Embedded Finance: key considerations for a successful first step 💳

According to a study by Bain & Company, the global Embedded Finance market could reach $7,000 billion by 2030, or almost 10% of global GDP. Embedded Finance thus represents a significant opportunity for growth and innovation for the financial sector and online sales platforms. Embedded Finance players can reach new customer segments, offer new products and services, and strengthen customer relationships.

So, it's not surprising that a growing number of Greenfield players are on the market. To stand out from the crowd, you need to consider a few key considerations. What are the challenges of Embedded Finance? What solutions do you need? Who do you need to surround yourself with? All the answers in this article!

Embedded Finance: a regulatory and technological challenge

Embedded Finance represents a significant regulatory and technological challenge.

• On the one hand, it means complying with current regulations and ensuring the security and confidentiality of users' personal and financial data.
• Secondly, it involves collaboration between different players, who need to interconnect their IT interfaces to facilitate the integration and interoperability of financial services in non-financial platforms.

New players in Embedded Finance: Which ecosystem to launch in?

Embedded Finance involves integrating financial services into the applications and platforms of non-financial companies. This integration of services is made possible by APIs (Application Programming Interfaces). These APIs enable collaboration between the players involved in the embedded finance process.

Embedded Finance requires collaboration with a wide range of players and partners.

Surround yourself with a BaaS provider.

BaaS is a financial technology that enables non-bank-licensed organizations to offer their customers services previously reserved for financial institutions (payments, loans, insurance, transaction accounts, etc.). BaaS providers supply the technological foundations and licenses required by companies wishing to develop these services. Thus, any entity can offer its users banking services by integrating them into its offering and interface.

There are 3 options for integrating financial services.

1.       Financial institutions

The first option is to approach financial institutions directly to avoid using intermediaries. However, as many banking players suffer from technical debt, this solution can be risky. Traditional banks are during a digital transformation process and, for the most part, cannot provide the technology needed to innovate and develop personalized Embedded Finance experiences.

2.       Aggregator

Aggregators are BaaS providers who cooperate with financial institutions to make Embedded Finance accessible to as many companies as possible. They have the technology required to integrate banking services into the platforms of non-financial players but must rely on traditional banks to benefit from their licenses.

3.       Stand-alone BaaS provider

Stand-alone BaaS providers hold a banking license. This means they do not need to rely on a financial institution and can provide financial services to non-financial platforms without intermediation.

Relying on a Core Banking Platform

As the name suggests, a Core Banking Platform is the foundation of any bank or financial institution and of Banking-as-a-Service platform providers. It is a back-end system that handles all day-to-day financial transactions. It processes payments and updates bank accounts and financial records.

Considered the latest generation of core banking, these platforms are built on a modular architecture. This means the transaction management function is separate from banking services such as new accounts, loan management, withdrawal processing and other associated management activities. In addition, Core Banking Platforms have an orchestration and API layer to connect to the features and functions organizations need to deliver financial services. This ability to orchestrate facilitates the coordination and integration of components and enables any Core Banking Platform user to build, integrate, change, and evolve more rapidly.

You'll need a Core Banking Platform to get started in Embedded Finance. But it's not always easy to make the right choice!

How do you choose your Core Banking Platform?

No code/low code for rapid implementation

With no code/low code, users can create their solutions without entering a single line of code. To do so, they rely on pre-packaged modelling and configuration tools and pre-integrated software bricks that can be combined in plug-and-play mode, for example. This way, the no code/low code approach saves time and ensures an advantageous time-to-market. An essential criterion for Greenfield players in Embedded Finance!

API-first integration to build your ecosystem.

The Core Banking Platform coordinates all the bricks (components) on its platform. Any new component can be integrated, as the choice of "bricks" is unlimited. This API-based structure facilitates the integration of customized solutions, enabling you to flexibly compose a scalable partner ecosystem to design differentiating customer experiences and respond to specific market needs. This way, you can be sure that your Core Banking will adapt to your evolution and not hinder your growth.

Read also: Why APIs are essential to the growth of Embedded Finance

A Continuous Delivery solution

Continuous Delivery is a software engineering approach in which teams continuously develop, produce and test new features in a short cycle. As a result, you always have the latest version of the platform and new features. Opting for a Core Banking Platform in Continuous Delivery means you're always at the cutting edge of technology for greater freedom!

Skaleet has developed a Core Banking Platform enabling financial and non-financial institutions to rapidly launch new banking products and experiences at a competitive price in response to these new practices. The result: a no-code/low-code, API-first, Continuous Delivery Core Banking Platform! Want to find out more? Contact us now!