Is Embedded Finance About to Soar?

Have you ever booked a flight and bought travel insurance at the same time? This is the vision of embedded finance. The travel platform makes it possible to not only book airline tickets, but also to purchase insurance – without leaving the website. The insurance benefit is embedded directly and seamlessly into the booking process. This practice is becoming increasingly common around the world and beyond the travel industry. According to a recent study by the Institute of Financial Services at the Lucerne University of Applied Sciences and Arts, the embedded finance industry in Switzerland will generate revenues of approximately 1.3 billion US dollars by the end of 2023. Assuming an annual growth rate of 22%, revenues will increase to 3.3 billion US dollars by 2029, while the global market is expected to grow to 623 billion US dollars by 2032. Just how big the potential is can only be guessed at.

According to study director Thomas Ankenbrand, such solutions have only been implemented “sporadically” in Switzerland to date. One example in Swiss payment transactions is the “Parking” partner function in the TWINT payment app. It allows users to find free parking spaces, select the desired parking duration and pay directly via the app. Similar services are available in other parts of Europe. EasyPark, for example, is active in more than 1,500 cities in 20 countries. In the US, the ParkMobile app processed more than 134 million parking transactions in 2023.

These figures illustrate the growing importance of “embedded” services that are not limited to payments. An example is embedded lending, which is a financial service but integrated into platforms or applications outside the traditional banking environment, providing access to lending functions through the same interface. E-commerce platforms do this to facilitate large purchases. For example, when buying a new smartphone, the purchase price can be spread over several months. “Buy now, pay later” has the highest market share in countries such as Sweden, Norway, Denmark, and Germany, making it a popular alternative to traditional credit cards.

The authors of the study expect this concept to play a role in the banking world in the coming years. However, the Swiss financial sector in general does not (yet) attach much importance to this topic. According to the authors, this is dangerous because, over time, non-banks could decide to offer financial solutions directly and without banks. It is therefore essential for banks to adapt to this changing situation if they want to maintain their market position. It remains to be seen whether financial institutions can conquer the skies of embedded finance.

Gabriel Juri
SIX