Embedded finance is leading Europe’s evolution to open finance

A guest editorial by Paolo Zaccardi, co-founder and chief executive officer of Fabrick

Although the open banking revolution did not fully materialise in 2018, its relevance remains significant in Europe. Over the past six years, open banking has evolved into a more advanced framework known as open finance, with embedded finance at its core. As we look ahead to the trends shaping Europe’s open finance landscape, new EU-wide regulations such as PSD3, PSR, and FiDA promise to profoundly transform the seamless integration of financial services into everyday life.

Since 2018, Fabrick has led the way in leveraging open banking’s evolution into open finance and embedded finance. Its open finance platform aggregates, integrates, and coordinates a growing array of APIs, offering banks a gateway to PSD2 compliance. Additionally, with its Payment Institution license, it provides value-added financial services development to financial institutions, corporate entities, and fintech companies. Fabrick has bolstered this vision and promoted the transition to a “platform” model by establishing a robust network of partnerships, further supported by Fintech District, the international reference community for the fintech and techfin ecosystem in Italy.

The rise of open finance and embedded finance

Open finance builds on the foundational concept of open banking to extend the scope of financial services by leveraging data to deliver a more tailored approach for both vendors and consumers. This shift allows for a broader range of services, empowering companies to enhance their interactions and improve customer satisfaction.

Embedded finance, which represents the next stage in this evolution, integrates financial services directly into corporate processes through APIs, fostering open innovation and delivering solutions within the customer experience where and when they are really needed. This approach allows businesses to offer financial solutions seamlessly within their existing systems, enhancing user experience while unlocking new opportunities for innovation and improved efficiency across various sectors.

A study by Forrester Consulting published in May 2024, in collaboration with Fabrick and Mastercard, surveyed 600 C-level decision-makers from large corporations across five European countries, predicting significant growth for embedded finance in Europe. Specifically, the research forecasts a CAGR of 23% through 2027, driven by several key priorities identified by respondents as top focus areas over the next 24 months:  

• Payment orchestration (75%): The ability to streamline multiple payment processes across different channels and platforms is becoming increasingly critical. 

• Digital wallets (73%): Digital wallets are gaining prominence, especially in sectors where convenience and speed are highly valued. 

• Loyalty/reward schemes (73%): The integration of loyalty programs within financial services is enhancing customer retention and engagement. 

• Digital cards (71%). 

• Multi-country embedded payment acceptance capabilities (71%): Solutions that facilitate payments across different countries are essential for businesses operating in a global market.

The 2023 Fintech Waves Report by Ernst & Young and Fintech District corroborates the widespread adoption of these technologies, revealing that 96% of European businesses plan to implement embedded payments, and 94% aim to adopt embedded banking solutions.

Market dynamics and trends

The financial services industry is evolving beyond traditional B2C models, embracing a broader focus on global trade and B2B commerce. Fintechs increasingly provide services to banks and corporates, driving faster, more secure electronic payments, improved purchase order financing and solutions in ERP systems for expedited funding. Additionally, regulatory changes and the recent trend towards market consolidation in Europe are unlocking new possibilities for embedded finance, paving the way for greater innovation and efficiency.

B2B payments present a great opportunity for embedded finance to drive innovation. While consumers expect diverse, seamless payment options, businesses are increasingly facing the challenge of managing these payments in complex supply chains. Forrester Consulting’s study reveals that 60% of respondents noted difficulties with regulatory compliance (68%), technological innovation (63%), and payment digitisation (61%). Embedded finance plays a pivotal role in addressing these issues, as it enables the integration of payments with value-added solutions that streamline operations, simplify compliance, and elevate user experiences—ultimately turning challenges into catalysts for growth and efficiency.

Fabrick’s recent advancements reflect the sector’s progress. Payments, once seen as merely transactional, are now central to Fabrick’s strategy, becoming a “relational” driver that adds value for clients and their customers. In 2024, Fabrick strengthened its position in the European open finance landscape with the acquisition of 75% of finAPI, a leading German provider of open finance solutions. This move expanded Fabrick’s footprint in Germany, a market similar to Italy’s SME landscape, and solidified its role as a key player in account-to-account payments.

Paving the future of financial services

As financial services evolve, the focus is shifting from managing transactions to creating seamless user experiences. According to the Forrester study, efforts aimed at reducing fraud and payment processing costs, optimising working capital and improving customer experience are cross-country and cross-industry priorities in the next 24 months. The intersection of AI and embedded finance is also driving innovation, enabling new solutions that help businesses manage complexity and leverage payments as a strategic asset. Additionally, the trend toward consolidation is growing, as evidenced by the Bank of Italy’s April 2024 FinTech Survey, which found that over 50% of Italian banks are collaborating with or investing in fintechs.

This trend is gaining momentum across Europe, creating significant opportunities for M&A and business combinations. Studies, such as Forrester’s, confirm that simplifying the payments value chain remains a focal point, with fintechs playing a crucial role in optimising processes such as reconciliation, scoring, and alternative payment acceptance.

The shift from open banking to open finance marks a profound transformation in financial services. Embedded finance is leading this evolution, integrating financial services into everyday life and creating new opportunities for businesses and consumers alike.

Image: Fabrick

Guest Editorial This article was produced specially for Fintech Intel by an expert guest contributor.