17 November, 2023

6 minutes of reading

Written by: Alice Casagrande

Banking as a service and embedded finance: definition and differences


In the world of finance, terms like "embedded finance" and "banking as a service" are on the tip of everyone's tongues and are heard more every day. But what are they, how big are they on the world market, and how do these two growing trends in the industry differ? Let's find out in this article

The embedded finance and banking as a service market

The embedded finance industry is growing like never before and keeps evolving more and more forms.

According to a report by financial firm Bain, the value of embedded finance transactions will double to 7 trillion dollars by 2026.

In fact, the number of non-financial companies interested in providing their customers with typical banking services, such as alternative payment options, loans or bank accounts, is growing too.

Banking as a service is also developing in leaps and bounds as a field. According to Juniper Research, total revenue from these types of platforms will exceed $38 billion by 2027.

Payments and loans will be the major financial services to be integrated and will be enhanced by the development of adjacent value-added services including insurance, taxes and accounting.

Embedded finance and banking as a service: a definition

Embedded Finance is a term used to refer to the integration of one or more financial products into the services provided by a non-financial company, whether for B2C or B2B.

By using embedded finance, any type of company can now provide services that were previously restricted to banks and financial institutions. Through simple integration, businesses can now add certain types of financial services to their processes and offer them easily and with a sense of continuity to the end user, who may be a customer, a provider , or even an employee, depending on the application.

There is a range of services that can be adopted: from credit, to insurance, to investment, so companies can open up new business channels and improve user experience for customers by retaining them and attracting new ones. One of many examples is that of the U.S. giant Walmart, which has created financial products such as the Walmart Credit Card and Walmart Money Card, and provides its customers and employees with services such as money transfer and instalment financing.

But smaller businesses can integrate finance too, for example, by offering deferred payment directly on their websites without needing to redirect customers to a banking institution. This mechanism is made possible by what is called banking as a service, which leverages API integrations to embed financial services into the user experience of non-financial companies. All this is possible through high-tech entities or fintechs, which provide white-label banking services using their tech know-how, in place of traditional banks and their legacy infrastructure.

In this way, embedded finance enables companies to respond to customer needs on a case-by-case basis, that is, at the time of the buying experience itself.

What is the difference between embedded finance and banking as a service?

The terms "embedded finance" and "banking as a service" are often used synonymously but incorrectly. Though they are similar, they do not refer to exactly the same concepts.

Embedded finance focuses on customer experience and providing financial solutions following or in conjunction with the purchase of other goods or services. The goal is to achieve a smooth and continuous user experience for customers while they use the service.

Banking as a service, on the other hand, focuses on the technology underlying the integration of financial services within both banks and financial institutions, digital and otherwise, and within corporations, so that they can provide financial products independently. In many cases, we might call providers of banking as a service "embedded-finance facilitators".

Both embedded finance and banking as a service create challenges and advantages, and both have the potential to develop on the market, not in competition with each other, but rather as two sides of the same coin.

How to bring embedded finance to your B2B business

So, what would be an example of embedded finance that applies to business-to-business companies? Services that offer instalment payments such as Opyn Pay Later!

This is a buy now, pay later solution dedicated to companies that have other companies as customers, and it allows them to provide their business customers with flexible instalment payments without having to go through the bank, accessing them instead directly from their e-commerce or offline store.

Opyn Pay Later gives you the freedom to choose which type of deferment to offer for each sale, and all that with no fixed costs: all you pay is the transaction fee, with no interest or spending limit.

What's more, you will be able to simplify management for collections, receive a steady flow of income, and request the ability to collect invoices in advance.

Are you ready to integrate finance into your business? Discover all the benefits of Opyn Pay Later and start offering your business customers flexible payments.