The landscape of financial services is changing, and traditional banks are facing multiple challenges in the fast-growing embedded finance sector.。The payments landscape has changed dramatically over the past two decades, driven by the rise of digital transactions and the quest for seamless cross-border payment solutions。While established banks have historically enjoyed solid positions, new players, including tech giants and payment service providers, are reshaping the game.。

The rise of non-banks

In the US, different entities such as PayPal, Apple Pay, Google Pay and Alipay dominate the payments space.。Decentralized regulation of payments at the state level creates an environment where innovation thrives。

On the other hand, the Asian market has a highly fragmented payment environment, with India's Unified Payment Interface (UPI) processing more than 6 billion transactions per month, a success story.。

Global PSPs threaten traditional payments

The emergence of global payment service providers (PSPs) poses a significant threat to existing banks in the payments space, which not only seamlessly embed payments into transactions, but also extend their services to data analysis, reconciliation, and integration with enterprise resource planning (ERP) systems, surpassing traditional banks in innovation.。

Comprehensive digital ecosystem

In embedded finance, new entrants are harnessing the power of integrated digital ecosystems to reshape the way consumers engage in financial services。These ecosystems go beyond the traditional banking model and seamlessly integrate a large number of financial products into the daily digital experience of users.。

By embedding financial services in popular platforms and apps, new entrants create a one-stop shop for users, offering banking, investment and payment functions without having to resort to traditional banks。This approach takes advantage of consumers "changing preferences for convenience and accessibility, as individuals increasingly seek comprehensive solutions to meet their financial needs in the context of their digital lives.。

These comprehensive digital ecosystems not only provide convenience, but also increase user engagement。By embedding financial services in users' daily interactions, new entrants can increase customer loyalty and satisfaction。

The continuous evolution and expansion of these ecosystems makes continuous innovation possible, ensuring that users have access to the latest and most relevant financial instruments。As a result, traditional banks face the challenge of adapting to this paradigm shift, as consumers are attracted to the seamless, all-round experience offered by these new entrants to the embedded finance space。

BNPL and the loan threat

The rapid development of embedded finance poses another challenge for banks, especially when it comes to lending。Lending has historically been a lucrative business area for banks, but now things are changing。Big tech companies and major retailers are using partnerships and strategic acquisitions to expand into the embedded lending (BNPL) space。As a result, spread pressure on existing banks is increasing as large retail banks and credit card networks prepare for the regulatory changes planned by BNPL。

Banks' once perceived invincible advantage in obtaining full banking licenses is also eroding.。Big tech companies, including those holding licenses for e-money institutions in Europe, are increasingly entering the regulated financial environment.。Fintech companies like Klarna, which hold European banking licenses, highlight the changing dynamics, raising questions about the unique advantages that traditional banks have long claimed。

Flexible pricing model

In embedded finance, one of the powerful weapons for new entrants is the deployment of flexible, dynamic pricing models。Unlike the rigid structure of traditional banking, these models are able to adapt to the diverse and changing financial needs of users.。By offering a personalized pricing structure, new entrants can appeal to a wider range of consumers as they may feel that traditional bank charges and rates are less accommodating。This adaptability allows financial solutions to be tailored to individual preferences, ensuring that users receive competitive rates and terms that match their unique circumstances。

Implementation of flexible and dynamic pricing models is more than just a cost consideration。New entrants use data analytics to gain insight into consumer behavior to develop pricing strategies that resonate with specific populations。This approach not only attracts customers, but also retains them by continuously meeting their financial expectations。Traditional banks have a more rigid pricing structure and face the challenge of dealing with this dynamic landscape。Adapting to the flexibility offered by new entrants becomes critical as consumers increasingly prioritize financial services that meet their individual needs and offer transparent, fair pricing.。

Embedded Finance and Primary Bank Accounts

Basic bank accounts, long considered home to traditional banks, are facing disruption。Fintech companies and large tech companies are leveraging embedded finance to provide seamless services, challenging the assumption that banks will maintain their existing roles in their core customer base.。The allure of customer data in bank accounts is attracting new players into financial services。

The transformation brought about by embedded finance is a challenge, but it also provides an opportunity for banks to grow and remain competitive.。Strategic investments in customer-centricity, data capabilities and operational efficiency can help banks successfully navigate the changing landscape。

Conclusion

The emergence of embedded finance opens up opportunities to innovate, reimagine and enhance the value proposition offered to consumers。However, in this environment of change and disruption, the imperative for traditional banks is clear - either adapt or risk being eliminated。