The global financial landscape continues to undergo an unprecedented transformation, driven by the convergence of advanced technology and a new era of financial regulation. At the heart of this revolution lies the concept known as ‘open banking’ largely propelled by the EU’s Second Payment Services Directive (PSD2).
In this context, embedded finance has emerged as a dominant trend in corporate treasury over recent years, and in 2024, its momentum shows no signs of slowing. It's no longer simply about automating financial processes, but about rethinking and redesigning the way businesses interact with their finances and with banks, placing the customer at the centre of everything.
With enhanced connectivity and access to data, organisations are looking forward to greater efficiency, improved insights and a more proactive approach to capital and financial risk management. 2024 promises to be the year when embedded finance takes a decisive leap forward, creating a boom in corporate treasury and reshaping customers' expectations and experiences in the financial world.
Embedded finance refers to the incorporation and unification of financial services within platforms and applications that traditionally were not associated with the banking or financial sector, providing a smoother and more accessible for the end-user.
The essence of embedded finance lies in the fusion of technology and financial services. Tech companies, especially fintechs, leverage their expertise and innovation in software and data analytics to offer tailored financial solutions. This enables users to access a range of financial services, from payments and transfers to investment management and insurance, directly through mobile apps or online platforms.
The use of embedded finance is steadily increasing and generating significant revenue. In the United States alone, embedded finance reached $20 billion in revenue in 2021, according to McKinsey Group’s report Embedded finance: Who will lead the next payments revolution? According to a report by Future Market Insights, by 2033, embedded finance revenue in the European market is expected to reach approximately $94 billion, representing about 25% of the global market.
Additionally, Oracle estimates that the value of the embedded finance market with exceed $7 trillion over the next decade, doubling the combined value of the world`s 30 largest banks today. This projection highlights not only the sector’s rapid expansion but also its potential to disrupt the global financial landscape.
The growing adoption of these integrated financial solutions indicates a significant shift in how businesses interact with financial services, redefining the traditional structures of the banking and financial sectors.
Embedded finance brings numerous benefits for both businesses and end-users. These benefits are transforming how money is accessed and managed, with a positive impact on the efficiency, accessibility, and personalisation of financial services.
For companies, embedded finance delivers added value in several ways:
The benefits of integrated finances are very evident for end users, who enjoy greater flexibility and an enhanced experience when managing their finances. Key advantages include.
While embedded finance offers numerous benefits, it also faces some key challenges and considerations that must be addressed to ensure its long-term success and sustainability.
One of the primary challenges is regulatory compliance as regulations vary widely across regions and countries. Businesses must navigate a complex and ever evolving legal framework to ensure they comply with both local and international financial laws.
Additionally, data security and privacy are critical concerns, as handling sensitive financial information requires robust systems to prevent fraud, identity theft, and cyber attacks. In this regard, treasury management platforms and the powerful capabilities offered by APIs are excellent tools for managing cash flow within any company
For end users, embedded finance must tackle issues of accessibility and comprehension. Despite its potential to democratise access to financial services, there´s a risk of excluding those less familiar with technology or in areas with limited connectivity.
Moreover, clarity in the presentation of financial products is essential to avoid misunderstandings and promote informed decision-making, especially when personalised advice is limited on digital platforms.
Embedded finance is reshaping the corporate treasury landscape, a traditionally conservative field now on the brink of significant transformation. This change is being driven by the integration of advanced technologies and financial services, profoundly affecting the way companies manage capital and financial operations.
Integrating technologies such as AI and machine learning facilitates the automation of treasury processes, including account reconciliation, payment and collections management, and cash flow analysis. This not only enhances operational efficiency but also reduces human error and frees up resources for more strategic tasks.
Moreover, embedded finance enables unprecedented access to real-time data and predictive analytics. Treasurers can use this data to make more informed decisions on investments, risk management, and financial planning, increasing the company’s ability to respond to market changes.
Finally, thanks to advanced analytics and forecasting tools, companies can identify and manage financial risks with greater accuracy. This includes risks associated with market volatility, credit, liquidity, and foreign exchange.
Embedded finance fosters a more dynamic and collaborative relationship between businesses and financial institutions. With the ability to integrate banking services directly into their systems, companies can negotiate better terms and access personalised products.
Modern treasury doesn’t only involve traditional banks but also a variety of financial providers, such as fintechs and payment platforms. This creates a more diverse and resilient financial ecosystem
The role of the treasurer is shifting from operational tasks to a more strategic position within the organisation. Treasurers are becoming key advisors in high-level decision-making, thanks to their access to detailed financial analysis and projections.
Treasurers must lead in adopting new technologies and exploring financial innovations. This requires not only technical understanding but also the ability to drive digital transformation projects.
As we move through 2024, embedded finance is expected to continue its growth and evolution, driving innovations in the financial sector and redefining the relationship between technology and financial services.
This trend will not only transform how businesses and consumers interact with finance but will also play a pivotal role in shaping the future of the banking and financial sector on a global scale.
