The growth of embedded finance has disrupted the role of traditional banking institutions, allowing seamless integration of financial services into non-financial companies. It does not matter what industry you find yourself in, you can integrate banking products onto your platform without having to comply with strict licensing regulations.
As a whole, BaaS, or Banking as a Service, is a model in which banks provide non-financial companies with embedded banking services. It is an end-to-end model that connects third-parties and digital banks using APIs to offer white-label banking services and creative financial solutions.
Trends To Look Out For
Understanding and tracking these trends can aid banks and those businesses interested in using embedded finance in recognizing opportunities and preventing threats.
- Customer Demand For Integrated Experiences
The most significant trend is that customers are increasingly seeking simple, holistic, embedded, and direct experiences. Businesses that are based on multi-product consumer experiences are attracting a growing number of customers. Ecosystem orchestrators, by definition, strive for maximum integration, therefore, an embedded integrated financial solution fits the concept favourably.
- Demand From New Fintechs and Beyond
Every year, a large number of Fintechs arise demanding access to bank accounts, payments, and financing from banking partners. Big technology businesses and other non-banking entities can create and provide financial services, but they can’t “become” banks because the regulatory hurdles are too high. As a result, Fintechs can only provide customers with embedded finance through Banking-as-a-Service. To serve their vast customer bases, these companies demand end-to-end BaaS infrastructure solutions, as well as regulatory backing and balance sheet or other finance sources.
- Rise Of Openness
PSD2 and open banking are two regulatory trends that are encouraging the development of banking APIs and universal access. To recuperate expenditures and take advantage of tech upgrades, several banks are considering extended or new BaaS business models to meet these new requirements—often through IT modernisation. Most financial institutions are shifting customer expectations for data and account information portability, which is leading to an increase in IT modernization and BaaS projects.
- Search For New Revenue Models
Financial institutions are actively investigating other sources of revenue and product growth, given the predicted decreases in banking revenue and profitability. Sources with scalable business models and fixed IT expenditures are particularly beneficial.
- Adoption of Technology Capabilities
With the advancement of digitization, including automation and APIs, banks can scale BaaS more quickly, making integrated finance more accessible to more businesses. Simultaneously, businesses looking to integrate financial services increasingly see their digital experiences as a collection of modules created by others. Generally, this is because they regard payments, lending, and deposit and checking accounts as just another product capacity to add to the customer experience, rather than as a fundamental competency.
- Changing Trust Levels In Financial Services
Banks that allow partners to provide white-label or co-branded financial services can capitalize on the growing trust in other brands to promote their products. Banks won’t have to white-label everything across all products and locations; instead, they’ll look for markets or products where they can use the growing trust in nonbanks tactically.
The emergence of embedded finance and Banking-as-a-Service is highlighted by these trends. Meanwhile, consumers are increasingly making financial decisions and implementing them without the assistance of a traditional financial services provider. Therefore, it’s vital for them to understand what a rise in customer demand for integrated banking experiences means for their operations.