In a twist that poses both a threat and an opportunity, the rise of Banking-as-a-Service and embedded finance is signalling the end of finance and banking as we know it. Let’s check it out.
The concept of embedded financing is new, but its forerunners (such as store and branded credit cards given by merchants or airlines) have been around for decades. In these instances, the typical financial product was given through unorthodox means, such as a rebranded name or distribution channel, but the underlying premise was absent. The ability to seamlessly incorporate financial products and services into any (non-financial) setting via interactive distribution rails we call APIs is a game-changer today.
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There is a common misunderstanding that BaaS and embedded finance are synonymous; they are not. BaaS is the foundational layer of an organization’s infrastructure that supports the front-end, result-oriented financial products and services. An equally disruptive “embedded” force, the decoupling of the customer experience from infrastructure, has been driving the FinTech revolution over the past few years, and the combination of these two distinct layers into one unique (bundled) offering is a paradigm shift that builds and expands on this revolutionary development.
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As a result, we are observing the progressive re-writing of the industry’s #future through the transformation of a handful of dispersed, rapidly evolving ideas into business models. While both parameters are required for bundled synchronisation, they need not (usually) be offered by the same provider, which contributes to the wide variety of models currently available. The sheer variety of possible combinations is telling, ranging from niche providers or segment specialists to full stack BaaS players leveraging both licencing and technology in end-to-end vertically integrated models.
The partnership between Goldman Sachs and Apple is an example of a traditional business-to-business-to-consumer (B2B-to-C) offering, while Stripe operates with Stripe Treasury as an example of a business-to-business-to-business-to-consumer (B2B-to-C) set-up, where Stripe acts as a provider in its own right behind marketplaces or platforms (like Shopify).
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