Moving from embedded finance to embedded treasury: what does this mean for businesses?

Félix Grévy, VP Product, Open API and Connectivity at Kyriba

There was a time when accessing financial services such as payments, lending, and investments depended on in-person visits to the bank or calling service centres and having to wait for the next available agent. However, once the digital evolution started transforming industries, businesses have slowly transitioned to a digital-first approach, with the pandemic accelerating it alongside the adoption of Software-as-a-service (SaaS). Digital tools have been introduced across the sector to ensure that businesses are keeping up with the fast-paced world of modern banking whilst also remaining efficient, secure and competitive. As a result, businesses have reported an increase in performance and profitability over the past 24 months thanks to digital transformation.

One of the solutions adopted includes embedded finance, which is the practice of integrating financial services into non-financial platforms to be able to provide the support needed directly to the end user. Thanks to software platforms, software enablers, and banks, financial services can now be seamlessly embedded into non-financial services contexts.

What does embedded finance truly mean for businesses and where does embedded treasury come to play?

The rise of embedded finance

Embedded finance is generally focused on payments, money transfers and lending to name a few. Having said that, now more and more businesses are leveraging these methods internally to process payments in real-time and sync more seamlessly to treasury management systems. It is evident that embedded finance is invaluable for the success of a business so much so that the practice is predicted to continue growing. Specifically, the global embedded finance market is expected to see a growth rate of 148 percent from 2024 to 2028, totalling a transaction value of $228 billion by 2028.

The transition to embedded finance methods is spearheaded by the growth of open banking and application programming interfaces (API). These API systems have made it much easier to incorporate financial services right into the heart of existing business operations. Previously, it could have taken at least six months to embed payments from one bank into an organisation’s Enterprise Resource Planning (ERP) due to the need for specialised resources. Today, this can be done in a matter of days or weeks, which is due to Open APIs, providing transparent specification and standard protocols.

The monetary and time investments associated with digital innovation often outweighs the benefits of embedding finance into operations. This is made even more complex for mid-market and enterprise businesses who have relationships with a number of banks, which is due to an array of, sometimes, conflicting systems that must be navigated. With embedded finance, however, all necessary information is in one tool thanks to software enablers who use APIs and SaaS models. These have been crucial in delivering embedded experiences using host-to-host connections.

Financial services institutions in the US, Europe and other regions have made investments in APIs to help improve payment transactions. In the US, this move has been market-driven, whilst in Europe, regulations such as the Payment Services Directive (PSD2) have helped this transition, even in the corporate space, where banks are proposing premium APIs. The motivation behind this is to reduce complexity, improve efficiency, agility and security with payments, which also helps to drive further innovation. This move empowers businesses to automate their downstream treasury or other non-treasury business processes to better align with their organisations’ operational goals.

Transitioning from embedded finance to embedded treasury

The move from embedded finance to embedded treasury is significant and involves integrating treasury functions directly into the tools used by the finance team at any organisation. For example, the treasurer and a treasury payment analyst may need to discuss an urgent payment using their internal communications platform. Traditionally, the analyst would have been forced to access another system, such as the bank portal, to initiate, approve, and release the payment. However, with an embedded treasury model leveraging APIs, requests can originate, be approved and released within the messaging system itself. This provides real-time visibility into the account and there is no need to switch between multiple systems.

Additionally, treasury-centred API systems can also act as a catalyst for upstream or downstream process or system modernisation. Through leveraging APIs, the same system can process real-time requests for loans or payments, for example, and so better sync with treasury management systems.

Due to the significant rise of embedded finance and more businesses adopting treasury APIs, the ways in which financial services are delivered and consumed is transforming. Treasury APIs also facilitate building a system of applications around the treasury management system itself. This enables the team to act on insights gathered in their treasury system within a single user experience. The use of APIs unifies this model for treasurers, and overcomes the need for multiple systems, screens, and login steps. This is much better integrated into financial services within their existing systems and processes.

Altogether, these features significantly enhance the productivity of the finance team and eliminate the need to contact the Treasury Management Solution or the treasury department for information. As such, reducing complexity, and driving agility and innovation.

The future of embedded finance models

It is vital for businesses to fully understand and embrace the benefits of embedded finance and embedded treasury. The future of the financial services sector is ever-changing and organisations should consider adding such methods to their digital transformation strategies to gain significant advantage in the future.

Businesses must also review their current operations and performance to strategise how they can better create a successful embedded treasury mode that is unique to their needs. This will create strong building blocks for future transformation and keep them ahead of the competition in the market.