Embedded Finance market ramping in Europe, UK brands to blaze the trail

By Gaia Lamperti

In a post-pandemic world, customers’ expectation for financial services is to access them whenever and wherever they need them, a shift made possible by the new technologies powering the embedded finance megatrend. In Europe, most brands are realising that embedding financial services can lead to better consumers engagement and higher revenue, with 73% of them planning to jump on the bandwagon in the next couple of years.

These were among the findings of the largest ever independent study on brands attitudes towards embedded finance, Embedded finance surge to net €720bn for European brands by 2026, recently released by OpenPayd, a leading global payments and Banking-as-a-Service (BaaS) platform.

In particular, data collected by the company revealed that UK brands will claim the lion’s share of the £619 billion European embedded finance market. Over the next five years, British brands, which are among the continent’s earliest adopters, are expected to generate £230.48 billion from embedded financial services, 37% of the total for European brands.

“The UK is a world leader in financial services. Now it’s becoming a world leader in embedded financial services. However, it’s critical brands embrace the partnerships they need in order to ensure embedded payments, banking, lending, and insurance achieve the success we’re witnessing with BNPL,” commented Iana Dimitrova, Chief Executive at OpenPayd.

‘Buy Now, Pay Later’ (BNPL) is one of the most successful examples of embedded finance, and this year turned into a driving force that has taken the e-commerce world by storm. According to data by Worldpay, it is estimated that the BNPL market accounted for 2.1% of global e-commerce transactions in 2020, roughly $97 billion, while Juniper Research anticipates that it will account for more than 50% of the market for embedded finance by 2026.

“BNPL has rapidly hit the mainstream. It’s now almost unthinkable for an e-commerce player to not offer BNPL. In the next two years the same will be true of more sophisticated embedded financial services that extend far beyond e-commerce,” Dimitrova added.

The OpenPayd study on embedded finance was completed last July and included 150 respondents, all senior executives coming from B2C and B2B marketplaces, horizontal and vertical SaaS brands, and gig economy platforms across the UK, France, Germany, Italy, and Spain.

It also revealed that 7% of the UK brands surveyed already offered embedded financial services, 14% of them are currently building an embedded finance product, and more than a third (36%) expect to launch embedded financial services in the next year, followed by Italian (27%), German (26%), French (23%), and Spanish (21%) brands.

In order to meet the rising demand for embedded services, financial institutions are increasingly offering BaaS solutions, allowing nonbanks to cater to their customers’ needs and offer seamless experiences, removing friction from transactions and favouring the competition of a purchase.

“Brands will need help accessing the FinTech skills they need to put embedded finance propositions in place and support navigating increasingly complex regulations. We’ve only scratched the surface of the huge, unmet demand for embedded finance across Europe, the next two years are going to be transformative,” concluded Dimitrova.