The Uncertain Path of Embedded Finance: Insights from Weavr’s Whitepaper

Embedded finance, a concept gaining significant traction in the financial sector, has been spotlighted in a recent whitepaper by Weavr. Authored by Francis Bignell, this paper delves into the evolving landscape of embedded finance, shedding light on the industry’s response to this emerging technology, according to The Fintech Times. 

Weavr’s comprehensive whitepaper, inclusive of survey findings, provides valuable insights into the nuances that shape the approach to embedded finance innovation within UK banks and financial institutions. Conducted in collaboration with Censuswide in May 2023, Weavr’s survey sought to capture the responses and sentiments surrounding embedded finance.

Despite a prevailing lack of clarity regarding the best approach to this technology, the majority of respondents expressed a keen interest in embedded finance, with 63 percent recognizing it as a significant growth opportunity for banks. Additionally, a substantial 65 percent of UK banking and financial executives reported active involvement in research and development initiatives related to embedded finance.

In response to this growing interest, several banks have initiated partnerships with embedded finance technology providers. The objective is to leverage established solutions that can scale effectively, taking advantage of the banks’ capabilities and financial resources. Weavr’s launch of the Embedded Finance Cloud in June, a proprietary technology stack designed to facilitate the creation and distribution of financial products that are inherently ’embeddable,’ exemplifies this trend.

However, not all respondents are fully convinced of embedded finance’s potential. According to the whitepaper, a notable 80 percent of UK banking and finance executives differentiate between ’embedded finance’ and ‘banking-as-a-service.’ This divergence in interpretation is just one aspect contributing to the prevailing uncertainty surrounding the technology.

Another significant source of uncertainty is compliance. Over two-thirds of survey participants identified ten distinct risks and associated costs related to developing embedded finance solutions. Consequently, Weavr suggests that organizations may be predominantly inward-focused on research and development, potentially neglecting valuable external expertise. This inward focus has been amplified by the recent implementation of the Financial Conduct Authority’s (FCA) Consumer Duty regulations.

Analysis within the Weavr whitepaper suggests that banks might inadvertently construct fragmented, small-scale embedded finance systems if they continue along this path. This approach risks missing out on the promised advantages of speed to market and scalability, which partnerships can provide.

In summary, the whitepaper reveals that a staggering 99 percent of respondents continue to grapple with questions and uncertainties surrounding embedded finance. Despite these uncertainties, it is evident that the technology cannot be overlooked or dismissed.

Weavr’s CEO and co-founder, Alex Mifsud, emphasized the importance of these findings, stating, «What stood out most from the research was that 79 percent of financial services executives in the UK are discussing embedded finance at least once a week. Given the broad audience surveyed, that is a truly extraordinary and surprising figure.» Mifsud further stressed that «no financial services firm can ignore the exciting new distribution channel that is embedded finance» and highlighted the distinction between embedded finance innovation and previous efforts like open banking. He concluded by emphasizing the need for financial institutions to embrace solutions that offer control and safety while tapping into new revenue channels.

This Weavr whitepaper serves as a timely reminder that embedded finance is a topic of paramount importance in the financial sector, and its potential must be carefully explored and harnessed.