What Is Embedded Banking? How Does It Benefit Your Business?

Embedded banking refers to incorporating traditional banking tools—such as debit cards and checking accounts—into non-financial platforms like a marketplace or retailer. Once integrated, it can create immense value for your business and its customers. A non-financial company can get these services from banking as a service (BaaS) provider. 

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The fintech industry is constantly evolving and growing, especially in the payments space. In addition, more non-financial companies are incorporating the practices of embedded banking to benefit their business in the long run. You may wonder, what is embedded banking? 

Embedded banking refers to incorporating traditional banking tools—such as debit cards and checking accounts—into non-financial platforms like a marketplace or retailer. Once integrated, it can create immense value for your business and its customers. A non-financial company can get these services from banking as a service (BaaS) provider. 

Considering the landscape of financial services has changed over the past few years, as pandemic has focused customers on relying heavily on their smartphones for payments and other banking services. So why does it matter for non-financial companies? Because it tells you about the customer’s journey and where they are heading in relation to your product. Today, people are accessing their bank accounts using the web. 

Soon, they are going to expect financial products from a non-financial app and other online websites as well. Fortunately, this transition is pretty easy, as the arrival of BaaS technology is making these features available to businesses in several industries. Companies like Starbucks, Walgreens, Walmart, etc., have already implemented these capabilities to expand their business and improve customer retention rates. So, let’s understand how embedded banking can benefit your business. 

Is Embedded Banking Beneficial For Your Business? 

When companies execute embedded banking, they make the customer’s journey stickier and more convenient, which further helps in improving retention. Besides unmatched convenience, it also generates new sources of revenue for the business. The embedded banking system is also suitable for business for the following reasons. 

  • Opportunity to boost brand recognition through innovation. 
  • Fulfilling customer expectations. 
  • Meeting unique demands of customers 
  • Providing customized rewards to users. 
  • Decrease costs by charging low interchange fees. 
  • Increases customer loyalty and retention 
  • Access to customer experience data. 

Before incorporating these services in your non-financial business, you need to clarify why you need embedded banking in the first place. How will it serve your customers? Where does it fit in the customer’s journey? Will it boost your customer retention? As advances in technology are constant, that doesn’t mean you should follow it. 

If it serves your business and meets customer needs, then you must consider that option. That way, you can add more value to your products and services and deliver customized experiences and rewards. 

Ways To Offer Embedded Banking

Your company needs to partner with a bank to incorporate an embedded banking system. Here are some options with the required level of commitment and integration. 

  • Referral

You can build a relationship where you refer your customers to a bank. In exchange, you can earn a referral fee or get some other benefits offered by the partner bank. Customers can also avail various discounts or other offers when opening an account using the referral code. 

  • White-Labeling 

This method of embedded banking can take the relationship beyond simple integration to full fintech territory. When a company integrates with a bank and white-label its accounts, they have to assume some associated risks while putting their brand on them. 

  • Affiliate

This option goes beyond the usability of a referral but still prevents the extra resources required for white-labeling. Similar to referrals, customers’ accounts will still retain the branding of a partner bank. Apart from the bank’s branding, these accounts can easily be incorporated into your app, where you allow customers to access their information. 

You may also use the user information to create new bank accounts faster than other traditional methods. Unlike white labeling, this affiliate relationship leaves all risks and compliance associated with embedded banking in the hands of the partner bank. 

Depending upon your company’s requirements, a BaaS provider can closely work with you and set up the desired structure that suits and works best for your platform. They will also partner with a bank that matches the level of integration required for your company to meet customers’ needs. 

What Is Baas? How Does It Work? 

Your partner bank is the most crucial factor of the entire system when embedding banking tools into your app. However, this relationship is mainly dependent upon the technology used to connect the banking system to your app using an API. If you are a non-financial company, an application programming interface (API) works as a connecting link between other parts of the software. 

That’s when a BaaS provider comes in. Choosing the right BaaS platform will ensure quality updates and the latest APIs that interlinks to your partner bank’s system. Remember everything is essential to ensure a smooth customer experience. If an API is not interlinked properly or updated with the latest tweaks can break down the experience of your potential users. 

That means you need a BaaS provider who is well-versed in both banking and fintech, as well as highly communicative and responsive to your needs. When choosing a BaaS provider, you must remember the following factors to understand whether they fit to meet business needs or not.

  • Learn More About Their Approach To Banking 

A partner will make it convenient for customers to open an FDIC-insured bank account to ensure immense growth in the future. And your provider must partner directly with banks and fintechs. Before signing any contract, make sure they are well-versed in your industry or niche. You can look up past or existing relationships within the same industry. 

  • Do They Allow You And Your Customers To Contact Your Bank Directly

Many BaaS providers won’t provide this service, as you need to contact your provider and then they will relay your queries. This slows down the process and makes it inconvenient for customers to solve their problems. 

  • Response Time 

A well-structured BaaS provider will walk you through the implementation process and provide answers to your queries instantly. They can schedule regular calls and assign someone to respond to you quickly as soon as possible. 

Final Thoughts 

Embedded banking offers a glimpse into the future of financial services. Whether in smartphones, laptops, or any other devices, people will have access to all essential banking tools regardless of the challenges faced in today’s fintech industry. 

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