Will Embedded Finance Really Transform Banking Business Models?

This is a question that has been discussed at length recently, and if you ask me I would say "Yes, Embedded Finance will change some of the Banking Business Models", with a focus on delivery of products and customer interactions.

But this week I had the fantastic pleasure to attend the Fintensity: Limitless Payments event in Copenhagen hosted by Nordic Fintech Magazine where I represented my position as the co-chair of the Mobey Forum Payments Expert Group and my position as Director of Advisory Services at Samlink – A Kyndryl Company in a panel discussion with a twist.

Under the "fightclub" format I teamed up with my good friend, fellow Mobey Formu member and co-host on Fintech Daydreaming , Ville Sointu to argue the side of the debate on the positive (originally I was going to team up with Tuire M?kel? , but unfortunately she could not make it). We were debating against Michael Sproegel from Lunar and Jes Rasmussen from BankID BankAxept AS who were supporting the case that Embedded Finance will not transform banking business models. At the debate was moderated by Chris C. from Nordic Fintech Magazine.

Now, I will obviously disobey the first rule of Fight Club, but some times you just must...

But to help set the scene, here is the outline provided by Chris for the session (I will highlight that Chris got this from Mobey who have been running fightclub sessions at several of their fantastic member meetings).

So, will Embedded Finance Transform Banking Business Models?

Although the debate was in part done with a touch of humor, both sides put up a good fight and had a lot of valid perspectives, and I would say that the audience did in general side with the perspectives shared by Ville and myself.

I opened the debate from our side, with the following:

"As we stand on the brink of this transformative era in banking, it is clear that the path forward demands adaptation, innovation, and a commitment to consumer empowerment. The future of banking is poised for a fundamental transformation, driven by embedded finance, and lies in embracing the platformification of the industry. This evolution does not signal the end of traditional banking but marks a significant shift towards a more integrated, customer-centric, and technologically sophisticated financial landscape, ensuring that financial services are not merely accessible but become an intrinsic, enriching part of our everyday lives. The signs are unmistakable, setting a clear direction towards a future where the essence of banking remains, yet its delivery and interaction with consumers are profoundly transformed.

Ladies and gentlemen, as we navigate through the complexities of modern life, we find ourselves at a crossroads, bombarded with an ever-increasing array of choices. This abundance of options, while seemingly beneficial, is driving us toward a paralysis of decision-making, where the sheer volume of choices and the flexibility they demand sow seeds of foundational uncertainty. Nowhere is this more evident than in the realm of banking and finance, a sector that has evolved from a straightforward pathway to financial security into a labyrinth of options, uncertainties, and conflicting advice.

Human nature inclines us towards simplicity and efficiency. We are creatures of comfort, seeking the path of least resistance, craving instant gratification, and personalized experiences. The digital age, propelled by the rise of social media platforms like Instagram and TikTok, has tailored our expectations towards seamless, frictionless engagement. This craving for simplicity permeates every facet of our lives, including our everyday banking needs. We yearn for transactions and financial interactions that are intuitive, effortless, and integrated into our daily activities, rather than being monumental decisions that disrupt our flow.

Traditionally, banks operated from a position of arrogance, dictating the terms of engagement, requiring consumers to adapt to their schedules, their processes, and their way of doing things. This rigid structure mirrors the old telecommunications industry, where providers once held the reins, dictating terms and limiting choices. However, just as the telecommunications landscape was radically transformed, relegating providers to infrastructure roles and paving the way for companies like Apple to enrich lives, the banking sector is experiencing its own revolution.

Consumers today are vocally rejecting the outdated models of banking, propelling the industry towards the trends once observed in telecommunications. The rise of Embedded Finance is a testament to this shift, but it's crucial to recognize that this is not the endgame. Embedded Finance represents a step towards a broader transformation - the platformification of the banking industry. This transition is about more than just embedding financial services into non-financial platforms; it's about reimagining the banking ecosystem as a flexible, integrated, and consumer-centric platform.

The trajectory towards platformification reflects a broader societal shift towards services that are not just convenient but are seamlessly woven into the fabric of our daily lives. In this evolving landscape, banks must transcend their traditional roles, becoming enablers of personalized, frictionless financial experiences that meet consumers at their points of need. This requires a fundamental rethinking of what it means to provide financial services in the digital age, moving beyond the provision of products to the creation of value-laden, enriching experiences that resonate with the modern consumer's desire for simplicity and immediacy.

The perspective that embedded finance will transform banking business models stands stronger in the current digital and consumer-centric landscape than ever before. While traditional banking functions remain unchanged at their core, the delivery, access, and customer engagement channels are undergoing significant transformation. The banking industry’s future will not see the core functions of banking disappear but will witness a radical shift in how these services are provided, accessed, and experienced by consumers. Banks that embrace these changes, adapt their business models, and forge strategic partnerships within the new ecosystems will be better positioned to thrive."

And Jes Rasmussen returned the opening statement from their side, making the case for why Embedded Finance will not Transform Banking Business Models.

I do not have his points available work for word, but it was focused on the word "Really" in the opening question, and a perspective that Embedded Finance has already happened and there will not be any fundamental changes in how banks operate - maybe Jes and Michael Sproegel will chime in and share their perspectives again as comment to this blogpost here on LinkedIn?

From my perspective, we are only at the early phase of Embedded Finance adoption, and as I see it, Embedded Finance is not a destination in itself, it is a step in the journey to the platformification of the banking industry - and this is where we will see the big transformations happen.

Sure, the core business of a bank is to take deposits and issue loans etc, this will not change. but as Ville Sointu pointed out in the debate

When discussing the impact of Embedded Finance on banking business models, we need to look at how fundamental aspects of the business model, including channels, partners, and distribution, are being reshaped. This approach leans on the Business Model Canvas framework, which illustrates that a business model encompasses more than just the products or services offered—it also includes how these services are delivered, who they are delivered to, and the network of partnerships that enable this delivery.

Conclusion

Who did win the debate? due to how the fight is calculated, Jes and Michel won by a fraction. But I think if you were to poll the room, Ville and I would have be the winning team.

At the end of the day, we had a great debate with some good humor and some exiting fighting talk from both sides.

Thank you Jes and Michel for the great discussion, and Nordic Fintech Magazine for hosting the event and our session.

And, as a closing note - Chris C. interviewed me about the recent Mobey Forum paper we published on Embedded Finance, look out for the interview getting published in the coming weeks.