An Essential Innovation: ?Outside-In? Embedded Banking

• Jan 31, 2023

The financial services space is constantly innovating and adapting to ever-changing user experience expectations from consumers and small businesses. Technological advancements and shifts within the economic landscape can cause an adjustment of priorities at any given time. With innovation always occurring, it is no secret that impactful solutions addressing specific business requirements within the financial services vertical can be difficult to investigate. Perhaps one of the latest trending innovations in the world of fintech is embedded banking. Although greatly valuable, the benefits of embedded banking can go unrecognized by financial institutions. The lack of comprehensive embedded banking functionality poses the risk of foregoing opportunities to attract new clients and deepen relationships with existing clients, especially with the current economic state. During this time, consumers and small businesses alike want to know that they are protected from financial risk. This protection can be further reassured by a financial institution by providing digital experiences that assist banking customers in better managing their finances through streamlined processes and better communication. A key solution that can meet these objectives is embedded banking. Embedded banking is a platform enablement model that incorporates payments and banking services within a third-party digital experience. While embedded banking is not entirely new, its rapid adoption among banks and credit unions is. The rate at which embedded banking is growing in popularity is causing several key players in the fintech space to take notice. From a perspective of the business services vertical, it is apparent that SMBs (small-medium businesses) are seeking relevant and unified digital experiences to simplify their operations, provide methods for getting paid faster, and efficiencies for analyzing cash flow.  They are also seeking a more consultative experience from their FI for insights that would optimize their capital and drive growth. Recent innovations have the concept of embedded banking to light. Embedded banking is moving from an ?inside out? model to an ?outside in? model. The inside out model of embedded banking used siloed digital channels per customer segment and direct integration with core banking systems, creating a disorganized approach that requires each individual business segment to have its own digital channel. Meanwhile, the outside in model offers the ability to consume services through an open API framework, which are integrated within a unified digital experience and secure environment for small businesses. Through an outside in approach, a bank can offer their SMBs one secure environment and a unified digital experience for integrating data from multiple backend systems. This model provides more flexibility for customers and offers an expanded offering of services. According to the Small Business Administration,46% of all small businesses use personal credit cards, meaning that many fail to separate business and personal expenses. This habit can prove to be detrimental to a business that is trying to organize its financial goals to better weather a recession. Outside-in embedded banking makes it possible for SMBs to streamline business processes and access all their financial data in one place, eliminating the need to place business expenses on a personal credit card. This top-of-the-line solution assists small businesses in navigating the looming threat of recession. Providing SMBs with a wide array of payment options and quicker access to funds will ultimately lead to better financial management. Additionally, payment messaging, flexible invoicing options, expedited collection of payments and automated data exchange can further increase a business?s chance of success during an unpredictable time. When businesses adopt an outside in model of digital banking, they will see improvement both in their ability to assist current customers, while also enhancing their  ability to attract new customers. During the current economic state, these relationships are vital to both parties involved. SMB consumers need to feel as if their specific needs are being met, while financial institutions need to nurture and grow relationships to build their client base. Both financial institutions and SMB consumers benefit by gaining a sense of financial security. According to Research and Markets, open banking is projected to grow at a compound annual growth rate of 24.4% from 2019 ? 2026.  The study also noted the industry could grow even faster if Fintech and Bank participants were to win the trust of a significant global customer base. The improvements from providing outside in embedded banking create retention in a customer base, while increasing levels of engagement. Utilizing outside in embedded banking enables financial institutions to create a unified experience for their consumers and gives SMBs access to a broader range of services that fit their individualized needs, all from one open platform. Outside-in embedded banking provides an opportunity for financial institutions to further modernize digital banking experiences for their SMB clients. Not only does this technology streamline operations, but it strengthens relationships between financial institutions and partners. By using outside-in embedded banking, banks are well positioned to enhance financial business procedures for small business customers, creating a financial experience that they can be confident in, despite the uncertainty of today?s economic landscape. About Author: Keith Riddle - As CEO of BankiFi Americas, Keith brings a breadth of financial services experience spanning new product development, partnership management, direct sales, and strategic market planning.  Keith is responsible for BankiFi?s embedded banking solution strategy and distribution within North America.

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