Making banking frictionless: The rise of embedded finance

As embedded finance gains momentum, executives at traditional banks and credit unions are rethinking their business models and the technology they need to be successful. But are they moving fast enough? And do they have the correct priorities? Research suggests bankers face a lot of hurdles in the effort to capitalize on this opportunity. What's more, they are misreading what matters most to consumers.

The digital revolution has changed how consumers want to engage and transact with their financial institution. Many consumers are managing their money online or with mobile apps, rather than visiting a branch. In a survey, 63% of consumers said that they have applied for a loan online within the past three years, 69% executed an investment, and 58% purchased insurance, according to research that IBM’s Institute for Business Value conducted in June 2023 with Red Hat and the Banking Industry Architecture Network, or BIAN.

This has major implications for the banking industry. As people spend more time on digital platforms, they expect personalized financial services to be seamlessly integrated into their daily journeys. The rise of digital wallets, person-to-person payments, instant money transfers, and other innovations have acclimated consumers to “embedded finance” — which is financial products woven into nonfinancial digital ecosystems.

Legacy financial institutions that rely on bricks-and-mortar distribution networks face an existential crisis in this new paradigm. Physical geography lacks scalability and the cost structure of large branch networks is harder to support at a time of with thinner margins and digital-only competitors. Banks and credit unions must engage in a digital transformation effort to embed relevant offers where consumers want them, or risk losing mindshare and market share.


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