Transforming Collections with Embedded Banking

Driving Deeper CX Engagement, Removing Cost, and Building Stronger End-Customer Relationships

Executive Summary

In today's rapidly evolving financial landscape, the collections industry has undergone significant transformation, yet there remains tremendous opportunity to enhance customer experience and operational efficiency further. While traditional collection methods have evolved considerably, modern approaches leveraging embedded banking can unlock even greater potential for organizations seeking to optimize their collections strategies.

Embedded banking offers a revolutionary solution to enhance collections effectiveness. Embedded banking seamlessly integrates financial services into existing customer touchpoints and user journeys, enabling organizations to create more engaging, personalized experiences. By bringing banking functionality directly to where customers already interact with brands, organizations can transform collections from a transactional process into a value-added service that strengthens customer relationships.

Embedded banking represents the integration of financial services into non-financial platforms, applications, and customer touchpoints, eliminating the need for customers to navigate separate banking interfaces. This approach offers significant benefits, including enhanced personalization, reduced friction, and improved customer satisfaction throughout the collections journey.

The embedded finance market is growing rapidly, expected to reach $7 trillion in transaction value by 2026, representing over 10% of total US financial transactions (Bain & Company, 2024). For collections specifically, digital approaches are showing significant promise, with research from McKinsey finding that customers who digitally self-serve resolve their debts at higher rates and report higher satisfaction levels than those paying via traditional collection calls.

Modern embedded banking solutions liberate organizations from the constraints of legacy banking infrastructure and outdated user experiences that have historically limited innovation in collections. This freedom to innovate allows for truly seamless, integrated approaches that align with modern customer expectations and digital-first interactions.

Introduction: The Evolving Landscape of Collections

The Challenge of Traditional Collections

Today's collections landscape has evolved significantly, with many organizations having already adopted digital-first approaches and moved beyond traditional phone-based methods. However, even progressive collections operations face mounting pressures in today's economic environment, including the need to balance customer experience with recovery effectiveness.

Contemporary collection challenges include:

• Rising operational costs: Maintaining comprehensive multi-channel operations and ensuring compliance across various touchpoints involves significant overhead.
• Evolving customer expectations: Digital-native customers expect seamless, self-service options that allow them to resolve obligations on their own terms. Industry data indicates the average success rate for debt collection agencies is only around 20-25% (Business Dasher, 2024).
• Experience consistency challenges: Ensuring consistent, positive customer interactions across all touchpoints while maintaining recovery effectiveness. This challenge is reflected in complaint data, as debt collection accounts for 27% of all complaints submitted to the CFPB, the highest among all categories (Business Dasher, 2024).
• Compliance complexity: Navigating complex and evolving regulations creates additional burdens and potential liabilities.

The Shift Towards Customer-Centric Approaches

Forward-thinking organizations recognize that collections can be reimagined as a customer service function rather than simply a financial recovery process. This perspective prioritizes:

• Empathy: Understanding and acknowledging customers' unique financial situations
• Personalization: Tailoring communication and payment options to individual circumstances
• Convenience: Making it as easy as possible for customers to understand and resolve their obligations

Consumer preferences have shifted dramatically toward digital engagement in collections, with generational differences creating an urgent need for transformation. Research by FICO found that 59% of consumers state email as their first preference for debt collection communications, compared to only 16% who want to receive a phone call (FICO, 2024). 

This preference is even more pronounced among younger generations, who have grown up expecting seamless digital experiences and often actively avoid phone-based interactions entirely.

This clear preference for digital channels is further supported by Bridgeforce (2024), which notes that digital portal options for repayment not only meet consumer preferences but also reduce operational costs for collections departments. 

As millennials and Gen Z represent an increasingly larger share of the consumer base, organizations that fail to adapt their collections approach risk alienating entire customer segments who view traditional phone-based collections as intrusive and outdated. This demographic reality necessitates entirely new user experience frameworks and customer journeys that align with digital-first expectations

Emergence of Embedded Banking as a Transformative Solution

Embedded banking represents the convergence of financial services with customer experience. By integrating banking functionality directly into communication channels and service platforms, organizations can create seamless, friction-free collection experiences that preserve and even enhance customer relationships. This approach transforms collections from a standalone, often adversarial process into an integrated part of the overall customer journey.

