ARTICLE
Embedded finance and BaaS leading the way
21 November 2023
The financial landscape is undergoing a seismic shift. Embedded finance and Banking-as-a-Service (BaaS) are set to revolutionise how we engage with financial services.
Picture this: financial institutions (FIs) are shedding their old-school skins and morphing into digital powerhouses, creating platforms, marketplaces, and ecosystems that offer innovative and convenient banking and non-banking products. Meanwhile, non-bank digital platforms act as gateways to banking services. The secret sauce to this transformation? A cloud-native, composable banking platform that bridges the gap between the financial institutions and customers.
A shift towards open ecosystems
The traditional vertically integrated business model of banking is undergoing a significant shift as banks cosy up to fintech partners and embrace open ecosystems. This change is fueled by the need to deliver value, generate revenue, and foster innovation.
Download our latest report in collaboration with Celent Next-gen cores powering embedded finance and find out how BaaS and embedded finance are reshaping customer interactions with financial services.
The banking and business market cycles are constantly evolving, and unforeseen events like market crises can catch organisations unprepared. To thrive, FIs need open, real-time systems that handle data, analytics, communication, and transactions with finesse.
Retail banks agree, with over 75% of them finding it harder to attract and retain customers compared to a year ago. As a result, responding quickly to new opportunities has become a top priority. In fact, 57% of surveyed banks consider improving their speed and agility as one of the three most important aspects of their technology strategy.
The engine room
Embedded finance relies on BaaS, which provides the infrastructure and APIs necessary to offer banking services in a composable manner to third parties. This allows banks to rapidly expand their customer base and grow deposits by serving up products to third-party customers. According to a Mambu research in collaboration with AWS, it’s estimated that the global opportunity for embedded finance will reach $7.2 trillion in the next ten years, twice the combined value of the world's top 30 banks today. But here's the catch: many banks face technology gaps in their core platforms, making it difficult to engage in embedded finance.
To capture this opportunity, banks will need to modernise their core platforms. This includes the ability to make changes or create new products, provide granular composability necessary for embedding new product propositions into third party channels, and access to real time data or support for payments.
Banks wanting to offer embedded finance should consider exploring modern core platforms that support BaaS. Take our customer, Raisin Bank, for example. Founded in 1973, Raisin Bank is one of the earliest German cloud banks. It focuses on delivering advanced digital solutions in account management, payments, and lending for financial vendors and startups. Over the past two years, Raisin Bank has emerged as a leading European BaaS provider, holding a German banking licence that extends across the entire EU. Partnerships with such visionary BaaS providers can empower banks to innovate, stay agile, and unlock new revenue streams.
The quest for a modern core
A next-gen modern core that is cloud-native, composable and API-enabled can provide substantial benefits to banks operating within an ecosystem, including:
- Flexible product capabilities
- Agile product creation
- Real-time processing
- Quicker time to value
- Reusability and functionality
Embedded finance and BaaS are rewriting the rules, and financial institutions must adapt or risk becoming obsolete. It all starts with a cloud-native banking platform that can adapt to tomorrow's needs. Continuing to rely on legacy technology is no longer a sustainable option in the ever-evolving world of banking. Banks must ask themselves: Is our tech stack up to the challenge of tomorrow?
To learn more about the role of a modern, composable foundation in enabling openness, agility and innovation, download our free report in collaboration with Celent Next-gen cores powering embedded finance.
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