Five questions about banking in today’s digital age, answered | EY

2. What role does embedded finance have to play in the future of the banking industry?

Kathleen Calabro

Today, the banking industry is increasingly focused on embedded finance, meaning that financial services touch elements of every sector across the global economy. However, without a strategy within banking that allows institutions to embed financial services into each of these sectors, banks will struggle to evolve. We often see that by the time new propositions go to market, the goalposts have moved, and banks are once again being measured against a new benchmark.

An open ecosystem, enabled by open banking, allows a greater degree of flexibility and adaptability for banks. The core business of banking – payments, savings, lending, and investing – is not going away. However, how customers interact within these domains will evolve, and that’s where embedded financial services come into play.

Jan Bellens

We’re starting to see banks looking at new ways to support customers – both in retail and the corporate and commercial space – throughout their banking journeys. For example, through partnerships and the bundling of offers, banks are striving to create more natural touchpoints with customers. And crucially, these new propositions are being driven by advances in technology and new ways of capturing data.

Eat now, pay later

One recent example from India shows the innovative way embedded finance can come about. A food services app is currently offering people small loans to order food at the end of each month, while these customers wait for their salaries to come through. This financial need has always been there, but now there is a digital product that makes this possible.

The food services app uses data from customers’ previous consumption habits to offer tickets generally worth US$20 or US$30, with the option of turning this ticket into a 10-day loan. Traditionally, a 10-day loan for $30 wouldn’t have been possible but through technology and data, the lender is exposed to limited risk. Bank can look at this as an example of how to use embedded finance to meet the needs of its customers and evolve its products to capture this real-time demand.