Skip to Content
6 minutes read

Embedded Banking: Everything You Need to Know 

By Robert Kazmi
By Robert Kazmi
6 minutes read

Embedded financial services have become very popular with financial institutions and non-financial companies, but people still erroneously conflate the terms embedded finance and embedded banking. 

The embedded finance market is only forecasted to grow as more organizations rethink their business models and experience growth in their revenue streams as they offer their customers financial products and services. 

As a result, more non-financial companies will begin offering financial services and products to their customers and drive the growth and popularity of embedded finance. Embedded banking plays a critical role in this emerging market. 

This post will explain everything your business needs to know about embedded banking. 

What are Embedded Banking Services? 

Many people use the terms embedded finance and embedded banking interchangeably, but this is incorrect. Embedded banking is a specific type of embedded finance that entails a non-financial company offering banking products and services

Embedding banking typically involves bank accounts and linked debit cards. This can also be called Banking as a Service (BaaS). Embedded banking enables non-financial companies to offer branded bank account services.

You might be wondering why a non-financial company would be interested in offering their customers embedded bank accounts. This is a fair topic to explore in more detail. 

Embedded banking makes the most sense for companies using a specific platform to conduct business. Embedded banking enables consumers and businesses to access their funds faster, easily execute financial transactions, and receive exclusive rewards. 

Let’s look at two popular examples of embedded banking to better understand how this type of financial service can greatly improve the customer experience. 

Shopify Balance 

Shopify Balance is a popular example of Banking as a Service. Shopify Balance is a business bank account offered by Shopify that is linked directly to a company’s Shopify Store. This service can eliminate the traditional financial institution relationship eCommerce businesses must maintain.

Instead, with Shopify Balance, Shopify store owners can skip the bank and get funds from their sales much faster than they would from traditional financial providers. 

In addition to a business bank account that allows owners to access funds much sooner, Shopify Balance also offers a branded debit card that unlocks exclusive rewards to business owners that use their card to grow their Shopify business. 

Lyft Direct 

Another popular example of embedded banking is Lyft Direct. Lyft Direct is a checking account and linked debit card offered exclusively to Lyft drivers. The appeal of Lyft Direct is that it enables drivers to immediately access their earnings after every trip. 

Most employees have to wait to receive a paycheck every two weeks. Other ride-sharing apps pay drivers once a week. Lyft Direct enables drivers to access their money as soon as they earn it. 

In addition, Lyft drivers can use the connected Lyft debit card to spend their earnings and earn exclusive rewards and cash-back offers. 

The Benefits of Embedded Banking 

Now that you know more about embedded banking, you are likely wondering why businesses should be interested in these financial services. Let’s take a closer look at the top benefits of embedded banking below:

  • Increased loyalty
  • Access to new revenue streams
  • Reduced regulatory burden

Increased Loyalty 

What is the common thread between the two services in the above examples of Shopify Balance and Lyft Direct? The answer is brand loyalty. One of the greatest benefits of embedded banking is increased customer/user loyalty

Embedded checking accounts and other financial tools only serve to improve customer experiences. Both Shopify Balance and Lyft Direct enable people to access the money they have earned faster. 

The convenience of these services subverts customer expectations and creates a pleasing experience. In addition, customers are given unique rewards that are inaccessible to the general public. 

By increasing brand loyalty, your business encourages customers to stay within the ecosystem of your brand’s offering. For example, every time your customers use their branded debit card to buy anything, they are still within the ecosystem of your product offering and interacting with your business. 

Access to New Revenue Streams 

Embedded banking is great for businesses and financial institutions because it opens new partnerships and streams of revenue for all businesses involved

The financial services provider offering the underlying banking product gets access to a new batch of customers; businesses embedding financial services in their products get to offer a wider range of products and services and get to explore new partnerships with other businesses as they offer cash-back rewards and other incentives.

Embedded payments and banking get more companies involved in the financial process and enable businesses to forge new relationships and partnerships that can further their brand experience and create new opportunities to generate revenue. 

Reduced Regulatory Burden

Another great business benefit of embedded banking is the reduced regulatory burden. There are several regulations that businesses must comply with when offering financial services to their customers. 

However, with embedded banking, businesses don’t have to concern themselves with regulatory compliance as long as they partner with a financial institution that is compliant. Businesses that use embedded banking services are not actually directly offering their customers financial services. 

Financial services in this model are handled by an underlying bank or financial institution. Therefore, businesses can offer their customers branded banking services and products without having to handle regulatory compliance on their end. 

Final Thoughts 

Embedded banking is a small part of embedded finance. There are several ways your business can offer customers financial services, and it is important for your organization to understand all of the ways financial products and services can be embedded in its customer experience. 

While this post has focused solely on embedded banking, Koombea has a lot of resources to offer on the topic of embedded finance. You can learn more about embedded finance and banking on our informative blog. We encourage interested businesses to explore all of these topics. 

If you are interested in learning more about embedded banking or how it can be effectively used by your organization, contact an experienced FinTech development company like Koombea.

Girl With Glasses

Want to Build an App?

Request a free app consultation with one of our experts

Contact Us