Uncovering value in embedded finance

Four priorities to jump-start ecosystem transformation

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  • May 2023

Financial institutions must position themselves within a wider network of partners as they adapt to growing demand for frictionless finance.

By Eugénie Krijnsen, Bauke Sprenger and Jeroen Crijns

Are banks and financial institutions ready to deliver on embedded finance and harness the opportunities it presents? The short answer is yes—but to strengthen their position, they must address a number of important priorities.

The shift towards embedded finance, which refers to the integration of financial services into non-financial products and services, has surpassed initial industry expectations, fuelled by advances in technology and changing consumer preferences for a more seamless experience. This includes everything from mobile payment wallets to loans, insurance, investments and a range of business services.

As more companies adopt embedded finance, incumbent financial institutions face the challenge of adapting to a new landscape defined by the evolution of ecosystems centred on customer needs—in which financial applications are a key component. Recent PwC research suggests that two-thirds of global economic activity will happen within business ecosystems by 2030; key industries of focus include mobility, healthcare, personal finance, travel and lifestyle, and more.


To gain a long-term competitive advantage and harness the power of ecosystems, firms must understand how these networks are crystallising around customer needs. They should then define the role they want to play within the resulting value chains, including how they will facilitate and leverage the rapidly expanding flows of financial transaction and customer data.

For instance, banks that have developed the technology and operational expertise to support core risk and liquidity management processes should be well placed to provide the technology infrastructure and connectivity capabilities needed to support the flow of data across a distributed network of partners. However, embedding financial products in third-party platforms may distance incumbents from their customers (and their vital data), which increases the risk of disintermediation from the value chain.

Firms urgently need to rethink their business models to unlock the potential for new growth. As the industry grapples with this latest imperative to transform, four key priorities will help institutions gear up to deliver change, boost their entrepreneurial mindset and fortify their technology backbone.

1. Redefine where you can add value for customers

Embedded finance creates new urgencies to bring convenient, customer-centric offerings to market. Value propositions are built around customer needs and, to meet these, promising ecosystems are already forming—each with a distinct customer journey and network of players (see above exhibit). Banks need to develop clear objectives around which of these ecosystems to target and where to position themselves to generate the most value.

The rise in business ecosystems is changing the way companies are thinking about competition. There’s growing evidence that long-term collaboration with partners can bring more benefit than traditional firm-to-firm competition. It’s therefore critical for leadership to back an ecosystem strategy that encourages truly disruptive innovation, rather than settling for incremental improvements to existing operations.

Practical steps

  • Make strategic decisions on where to meet customers, beyond current touchpoints and interactions.
  • Map out customer journeys to better define opportunities for the intervention and provision of financial services. Make it possible to increase or decrease customer engagement in line with requirements. Design the experience so it’s easy to re-engage with any offering, to help promote and encourage adoption.
  • Set your sights on seamless, frictionless customer journeys that can help to influence return customers. Hyper-personalised offerings that are tailored to individual users (not just user groups) can also create new opportunities for financial institutions with robust data capabilities.

2. Set your course within the embedded finance value chain

Financial institutions have traditionally been able to count on a direct relationship with their customers. However, when financial services—such as payments, loans and insurance—are integrated into non-financial platforms, they become secondary to the overall customer intent and journey.

Leaders therefore have important choices to make about the role their firms will play within wider embedded finance ecosystems. In the first article in this series, we defined three distinct roles:

  • Platforms—which aggregate services across providers to offer a network of interconnected solutions.
  • Enablers—which provide technology infrastructure and connectivity capabilities via application programming interfaces (APIs) and banking-as-a-service (BaaS).
  • Licence holders—which plug offerings into platforms to increase distribution and improve customer retention.

A range of potential business models are possible within the spectrum of these roles. Bankers and asset managers, for example, could work behind the scenes as licence holders with platforms directly, or as API enablers or digital wallet providers for platforms that deliver financial services to customers. The play for firms will be to build scale in the licensed elements of banking operations and to outsource non-scale activities.

