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Embedded Finance is on the Rise — What It Means for Banks
Thanks to embedded finance, companies from all kinds of industries are embedding financial products, reshaping how financial products reach consumers. What does that mean for the banking industry? We dive into it.
15 April 2025
The financial services landscape is changing. As the Dutch Financial Times (Financieel Dagblad) recently highlighted, embedded finance is becoming more widespread. Non-financial companies – from e-commerce to work platforms – are embedding financial products directly into their ecosystems, reshaping how financial products reach consumers. And they're gaining customer favour in doing so, presenting a new challenge for banks.
What does that mean for the banking industry? How can banks leverage their customer trust and firmly established position, and take advantage of the opportunity presented by embedded finance to come out on top? Let’s dive into it.
In a nutshell
Embedded finance is changing how financial services are delivered. As non-banking platforms increasingly integrate payments, lending, and insurance into their customer journeys, traditional financial institutions face a strategic choice: to compete, or to collaborate. This blog explores how banks can unlock new revenue streams, accelerate their go-to-market, and stay compliant at the same time by partnering with embedded finance providers. With increasing market demand and the technology available and proven, banks are more than capable to embrace the embedded finance shift and reap the benefits.
Embedded Finance – A Challenge or an Opportunity?
Embedded finance allows businesses outside the banking sector to offer financial services without customers needing a traditional bank. Think of payments, loans, insurance and more. These seamless integrations make life more convenient for users.
Non-bank players offering financial services like bank accounts are popping up everywhere. For example accountancy software Moneybird, powered by fintech infrastructure provider Adyen. But banks still have an important advantage – they already have established deeply-rooted trust, regulatory expertise, and financial infrastructure.
Instead of viewing embedded finance as a threat, banks can partner with fintech firms and embedded finance providers to maintain their relevance in the current (and future) financial landscape. By doing so, customer-centric banks can avoid having to develop new technology in-house, while still playing a central role in the customer’s financial journey.
The Opportunity in Numbers – What banks risk missing out on
Global Revenue Potential
According to Precedence Research, the global embedded finance market is predicted to go from $ 111.72 billion in revenue in 2024, to $ 1732.53 billion in 2034 – only ten years later. That’s an increase of more than 5 times over, reflecting the strong appetite non-financial businesses have to integrate banking, lending, insurance, and other services into their user journeys. By not taking part in optimising and enriching user journeys with embedded finance, banks can lose visibility, relevance and customers to these other players.
Consumer Demand
Research from Bain & Company shows that more and more consumers would consider opening accounts or taking loans from non-bank platforms – if the process is seamless and trustworthy. The same pattern is happening among SMEs, with nearly a third (30%) being open to switching from their traditional bank to a platform with embedded finance services. That’s a considerable share of the market that banks stand to lose based on convenience and a seamless user journey. A loss that can be prevented, with the right embedded finance partner.
Improved Go-To-Market & Margins
By leveraging third-party platforms, banks can reduce their costs when launching new products, and gain new revenue in the process. The cost and time needed to build and implement new products is often underestimated, as McKinsey points out. Smart collaboration can significantly decrease this delay down from the usual 30 months, also saving development costs in the process. Besides, adding value added services (VAS) generate more revenue across various axes – gaining and retaining customers, and a cut from the VAS. This means that working with embedded finance providers can significantly lift margins, allowing financial institutions to maintain (or increase) profitability while expanding into new digital channels.
How Fast is 'Fast' Implementation of Embedded Finance?
That's the main question – and there's no definitive answer. It highly depends on the internal support, and the capabilities of the embedded finance party.
We'll offer the experiences we've had at Alicia for reference. As a rule of thumb, our partners require more effort to move forward, internally. That's why we, as the embedded finance provider, make sure we're fully ready to go. Our tech is fully API-based, meaning we can connect to existing software within a few days.
Including streamlining the plan, connecting, testing, and ultimately going live, we typically see an implementation time of between 3 and 6 months.
Ignoring embedded finance is a strategic risk. The smarter move is partnering with embedded finance providers who bring compliant, ready-to-integrate solutions.
What Banks Can Learn from Embedded Insurance
At Alicia, we’ve seen firsthand how embedded finance can unlock new potential, through embedded insurance. Our technology enables businesses to integrate tailored insurance products without requiring insurance expertise – offering a blueprint for how banks might expand their own services with embedded finance.
Banks have an opportunity to embed insurance products within their own platforms, leveraging their financial expertise and deep customer relationships. Doing so would allow them to:
Unlock new revenue streams – Offering embedded insurance at the right times and places in your user journey boosts engagement and enhances customer lifetime value.
Strengthen customer relationships – Distinguish yourself from competition by offering insurance that fits your customers’ needs, right when they need said products.
Meet modern digital expectations, quickly – Flexible, scalable solutions are easy to integrate with existing banking infrastructure, for a super fast go-to-market.
Common Embedded Finance Concerns for Banks
From Compliance Concerns to Compliant Collaboration
Many banks are apprehensive about sharing responsibility with another company to keep compliance to the same high standards. A fair concern, since tech-only suppliers or enablers don’t need to adhere to the same financial compliance standards. In that case, it’s important to make sure that within the collaboration, the tech supplier doesn’t get involved in any legally regulated activities.
Yet embedded finance parties (like Adyen, Alicia etc.) do need to comply with European financial regulations. They need the proper licences and face strict financial regulatory requirements, just like banks. So not treating compliance as a top priority benefits nobody, meaning you can rest assured.
From Portfolio Cannibalisation to Cross-sell Opportunities
Contrary to common belief, cannibalisation doesn’t need to be an issue at all. In fact, it's the opposite. Depending on the service offered - or the improvement enabled - by embedded finance, it can help increase the uptake of your core business through cross-sell opportunities.
By expanding your business with value added services (VAS) - emphasis on ‘value’ - banks can attract more new customers and maintain the ones they already have for longer. Strengthen your existing services with embedded finance to create more value and stickiness.
The Future of Banking is Embedded
As financial services become increasingly embedded, banks can choose to be disrupted, or they can choose to lead this transformation. By embracing embedded insurance and embedded finance, banks can stay at the centre of financial ecosystems, while meeting the expectations of digital-first customers.
Curious how embedded insurance could unlock new revenue in your existing journeys, without adding complexity? Plan a 30-minute conversation with Anwar.
