Money Mobility Makes Embedded Banking Payments New Rising Star

The shakeup and shakeout of banking-as-a-service (BaaS), in the wake of the Synapse bankruptcy last year, has opened up new potential for embedded finance.

Money mobility’s at the center of it all, enabling the evolution of BaaS, where the original iteration of the service — call it BaaS 1.0 — had depended on intermediaries between banks and FinTechs.

Synapse, of course, had acted as one of those intermediaries, and unraveled when inconsistencies in ledger accounts and record keeping tied to “for benefit of” (FBO) accounts came to light.

In an interview with Karen Webster last June, QED Investors partner Amias Gerety offered up a roadmap of sorts for BaaS — which might be likened to BaaS 2.0. “I hope we find some middle ground in terms of expectations … especially around fund segregation, account keeping and data flows,” he said, as regulators, FinTechs and banks scrutinized BaaS more closely. “And we’ll make these best practices … this will actually increase the confidence of both banks and FinTechs coming into the market, which will make everything better.”

What’s Changing

The movement, now, is toward BaaS as a direct relationship between banks and tech providers, which then allows FinTechs and banks to offer deposit accounts and other offerings to non-financial firms who in turn offer those embedded financial products.

In but two recent examples, Treasury Prime, which last year began moving to a direct model (and now is billed as “the bank direct embedded banking platform”), said earlier this month that it was adding KeyBank to its banking network, to help expand software and FinTech programs and virtual account management.

Elsewhere, BaaS firm Synctera raised $15 million and signed on Bolt, a FinTech facilitating one-click checkouts, as a new customer. Synctera’s platform helps businesses launch embedded banking products.

As BaaS powers and is influences by money mobility, as PYMNTS Intelligence reports have found that the virtual accounts that can be tied to a range of businesses, with critical infrastructure in place to bring new customers to those non-financial firms, but also to create new revenues for the BaaS providers themselves, while winnowing down reliance on third parties as FinTechs, banks and tech providers work more closely with one another.

“Accounts are the heartbeat of the money mobility ecosystem,” we wrote in our framework, adding that “they act as both the origin and destination for financial transactions as well as the opportunity to use a payment to create a new one.” Those accounts can be issued by non-banks, we noted, as banks hold those accounts and lend their regulatory and compliance and expertise to that account creation and maintenance.

The non-banks can range from FinTechs to retailers to businesses that see an opportunity to bank outbound payments and monetize those accounts, per the report.

The expansion of the ecosystem is evident in the fact that nearly half of all checking accounts consumers opened through the past several months were with FinTech platforms. Burgeoning use cases include buy now, pay later (BNPL) and instant outbound payments, and payouts across a range of end-customer choices ranging from virtual accounts to push to debit scenarios.