As the need for financial technology increases across industries, firms with excellent capabilities in these areas may be able to gain additional value by offering BaaS, insurance-as-a-service and software-as-a-service (SaaS) to both financial and non-financial companies. PwC research suggests that the global market for B2B ecosystem services is set to reach roughly US$8.4 trillion by 2030, representing an aggregate growth rate of more than 70% over the next seven years. Firms that offer services such as banking, insurance, consulting, legal, and accounting will act as “super enablers” for the full range of ecosystems that are based around customer needs.

Regardless of where financial institutions play, there are likely to be natural limits to how they can successfully integrate themselves into a particular market or niche. Within rapidly expanding ecosystems, competition is likely to be fierce. Firms looking to retain direct access to customers may want to proactively orchestrate the platforms they participate in, either by building or acquiring a platform of their own, or by developing tools such as digital wallets or super apps. This approach can create opportunities for incumbents to reach new customers within specific ecosystems, as demonstrated by recent acquisitions of travel-related businesses by a large multinational bank.

The global market for B2B ecosystem services will reach roughly US$8.4 trillion by 2030—representing an aggregate growth rate of more than 70% over the next seven years.

PwC study: Global business ecosystems 2030

Practical steps

  • Review existing capabilities both internally and with potential partners to determine your position in the value chain for each customer-centric ecosystem. Next, decide how to reach customers effectively; financial institutions may not be the logical point of entry for those who are more interested in the product or service than the financial plumbing that underpins it.
  • Challenge the status quo of your distribution strategy. If you decide to reconfigure your business model, understand the actions needed to enable that choice. For instance, financial institutions looking to make a platform play must improve customer-centricity, data, and tech partnerships to keep pace with user-centred, non-financial platforms.
  • Create a renewed risk management framework to manage distributed risk within ecosystems of multiple partners, preventing both mis-selling and mis-buying.

3. Commit to investing in partnerships

Once firms have assessed where they can add value and operate profitably within an ecosystem, they will need to work with a significantly broader set of partners to translate strategy into day-to-day business operations. At its simplest, this will require developing a more entrepreneurial approach to doing business than many financial institutions have been accustomed to.

Implementing a dedicated team to identify, manage and review partners will be essential to ensuring adequate touchpoints for embedding financial services, maintaining coverage across customer segments and handling increased transaction volumes. Creating value at scale also requires full integration of partnership aims into core business and operating models.

For many, this will require significant effort to encourage employees to adopt new ways of thinking and working. As recent PwC research into business ecosystems has shown, overcoming siloed, industry-based thinking involves investment—of time and money—in change management. Ultimately, firms must look to foster cultures that leverage partnerships to identify new embedded financial services channels, and to amalgamate capabilities in service of a combined value proposition.

Re-evaluating revenues

Developing an entrepreneurial approach to building business also means re-evaluating the economic metrics and thresholds that financial institutions customarily use. Banks, for example, will need to adjust their expectations in areas like gross margins, ROE and ROI during initial phases of new business activity. 

Other metrics may also apply over the longer term, reflecting the customary levels of return across different industries. Tech businesses, for example, have significantly lower operating margins than most banks, paired with higher annual revenue growth. Some types of fee business and digital business models may be able to achieve similar ratios—and will potentially be rewarded with higher valuation multiples.

In some cases, banks may want to evaluate new organisational structures, for example, by splitting off divisions that are focused on tech enablement rather than traditional banking activities.

Practical steps

  • Encourage a mindset that values the pursuit of new opportunities. Success requires focus and commitment to capitalising on new partnerships.
  • Build partnership development capabilities, and set a threshold for KPIs that apply when working with retail partners and intermediaries.
  • Step up third-party risk management to meet the needs of new business models. This requires an evolution of the current risk management functions at many banks, which are still struggling to evaluate the full implications of potential new business models.

4. Build flawless tech, and upgrade data and analytics

Customers expect near flawless execution across embedded financial services, pushing the onus onto incumbents to accelerate their digital transformation.

