There’s a new kid on the e-commerce and digital banking block: embedded banking. As we’ll discuss below, embedded banking allows non-financial companies to seamlessly integrate banking services into their platforms. This user-centric approach breeds loyalty and customer satisfaction and it’s quickly becoming a hit with forward-thinking companies.
The current trends look promising. A recent McKinsey report revealed that up to 33% of global card spending now happens online. In the US, the figure sits at 50%. This explosive growth in online payments has largely been attributed to the digitalisation of businesses and the advent of the e-commerce industry. But digital natives coming of age have played a significant role too, as they are particularly open to managing their finances and payments online.
The combination of all these factors is creating an environment where embedded finance is becoming increasingly popular and important. It’s important to draw a distinction here.
Embedded finance refers specifically to the integration of financial services into non-financial products and services. Embedded banking also deals with integrations. However, typically, embedded banking deals with the integration of banking services such as built-in bank accounts and even bank cards, for example. In effect, the non-financial company connects to the bank via an API to “become” a bank.
Embedded banking can be seen as a significant subset of embedded finance. The reason is simple: many embedded finance solutions are traditionally offered by banks.
For consumers, embedded banking offers greater convenience as they are no longer required to go out of their way for financial services; instead, those same services are provided within the apps and websites they already use on a daily basis.
As we move towards a cashless society, this technology is an exciting new frontier for both businesses and consumers alike. At its simplest, it’s merely a gateway into better customer experience design. But dig a little deeper, and you’ll find a potential disruptor that could turn entire industries on their heads.
What is Embedded Banking?
With embedded banking, non-financial businesses can integrate digital finance within their existing customer portals. The idea is to allow customers to access banking services alongside other products and services, directly from within the portal. The experience is seamless and allows the customer to complete their purchase eliminating friction at the point of need.
Let’s take a look at a popular embedded banking example. Lyft, the ride-share company, has its own debit card for drivers. The Lyft debit card is actually issued by Stride Bank. But the bank works in the background to provide this embedded banking solution.
In truth, the drivers do not have to access a Stride bank account to get their payout. They can apply for the Lyft Direct debit card via the Lyft app. Once they receive the card and set it up as their default method of payment, they will receive payments instantly after every ride. There will be no transaction fees and they’ll be able to use the money right away with their debit cards. Much like a real debit card, they can get all sorts of cashback rewards and discounts too.
Lyft isn’t a bank. Its primary purpose isn’t to offer financial services. But it is using embedded banking solutions designed to give its drivers more economic security and instant payouts.
How Embedded Banking Works
Embedded banking is powered by Banking as a Service (BaaS). BaaS is used by licensed banks to provide online banking services to non-banking businesses.
These services are embedded through the use of APIs to allow non-banking businesses to offer embedded services to their customers.
The Lyft debit card in the example above is made possible through Lyft’s collaboration with Stride Bank, a licensed bank. Lyft isn’t a financial institution but is able to make use of embedded banking as a result of BaaS technologies. Simply put, BaaS makes embedded banking possible.
Advantages of Embedded Banking
Early adopters and embedded banking companies are reaping the advantages of this solution already. And there are many, but the main benefits for companies include:
Building brand loyalty through embedded banking options such as instant payments, for example
Creating branded debit cards to allow instant payments and bank-like rewards and cashback loyalty programmes
Automating payment processes at the back-end to create a more seamless experience for customers and less work for finance teams
Increasing the conversion rate for your website through quick and convenient payment options that don’t make the customer leave
Collecting customer data to gain an understanding of their transactions and build more personalised offers
In truth, businesses that are not implementing some form of embedded bank strategy are likely to get left behind as the industry takes the world by storm.
The Future of Embedded Banking
Embedded banking is a technology of the future, but there’s no question it’s taking root today. As more and more ecommerce companies find embedded finance use cases, it’s likely that embedded banking will continue to be a disruption tool at the disposal of innovative companies worldwide.
Particularly optimistic projections estimate that the embedded finance industry could be worth $7 trillion by 2030. Should this figure be achieved, the industry would be worth double the combined value of the world’s top 30 banks today.
And it’s easy to see why. Major players like Apple, Google, Uber, and Spotify are all using some form of embedded finance within their platforms. Customers are increasingly seeking “ecosystem” solutions where one company can take care of several needs that arise from a particular task.
Against the backdrop of waning trust in traditional banks and increasing brand loyalty, it’s easy to see why more businesses are developing embedded banking strategies to capture a willing audience.
The future looks bright for embedded banking solutions, and companies willing to leverage BaaS technologies may well become trailblazers in their industries benefiting from the first mover advantage as new use cases emerge.
How Can Ezbob Help with Embedded Banking
ezbob is a digital platform that provides embedded banking solutions to financial institutions, enabling them to offer banking services to their customers seamlessly. Here are some ways ezbob can help with embedded banking today:
Improved business eficiency: By offering banking services to their customers through ezbob's platform, financial institutions can improve their operational efficiency. This includes reducing manual processes, streamlining workflows, and fast loan approval.
Quick and easy integration: ezbob provides APIs that allow financial institutions to integrate banking services into their core platforms quickly and easily. Importantly, ezbob’s platform is supported with pre-integrated API’s to premier 3rd party providers offering KYC, AML and fraud assessment.
Customizable solutions: ezbob offers a range of customizable embedded banking solutions that financial institutions can tailor to their specific needs. This includes lending, payments, and new account opening among others.
Enhanced customer experience: With ezbob's embedded banking solutions, businesses can offer a seamless banking experience to their customers. This includes faster loan approvals, real-time payment processing, and easy access to account information, among other benefits.
Are you ready to take your business to the next level with embedded banking solutions? Contact ezbob today to learn more about how we can help you offer seamless banking services to your customers.