Real-world implementations demonstrate the transformative power of embedded banking in collections. Organizations that have integrated embedded payment solutions directly into their customer communication workflows report measurable improvements in engagement rates, payment completion, and overall customer satisfaction. These implementations showcase how embedded banking moves beyond theoretical benefits to deliver concrete operational improvements.

The broader embedded finance market is experiencing dramatic growth.

Bain & Company's research indicates it accounted for $2.6 trillion (nearly 5% of total US financial transactions) in 2021 and is projected to exceed $7 trillion, or over 10% of total US transaction value, by 2026. 

Looking specifically at embedded banking, Future Market Insights (2024) reports that this segment is expected to reach US$ 149,426.9 million by 2034, growing at a CAGR of 22.10% from 2024 to 2034. This growth trajectory underscores the increasing adoption of embedded financial services across industries, including collections.

Understanding Embedded Banking

Defining Embedded Banking

Embedded banking refers to the integration of financial services into non-financial platforms, applications, and customer touchpoints. Rather than redirecting customers to separate banking interfaces. Embedded banking brings banking capabilities directly to where customers already interact with your brand.

In the context of collections, embedded banking enables payment processing, account management, and financial advisory services to be seamlessly incorporated into existing customer communication channels and service platforms.

Key Components and Technologies

The embedded banking ecosystem consists of several critical components:

• APIs (Application Programming Interfaces): The technical connectors that allow banking services to be integrated into existing platforms
• Banking-as-a-Service (BaaS) platforms: Solutions that package banking functionality for easy integration
• Data analytics capabilities: Tools that enable personalization and risk assessment
• Compliance frameworks: Systems ensuring adherence to financial regulations

These components are supported by technologies including:

• Cloud computing: Enabling scalable and flexible deployment
• AI and machine learning: Powering personalization and automation
• Secure payment gateways: Facilitating safe financial transactions
• Identity verification systems: Ensuring security and compliance

Examples in Other Industries

Embedded banking has already transformed numerous industries:

• E-commerce: One-click checkout and buy-now-pay-later options
• Ride-sharing: In-app payment processing and driver compensation
• Healthcare: Integrated payment plans for medical expenses
• Subscription services: Automatic recurring billing with flexible management

According to Koombea (2024), embedded banking makes the most sense for companies using a specific platform to conduct business. Popular examples include Shopify Balance, which offers business accounts and branded debit cards with exclusive rewards to business owners, and Lyft Direct, which provides drivers with immediate access to earnings after every trip rather than making them wait for a weekly payout.

How Embedded Banking Differs from Traditional Banking

Traditional banking operates as a separate and distinct service that customers must actively seek out. Embedded banking, by contrast, brings financial services directly to customers within the contexts they already inhabit. This distinction is particularly relevant to collections, where traditional approaches require customers to take multiple steps across disparate systems to resolve their obligations.

The embedded finance market is only forecasted to grow as more organizations rethink their business models and experience growth in their revenue streams by offering financial products and services directly to their customers (Koombea, 2024). This shift represents a fundamental change in how financial services are delivered and experienced.

How Embedded Banking Drives Deeper CX Engagement in Collections

Personalized and Convenient Payment Options

Embedded banking transforms the payment experience by meeting customers where they are and offering flexibility tailored to their needs:

• Embedded payment gateways: While integrated payment processing has become increasingly common, true embedded banking elevates this by eliminating the need for customers to navigate to separate payment portals. For example, customers can make payments directly from SMS notifications, email communications, or mobile apps with just a few taps. 
• Self-service platform: A flexible platform enables customers to view obligations, understand payment histories, explore personalized options, and make payments through automated processes—all available 24/7. Research from EXUS (2021) found that over 50% of customers prefer a self-service solution for resolving debt, and over 20% prefer to do so outside of business hours, highlighting the value of a personalized, automated platform that adapts to individual schedules.
• Flexible payment plans: Rather than enforcing rigid payment terms, embedded banking enables highly personalized payment arrangements. At Firstsource, we've seen that customers prefer self-serve and make payments when offered personalized options tailored to their specific circumstances.

