How Banking-as-a-service and Embedded Finance are Affecting Financial Services

As non-bank companies increasingly offer embedded finance and banking as a service, banks will need to consider their next steps to remain competitive carefully.

FREMONT, CA: Most businesses are now fintech since non-bank enterprises increasingly provide financial services like digital wallets, accounts, payment alternatives, and financing options. Customer retention and boosting customer lifetime value are the ultimate objectives. Companies across all sectors are thinking about launching embedded financial services right now.

According to a recent Juniper Research report, the embedded finance market is expected to reach USD 138 billion in 2026.

Banking-as-a-service, or BaaS, is a bundled offering of technology and services that allows other companies to offer banking solutions under their brands. It is a response by banks and financial institutions to the need.

The phrase banking as a service refers to the tools and offerings that enable other companies to provide banking services under their brands.

BaaS providers provide APIs that provide outside developers access to banking features and functionality to build financial products and services on top of already-existing platforms. As a result, businesses can swiftly provide new financial solutions without starting from scratch.

This white-labelled platform enables businesses to concentrate on their core competencies while providing their clients with beneficial financial services. With BaaS, banks and other financial institutions can grow their customer base and revenue without investing in creating and promoting new products.

As traditional banks and fintech adjust to the shifting financial landscape, BaaS is swiftly emerging as a helpful answer. Businesses are no longer required to own a bank or financial services provider.

The integration of financial products and services with other non-financial products and services is called embedded finance. A consumer can be able to subscribe to a service and pay for it with a monthly payment that also covers their mortgage, car loan, and other expenses, for instance. Embedded finance aims to increase the usability and accessibility of financial services and products for consumers.

The Rise of Challenger Banks

One of the most important trends affecting financial services in recent years is the growth of challenger banks. Challenger banks are exclusively digital financial institutions with tremendous expansion in Europe but less fervent adoption in the United States.

Challenger banks are being utilised for COVID-19 stimulus payments, though the COVID-19 epidemic has sped up adoption in the U.S. Seven of the top 20 challenger banks are currently American businesses as a result.