The Evolution of Open Banking to Embedded Finance
29th June 2022
We look at how embedded finance is a development of open banking capabilities and use cases.
In the fintech industry, we often talk about trends. The launch of open banking in 2018 and its subsequent position as a ‘hot topic’ is still prevalent four years later – just look at the topics of any industry event and open banking will be up for discussion. Embedded finance is a new trend sweeping financial services, but it should be viewed as expanding on, rather than surpassing, the capabilities of open banking.
What is embedded finance and why do its origins matter?
‘Embedded finance’ refers to the integration of financial products within other environments. Rather than the product being separate to the purchase experience as has been the case historically, embedding products within the user journey makes the experience seamless for the user and unlocks revenue streams and analytics for businesses.
Embedded finance is the culmination of multiple developments within financial services. This blog looks at open banking, one of the latest advances that has enabled financial services to collaborate in new ways.
What is open banking?
Open banking is a well-known concept and refers to the sharing of users’ data (with their permission) between banks and businesses, predominantly fintechs. Data is transferred seamlessly using API technology for a number of use cases, such as advising customers on their monthly spending or confirming whether a small business is eligible for a loan.
At the start of 2022 the number of regular open banking users in the UK surpassed 4.5 million, a 60% increase from 12 months before. Early examples of open banking focused on the viewing of account data and while these capabilities brought initial traction, more recent services such open banking enabled payments have accelerated market uptake.
Open banking has had a real impact on the opening up of financial data. Rather than banks acting as ‘gatekeepers’ to data, the regulatory push to share data across the ecosystem has led to increased collaboration and partnerships. However, uptake has been slower than expected and it is important that users and businesses benefit from the sharing of data, rather than just increased visibility.
So, what next? Introducing embedded finance
Open banking has opened the door for the sharing of data, and embedded finance is waiting on the other side. Rather than sharing between separate journeys as open banking does, for example having a separate financial management app to your online bank account, embedded finance combines the user experience in one place. Embedded finance already streamlines the user journey, but with open banking there are most opportunities for innovation such as card-less payments and personalised offerings.
Embedded finance has built on the technology of open banking with the added layer of integrating one service within another. APIs are used not just to share account data but to facilitate data-sharing between different services and expand the offerings to users. The evolution of open banking into embedded finance is important for moving beyond the use cases of payments and making the full financial ecosystem readily available for users.
At mmob, we always bear the ‘so what?’ question in mind, and this is exactly what our solution does. Our platform enables companies to harness open banking data to generate revenue and improve services for users.