Proactive and Empathetic Communication

Embedded banking enables communication that anticipates customer needs and acknowledges their circumstances:

• Automated reminders and notifications: Intelligent systems can send contextually appropriate payment reminders through customers' preferred channels at optimal times. McKinsey's research (2019) provides compelling evidence of the effectiveness of this approach, finding that digital channels achieve significantly higher action rates than traditional channels, with customers taking payment action 73% of the time when contacted through digital means compared to significantly lower rates for traditional methods.
• Personalized messaging: Communications can be tailored based on customer history, preferences, and circumstances. At Firstsource, we have over 200+ email and SMS templates built for more than 7,000 customer profiles have achieved an impressive 99.5% CSAT score, demonstrating the effectiveness of personalized communications in collections.
• Multi-channel communication strategies: Embedded banking solutions support seamless experiences across SMS, email, mobile apps, web portals, and other channels. Despite the evidence supporting digital engagement, McKinsey's research revealed that the majority of issuer-initiated contacts with delinquent customers (66%) were still through traditional channels, with only 35% through digital channels. This gap between current practice and optimal strategy represents a significant opportunity for organizations to improve their collections performance.

Enhanced User Experience

The quality of interaction fundamentally shapes customers' willingness to engage:

• Streamlined payment processes: Reducing friction in the payment process significantly improves completion rates. Research from Arrears (2023) demonstrates the impressive potential of digital channels, which can achieve 82-92% payment rates. The same research found that SMS marketing campaigns are 429% more likely to result in conversion compared to other methods, highlighting the effectiveness of mobile engagement.
• Intuitive interfaces: Well-designed user experiences guide customers naturally through the resolution process. McKinsey's research found that consumers who digitally self-serve resolve debts at higher rates, pay in full more often, and report higher satisfaction than those using traditional collection calls. Embedded banking allows companies to leverage banking rails while building purpose-built interfaces optimized for collections, enabling continuous iteration based on user feedback rather than being constrained by generic banking UIs.
• Trust and transparency: Clear information presentation builds confidence and trust. Latinia (2024) found that 70% of consumers expect personalized financial advice, an expectation that extends to collections processes. Embedded banking unlocks access to incremental data that can inform and educate both parties throughout resolution. By owning the UI, organizations can strategically incorporate exactly the data points needed to help customers make informed decisions with full transparency.

Removing Cost and Improving Efficiency with Embedded Banking

Automation of Key Processes

Embedded banking dramatically reduces manual intervention through intelligent automation:

• Automated payment processing and reconciliation: Straight-through processing eliminates the need for manual payment handling and posting. Research from PDCflow (2025) confirms this industry shift, noting that most companies have moved away from phone and mail to primarily online, email, and SMS channels to better manage payment collection efforts. This transition significantly reduces manual processes and associated costs.
• Reduced manual intervention: Automated workflows handle routine inquiries and transactions, allowing staff to focus on complex cases requiring human judgment. 
• AI-powered assistance: Chatbots and virtual assistants can resolve routine customer inquiries about payment status, options, and processes at a fraction of the cost of human agents. According to Bridgeforce's industry survey (2024), nearly 40% of respondents identify AI as a significant area of opportunity and future impact in collections, though they note it remains the most misunderstood and challenging area to implement effectively.

