December 11, 2023

Using embedded finance is a “win-win” for traditional banks and non-financial businesses. The former can enter new markets, while the latter can provide a seamless payment experience. This collaboration is based on the banking-as-a-service and card-as-a-service models.

Understanding the Value of Embedded Finance

Embedded finance is probably one of the top three buzzwords catching on in the financial ecosystem right now.In simple terms, embedded finance is Placement of financial products by non-financial companies To sell financial services to its end users, integrate those services seamlessly into its digital end-to-end customer journey.

It’s nothing new for non-financial companies to offer financial services along their customer journey – think retailers financing appliances like refrigerators or TVs, or airlines that offer credit cards. This private label card has been and still is an important part of card issuance.The novelty that embedded finance offers is that Seamless, digital, fully integrated experience Keep pace with today’s customer expectations.As a result, the embedded finance market is expected to be worth more than $7 trillion by 2030, or twice the combined value of the world’s 30 largest banks1!

Banking as a Service

Banks have banking licences, which allow them to operate in the financial services industry – the “keys to the banking kingdom”.They also have extensive expertise in harnessing Regulatory and Compliance Complexity financial services industry. Both are hard to come by for an emerging financial services provider — let alone building such an infrastructure from the ground up from an IT standpoint, or having to acquire a bank.Non-financial companies can access and provide financial services through a banking-as-a-service (BaaS) model, where banks provide these non-traditional financial service providers with Access to Regulated Infrastructure.

In the embedded financial model, non-traditional financial service providers act as the “customer front” and financial product/service distributor. Banks are financial engines.they use this Additional channels to provide large-scale financial services And at the lowest possible cost. This arrangement leverages their existing backend without the need to market products “from their frontend” through their own distribution network.Therefore, the potential for a win-win situation

Payment cards as part of embedded financial services

The traditional private label credit card model has been and remains an important Issuer, the question is how this new wave of embedded finance will affect the future of cards.There are many reasons to believe it has the potential to unleash enormous Untapped card issuance potential.

Cards can benefit embedded financial providers in several ways. Use cases include instant payments, loyalty points redemption, or expanding merchant acceptance. A perfect example is the Uber Pro Card, which offers Uber drivers cashback on gas or EV charging (when drivers pay with the card) and free automatic cash withdrawals for drivers.

Cards as a Service: A Bright Future for Cards

However, issuing cards is not as easy as it seems, especially from a compliance and regulatory standpoint, which is where Cards as a Service (CaaS) comes in.Just like banking-as-a-service requires a lot of complexity outside of banking, card-as-a-service Eliminate the Complexity of Card Issuancemaking it easier for non-financial players — especially start-ups — to issue cards, thereby bringing into play a significant untapped card market.

Over the past few years, some of the world’s most iconic digital companies have launched groundbreaking physical payment cards, Pushing Back the Frontiers of Card Design possibility.For example, customers can design their own graffiti will then appear on their card. Since there will now be a flood of innovative startups on board, banks offering cards as a service can capitalize on this hyper-personalization trend to move up the value chain.These issuers can also multipurpose card and move to a more valuable location.

Last but not least, as cards are now poised to become even more ubiquitous by adding emerging value, Embedded User Journeythe next step for BaaS and CaaS players is likely to be to seamlessly weave adjacent services such as card activation and digital password management Integrate into the overall card issuance experience – thereby creating and monetizing value-added services for embedded financial providers.