In 2020, embedded finance was all the rage, poised to revolutionise the business landscape. Our 2021 Embedded Finance research report confirmed the hype: 73% of respondents were planning to launch an embedded finance offering within two years.

But our most recent report – Embedded Finance in 2023 – told a different story: our respondents were far more conservative in their approach to embedded finance. However, there was one group that stood apart from the rest: European payroll and B2B fintech companies have become embedded finance pioneers, with firm plans to implement both embedded payments and embedded banking into their business models, expecting them to be worth a combined €97bn in revenue over the next five years.

So why is this the case? And what can other companies learn from payroll and B2B fintechs’ leadership in embedded finance? We took a deeper look at the state of embedded finance adoption to find out more.

The right skills, knowledge and relationships

When we dug into our responses, we saw two clear challenges that have hindered the uptake and implementation of embedded finance: first, the lack of an internal project team focused solely on embedded finance and second, an unclear understanding of customer needs.

Ultimately, both of these challenges are talent problems, problems which some firms will find more acute than others. Payroll and B2B fintech firms for example, have an innate advantage in these areas. Most fintech firms will have at least one cofounder with a technical background, either as a developer or in a product role. Fintechs typically hire more developers and other technical-focused employees than traditional financial institutions, and the majority of these firms are focused on selling software solutions, so even non-technical employees will understand how technology is revolutionising the financial sector.

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Being so technology focused also means these firms understand the value of taking advantage of new solutions that directly address clients’ needs. Modern payroll and B2B companies are likely to have built their services in a modular way, using inputs from multiple different providers, as well as developing their own proprietary technology. This attitude is an ideal foundation for implementing embedded finance services.

A roadmap for success

Organisations in radically different sectors can’t compete with payroll and B2B fintech firms’ natural advantage, but they can learn lessons from it to make the road to implementation easier.

For most companies, the first step needs to be investing in the right talent, by either recruiting or training employees whose sole purpose is to gather and understand customer feedback and pain points, and ensure this feedback is proactively built into the product development cycle.

Better customer insights and data can then feed into better decision-making, which helps to explain why payroll and fintech companies haven’t been sitting on their hands with embedded finance adoption. Embedding financial services not only helps companies solve the pain points important to their customers, such as slow payments or limited foreign exchange support, as well as roll out completely new service offerings.

While embedded finance might not be as advanced as the financial services industry anticipated back in 2020, EU payroll and B2B fintech companies are demonstrating that there is still serious interest and potential across the continent. Embedded finance is a multi-billion euro opportunity, and companies need to be proactive if they’re to capitalise.

Barry O’Sullivan, OpenPayd Head of Banking and Payments Infrastructure