigest.com/communicating-with-the-customer-is-the-future-of-mobile-banking.html "Communicating with the customer is the future of mobile banking")

[Communicating with the customer is the future of mobile banking](https://www.financedigest.com/communicating-with-the-customer-is-the-future-of-mobile-banking.html "Communicating with the customer is the future of mobile banking")[Banking is increasingly becoming](https://www.financedigest.com/banks-need-to-become-a-lifestyle-brand.html "Banks need to become a lifestyle brand") faceless, and people are increasingly drawn to more convenient ways of banking. Embedded finance as a concept responds to these demands and embraces the [future of banking](https://www.financedigest.com/the-rise-of-virtual-agents-the-future-banking-experience.html "The rise of virtual agents: the future banking experience") in a way that serves the evolving needs of consumers in a digital age. Despite some initial ‘teething’ issues, the [signs are that embedded services](https://www.financedigest.com/axion-swiss-bank-and-avaloq-sign-long-term-contract-for-bpo-services.html "Axion Swiss Bank and Avaloq sign long-term contract for BPO services") are undeniably here to stay, and we will be seeing more of them in the future. Forward-thinking banks have already embraced the concept,  offering their services via third parties and powering the [switch](https://www.financedigest.com/new-legislation-makes-switching-bank-accounts-simples.html "New legislation makes switching bank accounts “simples”") to finance and banking services at the point of sale.

Embedded [finance ultimately](https://www.financedigest.com/ultimate-growth-for-sme-finance-company.html "Ultimate growth for SME finance company") presents a ‘win-win-win’ situation for all parties involved. For the end-customer, it offers more convenient purchasing process; For non-financial providers,  it presents an [opportunity to achieve a unified customer experience and in turn](https://www.financedigest.com/how-finance-leaders-can-turn-the-inflation-challenge-into-opportunity.html "How finance leaders can turn the inflation challenge into opportunity"), increase customer retention; For banks, integrating embedded finance into their business model and accepting the role of facilitator of this concept, enables them to reach new customer segments and revenue streams. Indeed, as the powerhouses behind embedded finance, banks should not only embrace but actively encourage this evolution in [banking services](https://www.financedigest.com/20-billion-in-bank-service-fees-are-you-overpaying.html " Billion in Bank Service Fees: Are You Overpaying?"). Why resist change that moves toward the interest of consumers, better [customer service and financial](https://www.financedigest.com/disconnected-customers-are-one-of-the-biggest-problems-facing-financial-companies.html "Disconnected customers are one of the biggest problems facing financial companies") services when, ultimately, they stand to gain big too?


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