If you take a look back at the evolution of banking, it’s moved through three stages. Firstly, we had branches. People would go into a physical bank branch to get the services they need, whether that be storing money, getting a loan, exchanging currencies or anything else.
Then we went digital. Neobanks and fintechs arrived that handled everything digitally – no branch presence whatsoever. These businesses often specialised in one or two specific areas of banking, so a customer may use one app for their saving, another for sending money abroad, a third for a loan, a fourth for a credit card and so on. Banking services no longer live in a branch on your local high street, we carry them round in our pockets.
Today we’re entering the third stage: embedded banking. Banking services can now be embedded into any product or service, with no additional licensing and without building any banking infrastructure. The services that a few years ago you could only get by walking into a bank branch and speaking to a teller, can now be provided by your grocery store or fitness app.
Make no mistake, businesses are taking note of this opportunity. We’ve explored this before: payments will be the driving force of embedded finance. But it’s banking that people are most excited about. 92% of respondents in the 2021 OpenPayd Embedded Finance Research Report plan to launch embedded banking within 5 years – 6% already offer it. This goes well beyond the 83% of respondents planning to launch embedded payments, and dwarfs the 28% and 23% who plan to launch embedded insurance and embedded lending respectively.
Part of this interest comes from a strong desire to offer accounts to customers. Before we explain what is fuelling this desire, let’s look at how embedded banking is currently being utilised.
What does embedded banking currently look like?
Embedded banking is the provision of banking services such as accounts, acquiring and FX within a non-financial product or service. The best way to explain this is to look at some examples.
Uber
In 2021 Uber partnered up with BBVA to launch embedded banking for its Mexican drivers. This gives the drivers their own bank account directly through Uber, meaning they can access the funds they make from driving in a matter of minutes and spend these funds using an associated debit card.
This makes life much easier for the drivers who can receive their ride payments in minutes but it also benefits Uber and their partners, as discounts can be offered at certain petrol stations, which strongly encourages drivers to fill up there.
Shopify
Shopify is a global eCommerce company favoured by sole traders and small businesses as an easy way to get paid. Shopify noticed that their merchants often didn’t have a separate business account, which created challenges when it came to managing their finances and handling expenses.
They launched Shopify Balance, giving their merchants a way to hold funds, make payments, track their incomings and outgoings and more. Keeping all of these services in one place not only helps the merchant to organise their finances, it helps Shopify to keep them on their platform.
The big appeal of accounts
The above examples touch on why accounts can be so valuable for businesses, but we can be more explicit about exactly what they’re offering.
Data: In modern business data is king, and accounts can give your business an entirely new source to draw from. Seeing how your customers save, spend and manage their money enables you to consider what else can be added to your product ecosystem and allows you to create stronger profiles for your most valued customer type.
Stickiness: The more services your business offers, the more your customers will use it and therefore the closer relationship they establish with your brand. While this can be said of all embedded financial services, it is particularly relevant to accounts, as the closer you can get your business to a financial hub, the more daily interactions your customers will have with it. This level of interaction increases your presence in the customers’ lives and raises the likelihood they will recommend it to a friend.
Partner opportunities: As we saw with the Uber example, accounts can offer excellent opportunities for supporting partner businesses. Debit cards linked to your issued accounts may receive discounts or cashback when used in certain stores, allowing you to engineer new partner relationships based around what is most useful for your customers – benefitting all parties involved.
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The way in which we bank is likely to evolve. We may well be heading into a future in which the idea of a ‘main’ bank account doesn’t exist. Banking relationships will instead be forged with multiple brands the customer enjoys using, each offering their own unique benefit to the customer.
Accounts will be a big part of that, which is why so many businesses are interested in offering them. If it’s not something you’re at least considering, you might be thinking too small.
