Banks at a Crossroads—compete or collaborate?

“As a bank, you can see embedded finance as two sides of a coin: On one side, there’s additional competition and an endangered customer base. On the other, there’s access to new customers, lower acquisition costs, and a better customer experience.”
— Dr. Markus Ampenberger

This quote from Dr. Markus Ampenberger, Managing Director & Partner at BCG, set the stage at the recent Embedded Finance Review Meetup in Frankfurt, where leading voices from both traditional banking and fintech— Lars Markull (Embedded Finance Review), Dora Ziambra (Tide), Alex Mueller (Holvi), Mickaël Bellaïche (Redstone), Dr. Markus Ampenberger (BCG), Miriam Wohlfahrt (Banxware) and Mandya Aziz (Banxware)—came together to debate the future of financial services.

At the heart of the discussion was one question: Should banks see embedded finance as a threat and compete—or as an opportunity and collaborate?

The rising power of embedded finance

In simple terms, embedded finance stitches traditional financial services—think payments, lending, or insurance—directly into non-financial platforms where users already spend time, such as e-commerce sites or bookkeeping apps. Rather than diverting customers to a separate banking portal, this integration allows financial tasks to happen seamlessly in the background.

For banks, embedded finance represents an opportunity to forge deeper customer relationships and enter new markets. As Dr. Ampenberger noted, it can improve customer experiences while lowering acquisition costs. Yet if banks resist or delay, they risk losing loyal customers to nimbler fintechs that excel at user-friendly online experiences.

Banks vs. Fintechs: the competition dilemma

During the meetup, the panelists explored how traditional banks often feel pressured to build and control every piece of the value chain. This mindset pits them against fintech competitors who innovate quickly and cater to specific user needs—particularly small- and medium-sized enterprises (SMEs).

1. Eroding Market Share: When fintechs offer more convenient, faster solutions, SMEs might start moving away from banks they once relied on.
2. High Development Costs: Attempting to replicate fintech capabilities in-house can be costly and time-consuming.‍
3. Regulatory Complexities: Innovating within strict regulatory frameworks can slow a bank’s response to market needs, making it harder to keep pace with agile fintechs.

While pure competition might have short-term appeal, it can overlook a bigger prize: strategic partnerships that bridge a bank’s regulatory and financial expertise with fintechs’ agility and customer-centric design.

The case for collaboration

If competition is a short-sighted approach, collaboration emerged as the more enduring and profitable strategy. When banks ally with fintechs, they gain:

• Innovation Without the Hassle: Rather than reinventing the wheel, banks can tap into proven fintech platforms, slashing time-to-market for new services.
• Expanded Reach: By linking up with fintechs already serving niche sectors, banks gain immediate access to new customer bases—particularly SMEs.
• Enhanced Customer Experiences: Banks bring trust, capital, and regulatory strength; fintechs bring sleek user interfaces and rapid development cycles. Together, they can deliver offerings that stand out in the market.

Dr. Ampenberger also underscored how SMEs increasingly want comprehensive support, not just financial services:

“From my perspective, the right level of financing is the first challenge. But the second point is also that administrative tasks can take away a lot of time. If banks can help in that regard, that would be a huge benefit. So first financing, then being convenient and helping beyond financial needs—this is the bank of tomorrow.” - Dr. Markus Ampenberger

Our founder Miriam Wohlfahrt echoed this sentiment:

“Banking products are no longer standalone offerings—they’re part of a value chain powered by technology. I recommend banks identify their core product in this chain and partner for everything else. Our collaboration with HypoVereinsbank is a perfect example of that.” -Miriam Wohlfahrt

HVB FlexFinanzierung

One standout example of bank-fintech collaboration is HVB FlexFinanzierung powered by Banxware—a joint product from HypoVereinsbank (HVB) and Banxware, announced in December 2024. This offering merges the deep expertise and reputation of a major bank with the cutting-edge tech and speed of a fintech:

• Credit Line Range: €250,000 to €5 million—expanding beyond Banxware’s former €250,000 term loan cap.
• Combined Strengths: While HVB brings regulatory know-how and banking know-how, Banxware provides flexible tech digital solutions.
• Faster Time to Market: Instead of building everything themselves, HVB leverages Banxware’s existing digital solutions to move more quickly.

Martin Brinckmann, Head of Small and Medium Corporates at HypoVereinsbank, summed up the future this way:

“I think looking forward we will see an increasing trend for embedded financing. Clients will increasingly use platforms and also request financing on those platforms—so there will be growth in embedded lending, and Banxware and HVB are ideally positioned to lead this.” -Martin Brinckmann

Action points for banks

So, where should traditional banks start? The panelists agreed that a good first step is to clarify the bank’s core focus: What do we want to build our core business around, and what do we want to offer? Here are a few actionable steps to address that question:

• Identify Your Core Value Proposition: Decide which capabilities are worth keeping in-house and which could be outsourced or co-developed with fintech partners.‍
• Simplify the SME Journey: Beyond financing, consider offering solutions that reduce administrative and bureaucratic burdens.‍
• Partner Strategically: Look for fintechs that complement your strengths and address known gaps—especially if you aim to better serve SMEs.

Conclusion: Two sides of a coin

Banks can either compete or collaborate with fintechs in the realm of embedded finance, but the consensus at the Embedded Finance Review meetup was clear: collaboration is the more sustainable path forward. By partnering with agile fintechs, banks can expand their reach, deliver superior customer experiences, and remain competitive in a rapidly evolving marketplace.

For institutions ready to seize the collaborative opportunity, Banxware’s partnerships—like the one with HypoVereinsbank—highlight just how transformative these alliances can be. By recognizing the two sides of embedded finance—threat and opportunity—banks can make bold moves to modernize their offerings, win new customers, and thrive amid continuous change.

_{Curious about how Banxware can help your institution tap into embedded finance opportunities? Get in touch with our experts to explore partnership possibilities.}