Lower Transaction Costs

The financial advantages of embedded banking extend to the transactions themselves:

• Reduced processing fees: Direct integration with payment systems eliminates intermediaries and associated costs. According to research from SuperteamHQ (2024), the embedded finance market has grown substantially, with revenue surging to $111 billion in 2024. This scale helps drive down per-transaction costs across the ecosystem.
• Economies of scale: As digital payment volumes increase, per-transaction costs decrease further. The embedded finance market's projected value of $1.4 trillion (SuperteamHQ, 2024) indicates the significant scale potential that will continue to drive cost efficiencies for organizations implementing these solutions.
• Reduced exception handling: Automated validation and verification reduce payment exceptions that typically require costly manual intervention. At Firstsource, we have documented concrete results in this area, reporting that our digital collections processes have achieved a remarkable 70% reduction in overall cost to collect through such efficiency improvements.

Improved Recovery Rates

Perhaps most significantly, embedded banking demonstrably increases recovery success:

• Higher completion rates: Traditional debt collection methods have shown limited effectiveness. The Consumer Financial Protection Bureau's 2024 annual report highlights ongoing consumer protection issues in debt collection, with industry data showing recovery rates of only 20-25%. Digital collection approaches offer significant potential to improve these underwhelming results.
• Accelerated collection cycles: Speed of resolution is a critical factor in successful collections. McKinsey's research has demonstrated that digital self-service options led to faster resolutions, with customers not only more likely to engage but also more likely to pay in full compared to traditional collection methods. This acceleration improves cash flow and reduces the time value loss of outstanding balances.
• Increased self-cure rates: When provided with convenient, self-service options, customers demonstrate a strong willingness to resolve obligations without requiring direct intervention. Firstsource's data supports this, showing that 92% of customers self-serve and make payments when offered personalized digital options that fit their needs and circumstances.

Taken together, these efficiency improvements create a compelling financial case for leveraging embedded banking in collections.

Market validation supports this opportunity. McKinsey research shows that over 90% of financial institutions use or plan to use APIs to generate additional revenue among existing customers, with three-quarters seeking revenue from new customers. This mirrors the success of companies like Toast, which now derives 87% of its revenue from financial services rather than its original point-of-sale business.

Building Stronger End-Customer Relationships

Shifting from Adversarial to Collaborative

Embedded banking fundamentally reframes the collections relationship:

• Partnership mindset: Rather than demanding payment, embedded banking platforms position your organization as a financial partner, helping customers navigate temporary challenges. This reframing transforms the emotional dynamics of interaction.
• Customer-centric collections: By focusing on finding mutually beneficial resolutions rather than simply securing payment, your organization demonstrates a commitment to customer welfare. Research from Bridgeforce (2024) emphasizes this point, highlighting that customer-centric digital engagement in debt collections significantly improves outcomes. Their findings indicate that when customers are approached with empathy and offered solutions tailored to their situation, they respond more positively.
• Relationship continuity: When collections are seamlessly integrated into the overall customer experience rather than handled as a separate process, it preserves relationship continuity and maintains context. According to customer experience research by Latinia (2024), over 82% of respondents identified customer experience as the leading driver behind customer loyalty, underscoring the importance of maintaining positive interactions even during collections.

Offering Value-Added Services

Embedded banking enables organizations to provide resources beyond simple payment processing:

• Financial wellness tools: Integrated budgeting tools, payment calendars, and financial education resources help customers manage their overall financial health. This increases long-term engagement with borrowers and ultimately improves recovery rates.
• Personalized advice: AI-powered systems can analyze customer financial patterns to offer relevant guidance and suggestions. This aligns with broader consumer expectations, as research from Latinia (2024) found that 70% of consumers expect personalized advice from their financial institutions, reflecting a desire for services that align with their individual financial goals and circumstances.
• Rehabilitation opportunities: Rather than treating delinquency as terminal, embedded banking platforms can offer paths back to good standing through structured programs. The effectiveness of this approach is supported by McKinsey's research, which found that digital collection channels achieve 73% action rates (resulting in partial or full payment), significantly outperforming traditional methods.

