Customers are increasingly accessing financial services and products through digital interfaces offered by non-financial service providers, giving rise to the embedded finance model. This shift in customer engagement and relationship, as well as integration onto digital platforms, raises important strategic considerations for financial institutions (FIs). Many innovators, including traditional FIs, fintechs, and third-party service providers, are already investing in and deploying the capabilities required to embed financial services into non-financial offerings; or investing directly in non-financial service providers that already embed some financial products in their ecosystems.

In this report, the second in a series of four on financial services ecosystems, the Institute of International Finance (IIF) and Deloitte Global explore the concept of embedded finance, and how it impacts customer experience. In summary, we find that customer experiences are evolving rapidly as financial products and services become ubiquitous, available for the customer whenever and wherever they need it, and increasingly embedded in non-financial transactions or activities.

This paradigm shift also implies a transformation in the value chain of financial products and services. In fact, the emergence of embedded finance models is further evidence that financial services value chains are evolving into non-linear “value webs,” where multiple players are contributing value simultaneously (vs. sequentially) to bring a product to the end consumer. What becomes visible for the consumer is often the service, good, or value proposition they are looking for, while the underlying financial service becomes less visible. This can also impact how financial services providers are perceived by consumers, as well as on the user experience and availability of options for corporate and retail customers.

The report builds on the insights we’ve received from more than 200 senior and C-suite executives, transformation leaders, investors, regulators, thought leaders, and government officials we have interviewed over the past 3 years. The report delivers thought-provoking insights on the following fronts:

• Embedded finance benefits, challenges, and drawbacks
• Developments and trends shaping embedded finance
• Direction where embedded finance is headed 
• Deep dive: Embedded finance across industry verticals