By Philipp Buschmann, CEO and co-founder of AAZZUR
In the age of the cost-of-living crisis, we find ourselves at the intersection of two compelling forces: rising inflation and a digital transformation revolution. As the world navigates these challenging times, one remarkable trend has emerged – the rapid and widespread adoption of embedded banking. This fintech innovation is reshaping the way we manage our finances, providing a lifeline for consumers struggling with the rising cost of living.
In this article, we’ll explore the forces behind this adoption and delve into examples illustrating the transformative power of embedded banking.
The Cost-of-Living Crisis: A Harsh Reality
Before we delve into the solutions, it’s crucial to understand the problem. The cost-of-living crisis is a relentless adversary, impacting millions of households worldwide. Rising inflation, soaring housing prices, and stagnant wages have left consumers grappling with financial stress. In such dire circumstances, traditional banking often falls short of meeting the immediate needs of individuals and families.
Embedded Banking: A Solution to Real-World Problems
Embedded banking is not a new concept, but it’s gaining newfound importance in today’s world. This innovative approach integrates financial services seamlessly into everyday life, addressing the very real challenges posed by the cost-of-living crisis. Here’s how it works:
Payment Integration: Embedded banking is exemplified by the integration of banking services into non-banking platforms. Think of ride-sharing apps offering instant payments to drivers or e-commerce platforms providing point-of-sale financing. This tight integration simplifies financial transactions and provides instant access to funds, making it easier for consumers to manage their expenses in the face of rising costs.
Personalised Financial Insights: Embedded banking leverages the power of data analytics to provide consumers with actionable insights. For instance, budgeting apps can analyse spending patterns, suggest cost-cutting measures, and even offer personalised investment advice. These tools empower consumers to make informed financial decisions, mitigating the impact of the cost-of-living crisis.
Access to Credit: Many embedded banking solutions offer instant access to credit when consumers need it most. Whether it’s a short-term loan to cover unexpected medical bills or a flexible line of credit to bridge the gap between paychecks, these services provide a safety net in times of financial strain.
To illustrate the impact of embedded banking, let’s look at some examples.
Buy Now, Pay Later (BNPL) Services: BNPL services like Afterpay and Klarna have gained immense popularity. They enable consumers to split purchases into smaller, interest-free payments. This flexibility makes it easier for individuals to manage their cash flow, especially when facing unexpected expenses. It’s no surprise that BNPL is most popular among UK millennials, with more than half (55%) using the payment method as of 2023 as this generation is the pioneer of technology tools adoption. The UK’s early adoption of BNPL led to a ripple effect across the rest of Europe, with BNPL on course to grow to a €300 billion industry in Europe by 2025 while Deloitte says by then it will have captured around 11 percent of the European e-commerce market.
Neobanks: Digital-only banks like Chime and Revolut are gaining traction due to their user-friendly interfaces and fee transparency. These banks offer features such as early paycheck access and automated savings, which help consumers stretch their money further in times of financial strain. Millennials and other generations also appreciate that many of these digital banks offer free accounts as opposed to brick-and-mortar banks with monthly or quarterly fees, a further burden during this cost of living crisis.
Embedded Financial Tools in E-commerce: E-commerce giant Amazon offers its customers the Amazon Store Card, providing financing options for purchases. This embedded banking feature allows consumers to make large purchases without depleting their savings or using high-interest credit cards.
Payment Apps: Payment apps like PayPal and Venmo have evolved into holistic financial platforms. They now offer investment options, savings accounts, and bill-splitting features, giving users more control over their financial lives.
The Future is Embedded Banking
Embedded banking is not just a short-term response to the cost-of-living crisis; it represents a fundamental shift in the way we interact with financial services. As this trend continues to evolve, we can expect to see several developments:
Increased Personalisation: Embedded banking will become even more personalised, utilising AI and machine learning to offer tailored financial solutions that align with individual goals and circumstances.
Expanded Partnerships: Companies across various industries will form partnerships with fintech providers to offer embedded banking services, making it an integral part of everyday life.
Regulatory Scrutiny: As embedded banking grows, regulators will likely pay closer attention to ensure consumer protection and fair practices. Companies will need to navigate this evolving regulatory landscape.
Enhanced Financial Literacy: Embedded banking solutions will play a pivotal role in improving financial literacy by providing educational resources and actionable insights to consumers.
The cost-of-living crisis has brought to light the crucial role that embedded banking plays in helping individuals weather financial storms. By seamlessly integrating financial services into our daily routines, embedded banking offers practical solutions for consumers facing the challenges of inflation, rising costs, and stagnant wages. BNPL services to neobanks, demonstrate the transformative power of this fintech innovation.
As we move forward, the future of embedded banking holds the promise of greater personalisation, expanded partnerships, and improved financial literacy. It is a beacon of hope in a world where the cost of living seems to be ever on the rise, offering individuals the tools they need to take control of their financial destinies and navigate the stormy seas of economic uncertainty.
Philipp Buschmann, Co-Founder and CEO at AAZZUR
Philipp Buschmann is co-Founder and CEO at AAZZUR, a one-stop-shop for smart embedded finance experience. Recognised as a rising star in the FinTech space, AAZZUR’s mission is to build profitable banking whilst at the same time empowering consumers to have access to better informed financial choices.
Philipp is a serial entrepreneur with extensive experience of working in Challenger Banking, Financial Services, IT and Energy across the world. He took one of his businesses public – Ignis Petroleum was publicly listed in the US and Germany.
Having started as a developer in Financial Services, Philipp has first-hand experience of the banking revolution from both a technology and financial perspective. His interest in behavioural economics helped inspire AAZZUR’s revolutionary work on customer centricity in banking.
Philipp holds an MBA from the London Business School. He is passionate about entrepreneurship and loves exchanging ideas, insights and discussing FinTech’s future. He has spoken at major Fintech events including Money 20/20, MoneyLive, Finovate, Fintech Matters, and the Future of Retail Banking.
