Embedded financial services, commonly referred to as "banking-as-a-service," is a business model where financial services are integrated into the products and services of non-financial companies. As we are now in 2023, we can expect this model to become even more prevalent as companies are consistently seeking ways to add value for their customers in addition to streamlining their operations.
That’s a lot to take in from the jump but it covers the basic idea of how BaaS fits into the generic landscape of businesses. This is yet another versatile piece of technology that can transform an organization's operations from the ground up.
2 Leading Factors Behind the Adoption
Demand for convenience: The first key driver behind the growth of embedded financial services is the increasing demand for convenience. Customers today expect to be able to access financial services on their own terms. To accommodate this, companies must offer flexible, high-performance experiences that allow users to manage their finances from anywhere, at any time. By integrating financial services directly into their products/services, companies can provide a one-stop-shop experience.
Data privacy and security: As data breaches become more common and customers become more concerned about the handling of their personal information, companies that can ensure and offer secure financial services are likely to be more attractive to consumers. By embedding financial services into their products and systems, companies can better control and protect their customers' data, which can give them greater confidence in using their services.
How Companies Are Capitalizing
There are several different ways that companies can use embedded financial services to benefit their customers as well as their operations. Every industry is searching for the best way to apply this. With that said, here are 5 that have found some success in doing so:
E-commerce: Many e-commerce companies, such as Shopify and Amazon, offer embedded financial services like financing options and payment processing. This allows customers to make purchases and pay for them over time, rather than having to pay upfront, which can increase sales and customer satisfaction (BNPL).
Travel: Companies in the travel industry, such as Expedia and Airbnb, often use embedded financial services to offer a range of payment options, one of which includes the ability to pay in different currencies. This can be especially useful for travellers who are visiting a country for the first time and aren’t familiar with the local currency.
Retail: Retail companies, such as Target and Walmart, are using embedded financial services to offer customers more convenient ways to pay for their purchases. For example, Walmart allows for payment through its mobile app, Walmart Pay, which allows customers to simply make purchases using their smartphone.
Technology companies: This one may not come as a surprise, but tech companies, such as Apple and Google, are using embedded financial services to offer financial products, such as credit cards and mobile banking apps. This allows them to expand their customer base and generate even more streams of revenue.
Telecommunications companies: Telecommunications companies, such as AT&T and Verizon, are using embedded financial services to provide direct access to financial services such as mobile banking and payment. This is great for increasing customer loyalty and retention.
The Takeaway
As we can see, it’s clear that embedded financial services will continue to play an important role in the economy during 2023 and in the years to come. As companies try to provide more value for their customers and streamline their operations, the integration of financial services into their products and services will continue to prevail.
The hardest thing to do as a company with long-standing operating methods is to implement change. However, in this day and age, change is inevitable for those who plan to capitalize on the modern market.
Written By Ben Brown
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