Long-Term Customer Loyalty

The relationship benefits extend far beyond collections:

• Increased retention: Customer experience has become a primary driver of loyalty. Research by Latinia (2024) quantifies this, finding that over 82% of respondents see customer experience as the leading driver behind customer loyalty. By improving the collections experience through embedded banking, organizations can directly impact this key retention metric.
• Positive brand perception: McKinsey's survey of customers with recent credit card delinquency showed strong preference for digital self-service options, with higher satisfaction than traditional collection methods. This explains BNPL's success over credit cards; superior digital journeys built on embedded finance rails create supportive rather than punitive experiences.
• Increased lifetime value: Customer relationships that survive collections episodes have significant future value potential. Empathetic, solution-oriented processes increase customer retention compared to acquisition costs. By adding value at the point of need, embedded finance becomes a powerful lever to differentiate in crowded markets.

Overcoming Challenges and Implementing Embedded Banking

Key Considerations

Successful implementation requires addressing several critical areas:

• Technology infrastructure: Embedded banking requires robust, secure technical foundations. Organizations must evaluate their current systems for compatibility and integration capabilities with banking platforms.
• Data security and compliance: Financial transactions involve sensitive data subject to stringent regulations. Comprehensive security protocols and compliance frameworks are essential: 
  • GDPR and CCPA compliance for customer data protection
  • PCI DSS standards for payment processing
  • Industry-specific regulations like HIPAA for healthcare collections
• Regulatory landscape: Financial services are highly regulated, with rules varying by jurisdiction. Organizations must navigate: 
  • Licensing requirements for certain banking functions
  • Consumer protection regulations for collection activities
  • Identity verification and anti-money laundering obligations

According to Bridgeforce (2024), while there is clear adoption of digitally enabled collection technologies, challenges with customer engagement persist. Their research found that many organizations face significant challenges in the use of digital tools due to low adoption rates, noting that customers often find it easier to disengage with automated systems than with live representatives.

The Future of Collections: The Embedded Finance Revolution

Emerging Trends and Innovations

The embedded banking landscape continues to evolve rapidly, with several key developments shaping its future:

• Advanced AI and machine learning: Next-generation systems will offer increasingly sophisticated personalization capabilities. Bridgeforce's industry survey (2024) provides insight into this trend, with nearly 40% of respondents identifying AI as a significant area of opportunity and future impact in collections. However, the research also notes that AI currently remains the most misunderstood and challenging area for many organizations, suggesting a need for continued education and careful implementation.
• Open banking expansion: The growing adoption of open banking standards will enable a more comprehensive financial context for personalization and streamlined integration. Market data from SuperteamHQ (2024) indicates the momentum behind this trend, with 56% of companies now offering some form of embedded finance, and total revenue in this space surging to $111 billion in 2024.
• Blockchain and distributed ledger technologies: These emerging technologies promise to increase transparency and efficiency in obligation tracking. While SuperteamHQ (2024) reports growing interest in blockchain applications for embedded finance, they also note that adoption still faces challenges related to regulatory uncertainty and privacy concerns that will need to be addressed for widespread implementation.
• Advanced AI and machine learning: Next-generation systems will offer increasingly sophisticated personalization. According to Bridgeforce (2024), nearly 40% of respondents see AI as a significant area of opportunity and future impact in collections, though it remains the most misunderstood and challenging area.
• Open banking expansion: Growing adoption of open banking standards will enable more comprehensive financial context for personalization. According to SuperteamHQ (2024), 56% of companies now offer embedded finance, with revenue surging to $111 billion in 2024.
• Blockchain and distributed ledger technologies: These emerging technologies promise increased transparency in obligation tracking. SuperteamHQ (2024) reports that blockchain technology is increasingly being explored for embedded finance applications, though adoption faces challenges related to regulatory uncertainty and privacy concerns.

