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Guest blog: Why building societies should embrace Embedded Finance

Guest blog by Dhritiman Mukherjee and Guy Griffin, from BSA Associate, DXC Technology.

By Dhritiman Mukherjee and Guy Griffin, DXC Technology

Embedded Finance and its benefits

Embedded Finance refers to services and propositions through which businesses offer their customers financial services related to their core products and user journeys. It represents a new era of frictionless commerce, and its benefits include:

  • Revenue uplift by selling more products and services
  • Potential cost savings over existing customer journeys
  • Increase the profile of the brand in the daily life of the customer
  • Potential for improved cross sell and customer engagement
  • Open API solution with reduced development requirement
  • Offered inclusive of necessary financial services licencing
  • Ability to leverage more data and insight on customer behaviours

Why is it relevant?

Embedded finance is changing the platform ecosystem for banks and building societies, how they interact with their business and personal customers and is crucial to their future growth and profitability.

In the aftermath of Brexit, the COVID-19 pandemic, and the tightening economic environment, the financial services landscape is undergoing a profound transformation, powered by emerging digital technologies, rapidly evolving customer preferences and new competitive threats from fintechs.

To compete and survive, financial services companies must embrace embedded finance ecosystem business models to drive growth and value. Embedded finance is disrupting the market and can disintermediate long dominant banks and building societies. These businesses risk losing customers (members) and revenue to more innovative companies who are embedding financial services into their suite of non-financial services they already offer.

Maintaining relevance to younger customers is a key consideration for building societies. One method to stay relevant could be to use embedded finance solutions to expand their service offering beyond the sector’s focus on savings and mortgages. This would help meet the changing expectations of their customer base, improve customer experience and retention.

Embedded Finance proposition

A typical Embedded Finance proposition consists of a digital wallet for customers with capabilities similar to a current account with additional functionalities, helping make the brand a greater part of customers’ daily lives, optimising costs, generating revenue, and providing crucial customer insight. Leveraging an elastic, scalable technical and commercial model, the solution includes its own regulatory compliance without the upfront cost and integration effort associated. Some of these additional functionalities include:

  • Account to account transfers: Direct bank to bank payments remove requirement for using debit/credit cards, potentially reducing transaction costs in-store and online
  • Multi-currency payments: Customers with their own, provisioned accounts automatically transact in either Euro or Sterling currencies. Currency exchange is instantaneous and uses the interbank rate, which is cheaper than typical high street retail foreign exchange rates
  • Peer-to-peer payments: Make a payment to other customers. QR codes can be scanned, or links shared via messaging channels to make instant transfers between individuals, using Faster Payment rails, which can also support repeated micro-payments, such as music or literature downloads
  • Virtual debit cards: Automatic provision of a virtual card with each account, which can be used via NFC or online at all merchants, in both currencies
  • BNPL Schemes and Loans: Embed retailer branded lending products, such as vehicle finance or ‘buy now, pay later’ proposition. Open APIs enable existing finance providers to integrate more easily than through legacy core banking technology
  • Integrated Travel Booking: Embedded train, bus, taxi etc. booking through the app. 


How can DXC help?

The business customers of banks and building societies (e.g. a telco company or retailer) are keen on implementing value added financial products (e.g., digital wallets, payments, BNPL schemes, insurance etc.) as part of their core customer journeys. Currently, most building societies do not provide their business customers/members, some of which have niche requirements, with a cost effective, flexible, and easy to integrate solution to enable financial services in the latter’s customer journeys as they can only leverage their existing, often monolithic core banking ecosystems which are not designed to cater for these requirements and do not allow lean deployment. Hence, these companies are either going it alone or approaching SIs for solutions, disintermediating the building societies.

DXC in conjunction with our Embedded Payments platform partner Modulr and other ecosystem partners can help building societies deploy a tailored Embedded Finance solution that they can offer to their customers. We offer a full value chain of services from strategy through design, implementation, and operations. 

DXC is a trusted partner in banking transformations, working with more than 100 financial institutions in the EMEA region. Our teams of experts understand the full spectrum of the banking ecosystem and can help to accelerate your product launch in this digital-first age.

Modulr provides a cloud based, API driven, digital accounts and payments platform utilising its FCA permissions, direct payment scheme membership and Bank of England settlement accounts. Modulr has helped over 400 organisations in the UK and Europe. For Building Societies, Modulr’s services enable inbound and outbound payments to be CoP checked, executed through various payment channels, reconciled and applied to accounts in real-time 24x7 basis, dramatically improving the customer experience and reducing costs.

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The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.