• Ion Fratiloiu, Head of Commercial at Yobota


• 07.03.2022 04:15 pm
#banking #technology #payment

To those within the world of finance, the potential of embedded banking services seems nearly unlimited. Some have already predicted that the sector will reach an estimated global value of $7 trillion in the next decade – a figure so large that every financial business in the marketplace is sitting up and taking notice.

Outside of this ecosystem, however, many businesses are yet to wise up about the massive potential of embedded finance and banking solutions. For these companies, the cost and effort of setting up their own fully functional financial products and services have been far too great to bear, and the difficulties arising from compliance issues and banking licenses have been enough to enforce the idea that embedded finance is the sole property of banks and financial institutions. 

This, however, is no longer the case. Any business that services customers and handles payments or transactions of any sort could and should be benefitting from this opportunity. The benefits on offer are great, and as demand for these types of services increase those benefits are set to increase in tandem. 

The missing link between non-financial businesses and the embedded banking and finance products they deserve is Banking-as-a-Service (BaaS), and this article will outline everything a non-financial company needs to know about the world of BaaS and what it could mean to their future. 

Putting your best foot forward

One of the great barriers to entry when it comes to embedded financial products has always been the difficulty of building them from the ground up, as the underlying technology is complex, the compliance issues are hard to navigate, and issues can arise with integration with legacy tech and scaling. Outsourcing the effort to a BaaS provider mitigates these issues, making integrating an embedded solution into a non-financial an inherently intuitive process. 

With the use of smart APIs, modern core banking products come pre-packaged as plug-and-play white-labelled solutions, meaning they seamlessly connect with the target’s platform and ensure the payment, transaction or sign-up is conducted in-site, without linking to external products or platforms. 

BaaS providers who come equipped with their own fully compliant banking license can take care of the regulatory issues, meaning the business need only worry about improving their own offering, and can leave the banking concerns to the bank.

As businesses grow, these BaaS solutions scale with them automatically, avoiding the teething problems that can arise from legacy tech. Finding the right BaaS partner that predicts and accommodates a business’ needs makes it easy for them to add new propositions to the customer experience – whether that is insurance products that can be tagged on at checkout, or a loan to plug affordability gaps. 

What BaaS can do for businesses

Naturally, one of the biggest draws of embracing embedded financial solutions is that it can help to boost revenues, as offering their own embedded lending and credit products like Buy Now, Pay Later can generate income. While this has its benefits, it is not the true strength of embedded finance – this comes in the form of customer experience (CX).

90% of financial services experts agreed that client expectations are higher today than they were a year ago, likely a result of the shift to eCommerce during the pandemic changing standards of service. 

For commercial and retail businesses, nothing is more important than the customer. Embedded finance and banking solutions are there to provide for them and ensure that their experience is quick and easy at every touch point. Today’s consumer expects that their banking details and personal information will be immediately and securely stored by their favourite brands and that they will encounter no friction on their purchasing journey. 

BaaS enables non-financial companies to offer personalised debit cards, credit options, insurance and bank accounts from within the bounds of their webpage, ensuring that their customers have instant access to everything they need without passing them off to third-party providers. The value of white-labelled solutions is that they ensure consistent branding throughout the customer journey, as listing overtly third-party products can dilute the overall experience.

Keeping all these services in-house is not only convenient to the end-user – but it also generates valuable Know Your Customer (KYC) data for the host that can be used to further customise CX in the future and add value to individual users. 

Keeping up with the crowd

The increased demand for embedded finance is an indication of an ongoing shift in consumer expectations. This is reflected in the actions of decision-makers, as 54% of European Business Leaders surveyed said that they would explore embedded finance in 2022. Today’s customer expects more from their chosen brands, and those brands that are not willing to adapt run the risk of losing their custom. 

Non-financial businesses might view embedded finance as something that does not concern them, but this would be a short-sighted view. While the technology behind BaaS is complicated, having the right BaaS partner makes offering embedded financial solutions simple. Companies don’t need to understand the finer details of how it works – they just need to understand that more and more of their users will come to expect them, and if they value their customers then they should begin preparing for the future.