Embedded finance, once a beacon of innovation and rapid growth, is undergoing a significant transformation. A recent report from OpenPayd, a global payments and banking-as-a-service (BaaS) platform, highlights this shift as businesses adopt a more practical and measured approach.
The OpenPayd research, Embedded finance in 2023: Leaders, laggards and lingerers, quizzed senior executives from various sectors, including payroll and B2B fintech, B2C and B2B marketplaces, horizontal SaaS brands, and gig economy platforms. It unveils how European brands perceive and intend to integrate embedded finance into their operations.
While the appetite to implement embedded finance solutions hasn’t diminished, decision-makers are now taking a much more measured approach when planning their implementations.
The OpenPayd whitepaper highlights:
Pioneers getting practical
In 2021, 73 per cent of businesses were brimming with anticipation, expecting to roll out embedded finance projects within two years. However, the latest survey paints a different picture. A mere four per cent of respondents have successfully completed such projects, and only 25 per cent are optimistic about delivering one by 2025.
Pressure on margins
The most desirable quality in a provider has shifted to speed of implementation, a marked departure from the previous survey where it ranked third. This shift underscores the market’s changing priorities. Furthermore, the scarcity of internal resources remains a significant challenge for embedded finance projects, highlighting capacity constraints in leaner times.
Specific and deliverable projects
Companies are now more willing to admit uncertainty about the release dates of their embedded finance projects. In 2021, only eight per cent were unsure, whereas 45 per cent currently lack specific plans and timeframes. This suggests a growing recognition of the importance of clear planning.
Market slowing down, value increasing
Interestingly, fewer companies are gearing up to launch their embedded finance offerings in the next two years. However, this is not due to a waning belief in the value of embedded finance. Over the next five years, European brands collectively anticipate generating a substantial €626billion through embedded payments and embedded banking, with the UK expected to capture nearly half (49 per cent) of this market share.
Dedication to embedded finance
Presently, nine per cent of businesses offer embedded finance, but an impressive 57 per cent of them have taken steps to expand or upgrade their offerings in the past two years. This determination to enhance their embedded finance solutions persists, with 29 per cent planning further expansion despite the economic challenges.
Third-party providers crucial
For embedded payment solutions, 69 per cent of businesses have joined forces with BaaS providers, often complemented by internal teams. This number rises significantly to 90 per cent for businesses that have already implemented embedded banking solutions. The predominant challenge is a lack of internal resources, underscoring the critical role of third-party contributions in advancing embedded finance.
Speed trumps brand reputation
Speed of implementation is now the paramount consideration for businesses, irrespective of market maturity. German companies, although home to the most embedded finance leaders, have adopted a pragmatic stance regarding the benefits.
In contrast, Spanish companies, despite being less likely to have implemented embedded finance, exhibit high enthusiasm about its potential. British companies, likely influenced by Brexit, express significant enthusiasm for cross-border payments.
“Over the last two years, the hype around embedded finance has been replaced by a hard-nosed reassessment of where and how embedded finance can bring value,” said Iana Dimitrova, CEO at OpenPayd. “We’re clearly seeing businesses refocus on the potential to strengthen the customer experience, deepen their customer relationships and open up new revenue streams.
“Embedded payments and embedded banking solutions are in high demand. Businesses across Europe, expect to net €626billion in the next five years by adopting these offerings – clearly both B2B and B2C companies have high expectations from embedding financial services.
“We are already seeing a set of behaviours that are setting the leaders in embedded finance apart from the rest: They are partnering with infrastructure providers, being pragmatic about the scope of a project and staying laser-focused on the customer. Those attributes will be key to unlocking the potential of embedded finance”
As embedded finance undergoes transformation, businesses are adjusting their strategies to navigate shifting market dynamics. A practical approach, clear planning, and delivering value now take precedence in this evolving landscape.