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For decades, legacy banks have played a starring role in our financial lives. Consumers and businesses alike have relied upon these institutions for years, for everything from accessing their account balance to carrying out transactions and borrowing money. Today, the dawn of Banking-as-a-Service (BaaS) and embedded finance means that a new crop of challenger brands are shaking up the financial services ecosystem.
Increasingly, the rise of eCommerce has meant that digital banks and non-financial brands like Amazon, Apple, Google and even Starbucks are throwing their hat into the ring to offer their customers a simpler, more efficient experience. The availability of new technology and APIs, thanks to the European Commission’s Payment Services Directive (PSD2), has made this possible. This means that if an individual needs to borrow money to buy a product from one of their favourite brands, for example, they don’t need to apply for and secure a loan through their bank. Instead, they can do this at the point of purchase to make the process more convenient.
In addition to lending, brands with embedded finance propositions can offer a wide range of financial products to their customers – everything from embedded payments to investment opportunities and even insurance. So great is the current market demand for embedded finance, that over the next ten years it is expected to reach a global market value of over $7 trillion – nearly double the market value of the world’s largest 30 banks today.
This begs the question – will banks survive in the new state of affairs?
“Every company will be a fintech company”
The mantra ‘every company will be a fintech company’ rings true. As embedded finance becomes more popular, it’s fair to say that soon the majority of businesses will benefit from embedded finance in some form or another – even those that have little to do with financial services. With intelligent APIs at their side, non-financial brands can build and distribute bespoke products with their customers’ exact needs in mind. This means more choice, better financial products, and lower prices for consumers.
The BaaS imperative
To stand the test of time, banks must decide the role they will play in this model. One possibility is that BaaS and API banking will become as pervasive as online or mobile banking – so banks must embrace digital transformation to survive.
Although new developments might require a shift in thinking, incumbent banks have a major role to play in the future of embedded finance. Historically, established banks have been slow to adapt to the introduction of new technology, but banks must embrace the BaaS model to adapt to the changing needs of consumers. In turn, this means getting up to speed with the API model and investing in the ‘platformification’ of their services.
In many ways, the future of banking is about creating a strong integrated network of co-operative players. The likes of Goldman Sachs, for example, are partnering with Apple Card and Apple Pay to capitalise on the company’s vast reach and loyal customer base – other legacy institutions can learn from this, fostering their own partnerships with tech providers to bolster revenues.
Beyond considerations about their profits, brands and their partners must all strive to build the best user experience (UX) for their customers. In this new value chain, banks will act as utility providers, delivering key regulatory and compliance expertise and back-office processes to their partners as new and innovative products emerge to solve all-important consumer problems.
Ultimately, banks shouldn’t fear embedded finance – they can benefit from it. With our fully flexible cloud-native infrastructure and a range of APIs to choose from, Yobota is perfectly placed to help any institution carve out a niche in the new banking ecosystem.
Our Banking-as-a-Service (BaaS) solution is well-equipped to build almost any financial product you can think of, without lengthy and costly development timeframes, so you can keep one step ahead of the competition.
If you’d like to learn more about our BaaS offering, reach out to a member of the team today.