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In the past three years we have seen a new wave of challenger banks which have transformed the consumer banking landscape. But they represent just the first phase in what is set to be a true fintech revolution.

In 2021 embedded finance will shape the future of financial services and will transform the ways in which consumers and businesses access them.

If the term embedded finance is new to you, you’re not alone. But you’ll certainly be familiar with some of the world’s leading brands which have adopted embedded finance into their operating models – and you’ll notice these aren’t traditionally financial services brands.

In 2021, every business will adapt embedded finance to attain a different goal. But in each instance, it will serve to drive product innovation and new revenue streams while improving the customer experience.

Here, we have looked the top five reasons 2021 will be the year of embedded finance.

1.  We’re redesigning the value chain

The COVID-19 pandemic has shown the many different ways businesses can continue to effectively communicate and manage within a remote working environment. And in many instances, unforeseen disruptions to the value chain in 2020 forced leaders to innovate or approach customer needs in new ways.

In 2021, they are going to take these learnings and apply them to their operating models in a much more permanent way.

It’s true that  value chain disruption has been taking place for a number of years. But 2021 is going to usher in a new wave of innovation on a different scale, as companies redevelop their value chains with a blank slate.

As businesses redesign their value chains, they’ll be looking to streamline operations, build new sources of revenue and reduce costs. And embedded finance stands to help across all three pillars.

Thanks to the emergence of banking-as-a-service, you don’t need to build teams to deal with your customer compliance policies, nor do you need to invest significant sums of money and time into developing new services.


Third party providers have bundled the full spectrum of financial services, which can be embedded with an API and launched instantly, to suit the unique requirements of your customers. So, value chain disruption is now far less risky as it doesn’t demand the same level of investment as it would have done only a few years ago.

Another driver leading companies to redesign their value chains is a permanent shift in consumer behaviour. And that brings us to the second reason why embedded finance will thrive in 2021.

2.  Consumer behaviour has changed, permanently

Pandemic-related lifestyle changes led to unprecedented swings in demand in 2020. The question in 2021 is which of these shifts in consumer behaviour will continue beyond the initial phases of the pandemic, and whether the multinationals that had hitherto been branded as dinosaurs can retain their advantage.

While we can’t be sure of what a post pandemic consumer landscape will look like, some permanent trends have developed. Of those, the most prominent is a shift from physical, to digital.

Research undertaken by McKinsey & Company reveals that more people intend to make a portion of their purchases online following the pandemic – a change which persists across all countries and across every purchase category.

Consumers who have tried new shopping behaviours since COVID-19

% of respondents

Source: McKinsey & Company

As consumers have demonstrated a high intent to continue their online purchases beyond the pandemic, embedded finance offers businesses a significant opportunity to engage in meaningful ways with new and existing audiences while creating new revenue streams.

That’s because embedded finance means the execution of financial services is no longer exclusively under the stewardship of conventional providers.

The traditional banks – whose business models were developed in another era – are at a disadvantage as consumer activity continues to shift from the physical to the digital world because they are left with cumbersome and increasingly obsolete infrastructures that are generating diminishing returns.

In 2021, nonfinancial companies have the opportunity to position themselves as providers of a wide range of microservices which serve the unique requirements of their customers.

3.  Humanising the digital experience

As the provision of financial services is being democratised by emerging technology, companies are developing a more considered approach to the customer experience.

We’re used to accessing financial services – loans, mortgages, credit cards – with the institution that instils the most trust and offers the most competitive product. But things are changing.

Now that any brand can embed financial services into its value chains, it can offer up financial products in a way that is far more contextually relevant than any traditional provider could aspire to.

Using its own customer data, a business using embedded finance can now offer a merchant or consumer the financial services that address the specific pain points he or she encounters. And because they have deep insight into their customers, they stand to price risk more effectively. The net effect is that financial services are shifting from being simply transactional, to something more personal.

And in 2021, we’re going to see more brands capitalise on this trend.

4.  Payroll is ripe for disruption

We’ve already looked at the disruption that’s going to take place in 2021 further down the value chain. But so too will processes at the beginning of the chain.

Through embedded finance, firms stand to become payroll fintechs, offering salary on-demand, salary advances or early direct deposits, enabling account holders to receive their pay cheques in advance.


Essentially, payroll embedded finance will see brands become lenders to their employees, thereby creating employee incentives while generating new revenue streams. We expect to see much more of this in 2021.

5. The banks’ race towards embedded finance will begin

According to research by 11:FS, the embedded finance opportunity will be worth $3.6 trillion by 2030. And now that the banking-as-a-service industry reaches maturity, businesses will rush to embed finance services into their solutions.


But that doesn’t mean the banks will become irrelevant. Far from it.

In fact, there has already been a marked change in mindset not just within the challenger banks, but also in the established hegemons. Savvy leadership teams know that the threat of embedded finance can be transformed into an opportunity.They’ve recognised that, rather than competing on digitisation and user experience, banks can become enablers for new market entrants.

This is an emerging trend, but in 2021 we’re going to begin to understand the likely role banks will play in a much changed environment in which financial services have been democratised.

Grow your business with embedded finance

The financial capabilities of banking-as-a-service go far beyond those associated with traditional financial services products. They can create new revenue streams, lower cart abandonment rates and improve customer retention levels.

More than that, banking-as-a-service can play a pivotal role in furthering the broader business objectives of an organisation.

If you’re wondering what embedded finance could do for your company, schedule a time for an informal conversation with our team.