1. New consumer behaviors and revenue streams
Underlying embedded finance and Banking-as-a-Service (BaaS) is a change in consumer habits. More and more customers are increasingly open to contracting financial services with alternative providers to banks.
In Germany, 61% of respondents of a recent survey were willing to use financial services from the e-commerce brands analyzed in the study.
According to another report, 46% of millennials say they would consider opening a checking account with Amazon if it came with benefits such as identity theft protection, roadside assistance, travel insurance, or product discounts. More than 30% would be willing to do the same with companies like Starbucks, Uber, Facebook, or Google.
This new trend in customer behavior makes embedded finance a field of incredible growth potential – not only for e-commerce but in other areas such as wealth management or insurance.
2. The rise of financial APIs
New technology capabilities such as APIs open the door to easier integration of banking services into any online retail store. Banks can scale their BaaS offerings using automation solutions and APIs and place embedded finance within reach for more companies.
At the same time, online retailers and other businesses can embed financial services into their digital experiences thanks to modules built by others. In doing so, payments, lending, deposit, and checking accounts become yet another product capability that enriches the customer experience.
3. Embedded payments
Companies can embed payments directly into their products. This trend is now expanding to other businesses thanks to innovations offered by payment processors.
By embedding payments, merchants allow their customers to have one cohesive experience between all aspects of their platforms. This often gives them more control over the payments process from start to finish.
This Bank-as-a-Service model grew by $22.5 billion in 2020, which experts predict will represent only the tip of the iceberg for embedded finance in the coming years.
Regulatory trends such as PSD2 and open banking foster the development of banking APIs and universal access to services. Since banks now have to comply with these novel requirements, which often involve IT modernization, they often consider expanded or new BaaS business models to recoup the expenses which such projects generate.
Moreover, customer expectations for data and account information portability are changing. This only adds momentum to the accelerating IT modernization and BaaS projects.
As a result, banks are actively looking for new revenue models and alternative sources of product growth.