Long-Term Industry Impact

The embedded banking revolution will fundamentally reshape collections over the next decade:

• Blurring of industry boundaries: Financial services will increasingly be embedded within other customer experiences, making traditional industry distinctions less relevant. This significant market share demonstrates how financial services are becoming integrated components of broader customer journeys rather than standalone offerings.
• Shift from reactive to proactive: Collections will evolve from addressing delinquency to proactively managing financial health and preventing issues before they arise. Bridgeforce's industry research (2024) confirms this direction, highlighting that predictive analytics and early intervention are becoming key areas of focus in forward-thinking collections strategies. This preventive approach not only improves recovery rates but also enhances customer relationships.
• New competitive landscape: Organizations that master embedded banking will gain significant competitive advantages through improved economics and customer loyalty. Deloitte's 2025 banking outlook emphasizes this point, advising financial institutions to develop finer customer segmentation based on data such as lifestyle or spending habits to drive fee income and remain competitive in a changing market environment.
• Regulatory evolution: Regulatory frameworks will continue to adapt to the embedded banking model, potentially creating both new compliance requirements and new opportunities. McKinsey's research underscores the importance of balancing digital innovation with regulatory compliance, noting that lenders need a well-designed approach to develop an effective multichannel contact strategy that meets both customer needs and compliance standards.

Conclusion

The transformation of collections through embedded banking represents a rare opportunity to simultaneously improve customer experience, reduce operational costs, and strengthen long-term customer relationships. By seamlessly integrating financial services into existing customer touchpoints, organizations can convert what has traditionally been a challenging interaction into a value-added service.

The benefits are compelling:

• Enhanced customer experience through personalized, convenient, and empathetic collection processes
• Substantial cost reductions through automation, streamlined transactions, and improved operational efficiency
• Stronger customer relationships built on collaborative problem-solving rather than adversarial demands

For organizations, the message is clear: embedded banking is not merely a technological upgrade; it's a strategic imperative. Those who embrace this transformation will position themselves for competitive advantage in an increasingly customer-centric marketplace.

Challenge the Status Quo

Why settle for outdated payment processes that frustrate customers and drain resources? Find a strategic partner who will challenge conventional thinking and work alongside you to reimagine your entire payment ecosystem. Look for a collaborator who brings fresh perspectives to transform legacy processes into innovative solutions that both customers and businesses value.

The time to act is now. As consumer expectations continue to evolve and technological capabilities expand, the gap between traditional collection approaches and customer expectations will only widen. By investing in embedded banking solutions today, organizations can ensure they remain relevant, effective, and valued by their customers well into the future.

References

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Bain & Company. (2024). Embedded Finance Report: Thriving in the New Value Chain. Retrieved from https://www.bain.com/insights/embedded-finance/

Bridgeforce. (2024). Debt Collection Industry Trends and Insights 2024. Retrieved from https://bridgeforce.com/insights/debt-collection-industry-trends-and-insights-2024/

2024 Consumer Response Annual Report Retrieved from https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2024/

Deloitte. (2025). 2025 banking industry outlook. Retrieved from https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/banking-industry-outlook.html

EXUS. (2021). The future of debt collections: Trends in new tech and customer service. Retrieved from https://www.exus.co.uk/blog/the-future-of-debt-collections-trends-in-new-tech-and-customer-service

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Koombea. (2024). Embedded Banking: Everything You Need to Know. Retrieved from https://www.koombea.com/blog/embedded-banking/

Latinia. (2024). Banking Statistics Shaping Customer Experience [2024]. Retrieved from https://latinia.com/en/resources/banking-statistics-shaping-customer-experience

McKinsey. (2019). The customer mandate to digitize debt collection strategies. Retrieved from https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/the-customer-mandate-to-digitize-collections-strategies

PDCflow. (2025). Customer Engagement Strategies for AR, Debt Collection. Retrieved from https://www.pdcflow.com/debt-collection/first-consumer-contact-creating-positive-customer-experience-debt-collection/

SuperteamHQ. (2024). Embedded Finance Statistics for 2024. Retrieved from https://www.superteamhq.com/post/embedded-finance-statistic

FICO (2024). Debt Collection Communications: Are You Doing It Right? Retrieved from https://www.fico.com/blogs/debt-collection-communications-are-you-doing-it-right