As digital transformation has taken a hold of Europe’s business ecosystem, companies of all sizes have gone online. As a result, finances, banking and monetary transactions of all types have also gone digital – and it’s meant a wave of changes for the finance world.
Now, payments and transactions are generally conducted online through sleek and smooth payment portals – all provided by the ever-expanding fintech space. From flex-pay to BNPL, it’s a market with near-constant updates and tech developments. The same goes for banking, and there is a growing cohort of Banking-as-a-Service providers coming up with new ways for businesses to stay competitive in this online world, enabling brands to embed financial products into their ecosystems in order to grow their business and engage and retain their customers.
The rise of embedded finance is tangible – and it is showing no sign of slowing it down.
Embedded finance refers to the placing of a financial product in a nonfinancial customer experience, journey, or platform. That’s not something that is new – for decades, nonbanks have offered financial services via private-label credit cards at retail chains, supermarkets, and airlines (for example). However, what we are seeing today is the digitisation of this, and the fact that now, interactions with financial products are a daily occurrence and the possibilities are endless thanks to our increasingly digital world. From digital wallets, digital reward cards and apps and so forth, embedded finance in the digital world is making purchases frictionless and second nature.
It’s one of the defining trends of fintech and BaaS right now, and something we can expect to see a lot more of in 2023. It’s reported that the total addressable market (TAM) of BaaS providers in the UK and the European Economic Area is predicted to surge over the next five to ten years, reaching an approximate value of between $90 billion and $105 billion by 2030, with some reports even suggesting that the market could be approaching mainstream adoption in the next two years.
So, to better understand what we can predict for embedded finance in the upcoming months, we chatted with Nikhil Sengupta, the Global Sales Director of Vodeno – a Polish company on a mission to transform the financial services market. Founded in 2018, Vodeno’s Cloud Platform is a comprehensive ready-to-use solution for Retail & SME Banking enabled by advanced API technology.
Nikhil Sengupta: “Embedded Finance is predicted to make its mark in 2023, as more brands look to enhance their customer journey and take their business to the next level. BaaS is poised to offer a level of support for both businesses and consumers. The API-based nature of BaaS makes solutions quick to integrate and low cost, and better banking products at the fingertips of more consumers via the brands they visit everyday will help them navigate tricky economic waters.”
Embedded Finance: Nikhil’s five key predictions for 2023
BaaS adopters value a banking licence
Recent research from Vodeno found that having the necessary licence and compliance expertise is set to play a more prominent role in the BaaS industry – according to 58% of European businesses, BaaS providers offering a licence alongside their tech solution are the ones that will shape the BaaS market in the years to come. Additionally, 28% of businesses said they would like to see their provider offering access to a banking licence as a priority. For those that have yet to implement BaaS, 27% cited compliance and security concerns as a key barrier to adoption.
Fast implementation will be a priority
According to 35% of BaaS adopters, rapid implementation and a swift time to market stood out as priorities, ensuring that they can stay ahead of the competition and see their investment pay off early in the process.
Platform banking will reach new heights
The ascent of brands, powered by BaaS, offering ‘platform banking’ will help democratise access to better banking products to more people. More consumers will interact with their favourite brands to carry out their day-to-day financial needs vs traditional banking, and (59%) of those surveyed expect that the lines between eCommerce platforms and traditional banking services will blur in 2023 as a direct result of BaaS adoption.
A seamless customer journey will be key
Brands offering embedded financial services are motivated to create a better customer experience. To this end, nearly a quarter (24%) of respondents want their BaaS provider to show a better understanding of their customer journey. This means integrating the right banking products at the point of need, removing any friction from the user experience and solving key pain points.
The cost-of-living crisis will spur BaaS adoption
Against the backdrop of a potential recession, the pressure is on for brands to add more value for their customers. It is perhaps for this reason that 56% of businesses predict that the cost-of-living crisis will act as a catalyst for increased BaaS adoption, as brands look to integrate flexible payment and credit options in their customer journeys, and companies seek cost-effective strategies to grow their business.