Does the rise of Embedded Finance mean the end of the fintech sector as we know it?

The rise of Embedded Finance is only just beginning. Non-finance brands are already embedding financial products and services into their apps and ecosystems. Over the next couple of years we're going to see an explosion in Embedded Finance applications - and that is going to be accompanied by a shift in perceptions about fintech, innovation, and the future of finance.

Embedded Finance is changing innovation

The new paradigm brought about by the rise of Embedded Finance will require a completely different approach to innovation. For too long, fintech has been characterised by brutal competition and a comparative lack of co-operative or collegiate working. Embedded Finance will change that approach, because it demands that fintech players understand themselves as part of a broader ecosystem, rather than in a zero-sum race.

There is still a widespread idea within fintech that there is one 'big prize': to be the next neobank unicorn. This is going to change. There will be a greater focus on 'downstream' products, and less obsession with building the next world-beating bank.

Of course, developers are at the heart of fintech innovation. For them, Embedded Finance will be transformative. Simple, elegant APIs, developer-first product approaches, and a focus on interoperability are all combining to massively reduce the resource burden associated with building products. Developers don't have to worry about building the stack from scratch anymore, and this means they can spend more time innovating.

Innovation in fintech will be significantly accelerated by the rise of Embedded Finance, and it will occur across multiple streams, from product development all the way through to the systems that govern access to fundamental tools like payment rails.

Changing roles

Perhaps the defining shift in consumer finance will be the transition of the High Street banks and other legacy institutions away from their public-facing role. Of course, many people will continue to bank with the household names, especially amongst older demographics. But in the medium term, we are going to see a rebalancing in which the dominance of those big names is challenged. For the next generation of consumers, banking will be something that you 'do' with your favourite brands. Many of the tasks that currently require consumers to leave one ecosystem and enter another one (that of their bank) will be folded into the products and services that they already use.

And it's not just the big banks that are going to have to cope with this - even the challengers are going to be impacted. Embedded Finance is going to accelerate the consolidation process amongst challengers, and from the huge number of hopefuls currently in the market, relatively few will make a mark. The sensible fintech founders of the future probably won't be thinking about banks, or at least not in the sense that we currently imagine them. Instead, they're more likely to be thinking about relatively niche use-cases for specific Embedded Finance technologies. We'll see more industry or vertical-specific products, along with greater personalisation.

Every company will be a fintech company

At a larger scale, though, fintech and the financial services industry as a whole are going to have to navigate significant changes in public ideas of what finance is and where you 'do' it.

As Angela Strange of Andreessen Horrowitz says, soon 'every company will be a fintech company'. Consumers and businesses will no longer see banking as a separate sphere or sector, and will instead come to expect that day-to-day financial tasks will be carried out within their favourite brand ecosystems.

But what does this mean in practicality? For businesses it will mean access to crucial new revenue streams, along with the opportunity to generate additional revenue from existing products. It will allow non-financial brands to leverage their expertise in experience design and the troves of data they hold on their customers to augment and future-proof their businesses.

Embedded Finance is far from the end of fintech. In fact, Embedded Finance is the future of fintech - a future that builds on the promise of the last wave of innovation and delivers a true revolution in financial services.