Embeddable banking is the process of integrating financial services within a third party’s software, eliminating the need for multiple platforms to complete a transaction.In the last three to four years, the rise of fintechs and neo banks has disrupted the way the banking industry functions. Challenger banks have proven that consumers want 24/7 access to online banking, and fintechs that offer specialized services have demonstrated that they can deliver niche products outside of a traditional bank. Although banks and credit unions are adapting to the sea of changes, new players have made significant headway and captured a significant chunk of the market. Banks no longer have a monopoly over customer relationships.
Rapid digitization has seen a surge in demand for banking services to be available anywhere at any time. On the other hand, fintechs are struggling to scale up and turn the initial user base into a profitable business. While they have access to customers, they do not have the appropriate licenses to launch financial products like prepaid, checking, savings, credit and virtual accounts to power different use cases ranging from lending to gift cards to loyalty to refunds and expense management.
Enter, embeddable banking!
Through embeddable banking, banks and fintechs can collaborate to offer innovative financial products. Embeddable banking is the process of integrating financial services within a third party’s software, eliminating the need for multiple platforms to complete a transaction. Common examples are payments services embedded within the Uber app to facilitate paying for services and linking a debit card to PayPal to enable card payments at any merchant that accepts PayPal.
Embeddable banking acts as a marketplace to aid fintechs to integrate banking and payment services into their software and interface. Additionally, embeddable banking enables banks of all sizes to add on digital banking products without the hassle of a core conversion that requires a massive expense and months to years of implementation to work seamlessly. Embeddable banking works as an add-on to current services that can be deployed in a short amount of time with minimal costs and oversight.
Why Embeddable Banking?
In essence, embeddable banking is the shift of banking from a product to a service. Consumers can choose their products on a pay-per-usage or subscription model, taking advantage of the flexible approach for banking services.
What is the benefit to banks? The reality is that fee and interest income is not enough for banks, especially in today’s incredibly low-rate market. By expanding the avenues that consumers can interact with a bank, the institution is reaching to customers with banking services that can generate additional revenue and create more sticky relationships.
Through the utilization of APIs, businesses can have their own software perform financial operations. In addition to expediting a business’ internal operations, embeddable banking increases customer satisfaction. Embeddable banking eliminates friction during the payment process, ultimately creating a seamless experience for consumers.
To facilitate the embedded banking services, a company can provide APIs and software development kits (SDK) that enable fintechs to embed financial products and services of one or more banks into their apps and experiences. It also enables financial institutions to provide APIs and SDKs to fintechs, neobanks, distributors and partners. This enables the bank to embed their partners’ prepaid, credit, debit including all asset and liability products thus also helping the institution to increase their consumer base and profitability.
Embeddable banking also creates a marketplace for aggregating financial services products in widely used products. However, banking products will have to be fragmented into stand-alone services that can be added to an aggregator so that it is easier for consumers to adopt them. At the same time, they need to be aggregated at the customer relationship level to render maximum value to the customers. This is where broad tech platforms, such as Amazon, Apple or Google may further enter the banking arena.
Seamless integration and improved user interface aside, embeddable banking eliminates the hassle of repetitive financial processes for customers. Embeddable banking makes it easier to adapt to the tsunami of changes banks face today without losing out on customer trust or satisfaction. It offers a one-stop solution for banks and fintechs to easily connect with each other and launch meaningful and innovative financial products.
Embeddable Banking for Customer-Centric Experience
Alongside high tech and adaptable offerings, embeddable banking also assists in providing customers a more hyper-personalized line of services. Banking used to be approached with a “one size fits all,” mentality. However, a 16-year-old managing their part-time paycheck and expenses differs tremendously from a small business owner. As a result, banks and neobanks have learned that their services must be adaptable.
Banks are also utilizing their data rich environment to see what types of services would work best for each individual customer. Through the data, banks and neobanks can identify preferences for how individuals bank. For instance, if they prefer the digital channels vs brick and mortar, what kinds of products they utilize like p2p, credit cards, cheques, etc.
In addition, data and embeddable banking allow banks the opportunity to cross-sell services. For instance, if they see a customer is over drafting or has a low balance often, they may see it as an opportunity to sell them on a credit card or build a savings program. The same thing goes for if they notice they have looked into personal loans or mortgage loans, a bank has the opportunity to know which current offerings that would be relevant to them.
It is imperative for FIs to get on the path of embeddable banking to remain competitive and provide customer-centric banking.
(By Bhavin Turakhia, CEO and Co-founder, Zeta)
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