How Embedded Finance is Blending Banking and Commerce

An increasingly bright future for banks providing embedded finance will hinge on more consumers ignoring the banks themselves completely and concentrating on doing business with their favorite brands.

Those institutions that partner with nonbank brands to become the financial engine behind their website and mobile sales — and even at the physical point of sale — will enjoy increasing success, even though anonymously.

The number of traditional institutions and fintechs that will engage in and win with this strategy will increase, but will still be a small part of the industry — possibly around only 300 companies, all told, sharing $25 billion in annual revenue. Financial players and the brands that they partner with could enjoy a “flywheel effect” — i.e., the momentum of their arrangements will increase business for both. That is due to the removal of friction by blending purchase and payment. Consumers will focus on what they are buying and using rather than on how to pay for or finance it.

These conclusions come from a study on embedded finance Cornerstone Advisors completed for Bond, “The Embedded Finance Flywheel.” The consulting firm’s Ron Shevlin, Chief Research Officer, notes in the report that in some ways the basic idea of embedded finance isn’t a new concept at all. Indirect auto finance has relied on a structure where the dealer is in the forefront for both sales and finance, and the bank is in the background.