PYMNTS Intelligence: BaaS Makes Embedded Finance a Winning Strategy for All Parties

Embedded finance would not be possible if not for Banking-as-a-Service (BaaS), a fee-based model that allows nonfinancial companies to offer financial services to their end users by connecting directly with banks’ systems using application programming interfaces (APIs).

This connection enables third parties to leverage banks’ licenses to build banking products and services, which they can then offer to users or sell as white-label solutions to other companies.

Through the use of APIs, BaaS platforms provide the necessary infrastructure for companies to become financial service providers in a quick, cost-effective way. Such a system benefits everyone involved, from the banks to the businesses to the consumers being served.

Embedded Finance Improves Consumer Experience

Embedded finance benefits consumers by allowing them to expand and personalize interactions with their preferred brands. Many consumers want to stay within their favorite brands’ ecosystems for a variety of interactions instead of needing to leave for another provider. More than two-thirds of fitness-minded consumers, for example, are interested in receiving health insurance from home fitness providers, with rates tied to individuals’ workout habits.

This streamlined approach also helps consumers by creating more convenient and seamless customer journeys. In online shopping, for example, embedded finance makes same-page checkouts and seamless payments possible. This is important because, according to a survey, the primary causes of negative experiences in online shopping are difficulty checking out and a lack of payment choice, with 49% of respondents saying they would probably quit shopping if they encountered these issues. Even modest improvements in the customer experience can go a long way toward improving customer satisfaction.

What Is Good for Consumers Is Good for Businesses

What makes embedded finance so powerful — and popular — is that the benefits for consumers also benefit companies. Because embedded experiences create more avenues for consumers to interact with their favorite brands, they promote customer loyalty and engagement. Indeed, 88% of companies that offered some type of embedded finance option reported increased engagement, and 85% said it helped them acquire new customers.

Embedded experiences can further benefit businesses by creating revenue opportunities in two ways. In addition to driving direct revenue from the financial products themselves, the heightened engagement and loyalty they impart can increase consumers’ general spend with a given brand. According to one report, almost one-third of consumers who received a financial product from a nonfinancial brand reported spending more money with that brand as a result.