Embedded Banking

The language we use to think about banking is instructive. “Banking” is usually thought as
something that takes place at place: the actual physical bank. A big, heavy, expensive place of
which there is only one, or at most a few of them scattered around the city. It is, at its core,
hardware. Expensive hardware at that. Embedded banking does away with that mindset. This
term refers to the integration of banking services into non-banking platforms, such as business
management software or e-commerce websites. In this article, we'll explore the definition,
benefits, and differences between embedded banking and other banking models.

What is Embedded Banking?

Embedded banking is a form of banking as a service (BaaS) that allows businesses to provide
banking services to their customers without the need for a separate banking app or website.
Instead, these services are integrated into the business's existing platform, such as a point-of-
sale (POS) system, accounting software, or mobile app. This allows customers to access banking
services seamlessly, without the need to switch between different apps or platforms.

Embedded banking is often confused with open banking, which is another banking model that
involves sharing customer data and services between banks and third-party providers. While
both models involve collaboration between banks and other businesses, there are significant
differences between them. Open banking is more focused on data sharing, while embedded
banking is more focused on the integration of banking services into non-banking platforms.

Benefits of Embedded Banking for Businesses

Embedded banking offers several benefits for businesses, including:
1. Increased Revenue: By integrating banking services into their platform, businesses can
offer additional value to their customers and increase revenue through transaction fees,
interest income, or other banking services.
2. Improved Customer Experience: Embedded banking allows businesses to offer a
seamless and integrated customer experience, which can improve customer satisfaction
and retention.
3. Streamlined Operations: By integrating banking services into their platform, businesses
can streamline their operations and reduce the need for manual processes, such as
reconciliation or data entry.
4. Access to New Markets: Embedded banking can also help businesses expand into new
markets or demographics by offering banking services tailored to specific customer
needs.

Embedded Banking vs Open Banking

As mentioned earlier, embedded banking and open banking are two distinct banking models.
While both models involve collaboration between banks and other businesses, there are
significant differences between them.
Embedded banking is focused on integrating banking services into non-banking platforms to
provide a seamless customer experience. In contrast, open banking is more focused on data sharing and enabling third-party providers to access customer data and offer new services.
Another significant difference between the two models is that embedded banking is typically
offered by a single financial institution, while open banking involves multiple financial
institutions and third-party providers.

Embedded Banking Use Cases

Embedded banking offers several use cases for B2B companies, including:

1. Payment Processing: B2B companies often need to process large volumes of payments
   quickly and efficiently. By integrating payment processing services into their existing
   platform, businesses can streamline their operations and reduce the need for manual
   processes.
2. Financing: Many B2B companies require financing to manage cash flow or invest in
   growth opportunities. Embedded banking can provide access to financing services, such
   as loans or lines of credit, without the need to visit a bank or complete a separate
   application process.
3. Risk Management: B2B companies often face risks associated with credit or fraud.
   Embedded banking can provide access to tools and services that can help manage these
   risks, such as credit checks or fraud detection.
4. Supplier Management: B2B companies often work with multiple suppliers or vendors.
   Embedded banking can provide a platform for managing these relationships, including
   tracking payments, managing invoices, and facilitating communication.

Overall, embedded banking can provide B2B companies with the tools and services they need
to manage their finances and operations more efficiently. By integrating banking services into
their existing platforms, businesses can reduce the need for manual processes, improve
customer experience, and access new markets or opportunities.

Related Terms