What is banking-as-a-service?
The FinTech revolution of the last 10 years has created the ‘banking-as-a-service’ (BaaS) industry including companies like Marqeta, Nium, Modulr and Clear Bank. Recently, merchant acquirers like Stripe, Adyen and Checkout have also entered this market.
These companies make it faster and easier for platforms and neobanks to offer financial services by offering white label banking services such as holding funds, connecting to local payment systems and issuing cards. A detailed explanation of banking-as-a-service can be found here.
What is embedded finance?
Embedded finance is integrating a financial service in a non-financial product. It includes embedded payments, embedded banking, embedded insurance and embedded investments.
Examples of embedded finance are:
- An e-commerce website taking payments and buy-now-pay-later at the checkout (embedded payments and embedded lending respectively)
- An expense management or accounts payable platform offering credit cards and invoice payments (embedded banking)
- A digital advertising or affiliate marketing platform making card payments on behalf of their customers and offering their customers a credit line (embedded banking)
- A payroll software company paying employees directly (embedded banking)
- An employee relocation platform managing the entire relocation including supplier payments and allowances (embedded banking)
- A nonprofit organization disbursing funds to its beneficiaries by issuing cards and paying out on that card (embedded banking)
- A music royalty platform distributing funds from streaming services and venues to labels and artists (embedded banking)
- A travel website offering insurance (embedded insurance)
What is the difference?
As described here, the term banking-as-a-service is used broadly while embedded finance is only used in situations where the financial services is embedded into a non-financial service such as the ones listed above.
However, when looking in more detail, the situation gets blurry.
The first reason is that the products are similar. Embedded finance customers use white label banking providers but those providers also sell to regulated businesses. Embedded finance therefore doesn’t exist as a separate product.
The second reason is that there is nothing stopping non-financial services businesses from becoming regulated. For example, many retailers have financial services arms. We expect many embedded finance customers in other industries to do the same over time.
The only real difference therefore is the end-user experience: in embedded finance the service doesn't feel like a banking service. Then again, banking services 30 years ago felt very different from today so maybe in 30 years embedded banking will just be banking?
Does the difference matter?
No, it doesn’t.
Banking-as-a-service and embedded finance are here to stay. A recent research report by Market Research Future predicts the market will grow by 15% per year to $66 billion by the end of 2030.
Every business that deals with transactions or money should think of itself as a bank and seamlessly weave financial services into their product. This will make their services easier to use, more sticky and more profitable.
About Yordex
Yordex is a banking-as-service orchestrator. We make it easy for platforms to implement white label banking.
We connect to a global network of banking-as-a-service providers which allows our customers to use the optimal provider in every country. This improves payment margins by over 30% and gives global coverage and resilience. We also offer a range of value added software and services which reduces the time to implement white label banking by over 70%
For more information or a free-of-charge analysis of how much you can save by using a white label banking orchestrator, please contact us.
