Global Card Issuing and Processing Engine

Well-funded Fintechs and neo-banks have leapfrogged traditional banks when it comes to innovation. And today, the rift is only set to widen between nimbler startups and their larger, more cumbersome relatives.

According to Simon Tyler at 11: FS, one in every five dollars of venture capital is invested into Fintech, making it the single hottest sector today. Meanwhile, the rise of embedded finance is rapidly evolving as non-fintech companies develop their own suites of financial offerings.

But the assumption that Fintechs pose a threat to banks is incorrect. Or more accurately, it only tells part of the story. We think embedded finance affords banks with a unique, once in a generation opportunity to form winning partnerships.

The banks fell behind

In many regards, banks have been a catalyst for embedded finance. They serve clients with a wide range of financial services. However, in recent years banks fell behind.

Several drivers of change, such as the digitalization of financial services, changing buyer habits and, more recently, the coronavirus pandemic, have shifted the consumer and business landscape.


Financial services designed by the banks, which were made for the masses, not the few, have become less relevant and often are unable to offer personalized experiences. As a result, digital customer experience is mostly poor because banks’ services were built for the physical world.

Banks, many of which have been around for well over a century, have a lengthy history of responsibly handling people’s finances and protecting their data.

Their thorough processes and sprawling systems are hinderances when it comes to product innovation or coping with new regulatory demands. But they do bring stability and help to inspire confidence in clients.

In short, over many years they’ve earned people’s trust.

Embedded finance is a big opportunity for banks

The problem for banks is that adapting their models to align to new consumer behaviors in a digital, and an increasingly cashless, society is a monumental task.

So, they find themselves with an increasingly obsolete infrastructure that is generating diminishing returns.

And yet, by partnering – rather than competing – with Fintechs, banks can develop partnerships through licensing or white labelling the most innovative Fintech services available on the market today.

At its heart, embedded finance involves integrating one or more financial services into nonfinancial-provider solutions, meaning that companies from a diverse range of industries now can layer in banking capabilities.

That means companies can improve their customer propositions, grow loyalty, and generate new revenue streams. And the opportunity is immense.

Embedded finance represents an addressable market worth over $7 trillion, or roughly double the market value of the world’s top thirty banks today. And by 2030, embedded finance will have fundamentally changed market structures and business models.

Forward looking banks stand to gain ground

Today, banks have a varied approach to embedded finance. Some are investing heavily to play catch up. Others are paying no attention to it whatsoever. But a third group is taking a different approach.

This group of banks doesn’t buy the argument that their legacy systems will be their downfall. Instead, they regard embedded finance as a significant opportunity.

They welcome the prospect of reimagining financial services.


Afterall, banks are under increasing pressure to innovate their own revenue models, as one 11: FS report notes, “the business model of using deposits as a cheap way to fund lending offers diminishing returns.

For any established bank it comes down to this. Consumers and businesses have placed trust in their banks and are unlikely to uproot those relationships in the immediate future.

On the flip side, embedded finance companies have brought new, personalized, and specialized financial services. So, by partnering both groups can create new revenue streams while improve the customer experience, and therefore loyalty.

How banks can facilitate innovation in niche markets

Most banks have, to one extent or another, embraced digital transformation. And as they have, they’ve increasingly adopted an API-first approach to their new technology stacks.

This means that with little investment – compared to building their own embedded financial service offering – they can partner with backend providers.

The opportunity for banks to become specialized experts within certain vertical markets is tantalizing.

Embedded finance is already beginning to transform the operating models of software-as-a-service providers. It's allowing insurance firms to provide contextually relevant and more competitively priced offers by tapping into user generated data. Embedded finance is disrupting the freight industry by facilitating cross-border payments in seconds, at far more favourable FX rates than ever before.

Meanwhile, retailers in just about any vertical market embedded finance is set to be a major trend over the coming few years.

And we’re only just getting started.

In the old set-up, banks had total control. No one else could enter into the relationship between the bank and the customer. But this has changed. Today, there numerous choices for business financial service. So for banks, the route to success is to partner with platforms like HUBUC who can build services that are contextually relevant and timely to niche audiences, all through an API.

Embedded finance enables banks to reconnect with consumers

With some notable exceptions, such as Nordea, established banks have failed to deliver embedded banking infrastructure for companies, especially for the SMEs. The Nordic financial group was one of the first movers with its Open Banking initiative and the bank is already delivering solutions that are changing the traditional way financial services are consumed.

But many others have been too slow to adapt.

Embedded finance enables banks to offer contextually relevant services to individuals, at a specific time – students needing access to loans, families looking for a mortgage, or consumers looking to purchase a new car. Rather than inundate consumers with impersonal marketing, they can offer intuitive financial services which suit individual lifestyles.

For all banks, regardless of their shape or size, now is the time to carefully consider their digital evolution or risk falling behind forward-looking competitors.