Two significant trends are reshaping the way SMEs interact with money: embedded finance and open banking. These concepts, though distinct, are converging to break down barriers, foster innovation, and integrate financial processes into our daily digital interactions in ways previously unimaginable.
Embedded finance refers to the fusion of financial services into non-financial platforms or applications. For instance, when you hail a ride using an app and pay for it within the same app or buy something online and get a loan offer from the e-commerce platform itself, you're experiencing embedded finance. It feels like a seamless, integral part of the experience, but it’s actually an “add-on” from a technical perspective.
Open banking is a set of protocols, technologies, and policies where banks and financial institutions can share user data (if given permission) securely through APIs. This data sharing enables third-party developers to create new, user-friendly services.
Think of it this way - in the traditional banking model, only you and your bank would have access to your financial data. But with open banking products, this data is shared with third parties to benefit you in all sorts of situations, whether you’re making a big purchase that would normally trigger delays or applying for a business loan.
In a word, open banking enables and supercharges embedded finance services. Let’s delve into open banking in a little more detail and explore a case study to give you an idea of exactly how it works in practice.
What is Open Banking
At its core, open banking is like a secure digital highway that connects various financial institutions. This highway allows these institutions to exchange your financial data, but only if you give them the green light to do so.
When it comes to open banking security, it is facilitated through APIs. The regulated systems deployed by your bank are used when you access open banking and your data is safe.
What’s more, the company implementing open banking is able to offer financial services without having to act as a bank itself. This saves enormous amounts of time and resources and gives customers that seamless service quicker.
To be clear, open banking isn’t limited just to financial institutions.
FinTech’s providing mortgages, for instance, can use open banking to assess a potential user’s creditworthiness and make quick decisions on loans. But embedded finance takes this one step further by giving the power of open banking to non-financial institutions.
Perhaps the best way to understand the benefits of open banking is by seeing how it works in practice.
Implementing Open Banking for Embedded Finance
Williams, a UK-based trade-only SME established in the 70s, saw the potential for implementing an embedded finance solution where customers paid using “PayIt” and no longer had to manually enter their sensitive financial details into the merchant’s website at all. The reason for this change?
The rising cost of card fees. The company soon discovered there were other advantages too, like real-time payments -– which can be important for a smaller business -– as well as much cheaper transactions and contactless options during the pandemic.
Implementation through integration was cheap and low-impact too. The company didn’t have to shell out massive amounts for developers and work with regulators to create its own solution. Nor was adoption cumbersome for the customers or staff. It simply used a third-party implemented embedded finance solution powered through open banking to create a convenient, cheap payment option.
Meeting open banking requirements and implementing this solution isn’t limited to massive corporations with vast resources. As the Williams example shows, it’s well within the remit of small and medium enterprises to benefit from this type of solution.
The Future of Embedded Finance with Open Banking
The future of embedded finance and open banking is brimming with potential. With predictions indicating a ten-fold rise in revenue from embedded finance by 2025, and even larger growth projections of $7 trillion by 2030, it's clear that this fusion of finance and technology is set to revolutionize the financial landscape and beyond.
Open banking, specifically, is poised to play a pivotal role in the future of embedded finance, acting as a catalyst to unlock even greater possibilities. It’s an accessible technology that can be implemented seamlessly, and businesses of all shapes and sizes are already reaping the benefits.
To quote Williams’ finance director’s message to businesses exploring embedded finance: “Why on earth wouldn’t you?”. The benefits and first-mover advantages in this space clearly outweigh any disadvantages for many companies.
As we move towards this exciting future, one thing is clear: the intersection of finance and technology will continue to be a hotbed of innovation, growth, and a solid, growing revenue stream.
How ezbob can help with embedded finance through open banking
ezbob is driving innovation through open banking and API technology. Businesses working with ezbob can seamlessly integrate embedded finance capabilities into their existing processes. From the ability to open customer accounts, to processing credit card applications, to issuing loans to SMEs, ezbob can facilitate all your embedded finance needs.
ezbob’s automated digital journey solution reduces customer input by 75%. This empowers businesses to provide their customers with instant, personalized offers, meeting the growing demand for instantaneous financial services.
Get in touch to learn more about how ezbob can help your business leverage the power of open banking and embedded finance.