Financial leaders are attuned to this need. In PwC’s 26th Annual Global CEO Survey, 74% of financial services CEOs said they will invest in technology like AI and cloud solutions over the next 12 months, along with automating processes and systems, with the goal of improving customer experience. They appear to be motivated in part by their perception of the acute threats to profitability posed by changing consumer behaviour—which was cited by 61% of financial services CEOs, higher than the overall average across industries.

A key component of this digital transformation process is the need to upgrade legacy IT stacks, including the modernisation of interoperability through API technology, across financial institutions and their ecosystem partners. Ultimately, the goal is to enable communication with near real-time front-end systems, such as apps, web portals, customer relationship management tools, and branch and call centre applications.

With the goal of improving customer experience, 74% of financial services CEOs said they will invest in technology like AI and cloud solutions over the next 12 months.

PwC’s 26th Annual Global CEO Survey

The good news is that setting up a core banking system with next generation tools is cheaper and faster than ever. Investments already made in API development and data infrastructure continue to pay off when core systems are replaced.

Financial institutions should also consider working directly with next generation core banking system providers to co-develop mature tools that they can scale and repurpose for other products and segments. For example, they can collaborate with low-code, no-code, and SaaS core lending platforms—which focus on consumers and SMEs—to co-create a system centred on corporate banking needs. This could be an attractive way to broaden the benefit of IT systems development and open up new revenue streams.

The new gold rush: Data and analytics

Embedded finance models of all types can provide financial institutions with access to a swathe of new customers and a potential windfall of data. Companies have already begun to capitalise through targeted analytics strategies, often driven by the appointment of a chief data officer (CDO), in service of customising products and distribution, and managing risks.

The boom in available data appears to correlate with strong financial performance, indicating its growing value—a premise that is further reinforced by the tendency of high-performing, data-rich organisations to appoint CDOs. According to recent PwC research, just over half of banks and insurers now have this role in place, accounting for 22% of CDOs globally.

Data made available through ecosystems or partnerships plays an important role in providing insights on consumption patterns, successful product parameters and emerging risks, as well as facilitating the successful intertwining of financial services with changes in customer needs. Organisations that choose a proactive, orchestrated approach will have the benefit of owning customer journeys and accessing data, leading to sustainable competitive advantage.

Practical steps

  • Accelerate the full digitalisation of the back office.
  • Review whether to reuse existing infrastructure for embedded finance propositions or whether to set up new capabilities in parallel.
  • Expand access and understanding of customer data—beyond traditional banking relationships. This includes a focus on data usage and protection, to manage misuse, privacy, and cyber risk.

Delivering on the promise of embedded finance won’t be easy—but it’s now imperative for banks that want to remain competitive, not just over the next two years, but over the next two decades.


Eugénie Krijnsen is PwC’s global financial services advisory leader and the financial sector industry leader in the Netherlands. She advises global executives on innovation and leadership strategies, as well as transformational and regulatory challenges. Based in Amsterdam, she is a partner with PwC Netherlands.

Bauke Sprenger is a leader in the customer and operations practice for financial services consulting in the Netherlands. He supports banks in improving their core business processes and operating models. Bauke is an active member of the fintech and new entrants community for PwC EMEA, and the future of banking community. Based in Amsterdam, he is a partner with PwC Netherlands.

Jeroen Crijns leads the financial services practice in the Netherlands for Strategy&, PwC’s global strategy consulting business. He supports banking and insurance clients on developing growth plans, proposition development and strategic transformation. Based in Amsterdam, he is a partner with PwC Netherlands.

With contributions from Vivek Patil

Contact us

Eugénie Krijnsen

Eugénie Krijnsen

Global Financial Services Advisory Leader, PwC Netherlands

Tel: +31 6 30 60 43 00

Bauke Sprenger

Bauke Sprenger

Partner, PwC Netherlands

Tel: +31 (0)88 792 74 21

Jeroen Crijns

Jeroen Crijns

Partner, PwC Netherlands

Tel: +31 (0)65 156 64 70

Roberto Hernandez

Roberto Hernandez

Transformation Principal, PwC US

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