In the last decade, I’ve watched modern technology and new financial laws catalyze amazing innovations in the FinTech space. After the go-live of the Durbin amendment in 2011, the interchange opportunity for neobanks like Chime and their community bank partners has defined a new model of value. Since then, we’ve watched FinTech innovation move beyond debit card swipes into smarter products to build credit, no-cost stock trading, and new financial services for businesses to help track spending. 

But one thing is still missing: FinTech innovation for large enterprise companies, not just the big tech platforms. 

That’s starting to change.

My friend and FinTech investor at a16z Angela Strange famously coined the phrase that in the future “every company will be a FinTech company.” How? Through a new-but-not-so-new-innovation: embedded finance.

The new trend we’re seeing develop - and that we expect will extend beyond 2022 - is non-financial companies testing and successfully implementing FinTech services that help their customers. I’m not just talking about embedding payments into an eCommerce website with a few lines of code. I mean established companies helping people solve urgent financial problems that are affecting them today. Things like: 

• Embedding financial help for childcare into a company’s payroll 
• Payments capabilities embedded into software that helps local businesses like independent pizza shops
• Companies embedding better vesting and compensation packages for new employees 

There are a lot of important financial problems out there waiting to be solved with a yet-to-be-embedded financial product. But with a growing array of simple-to-use FinTech tools that can build banking in minutes, any non-financial company can start embedding financial products where they make sense. 

Where to start? What’s the value that you can create? How do you do it?

In this article, I’ll walk through:

• Synctera’s definition of embedded finance and a brief history from the POV of a FinTech builder
• What embedded finance looks like for big companies and a hypothetical use case for a company you may have heard of
• How to think about embedding financial services at your company

What is embedded finance?

A brief history 

We at Synctera think of embedded finance as a non-financial business nesting financial services exactly when and where customers naturally use them. In principle, it’s the idea that an existing business that doesn’t offer in-house financial services –like a Fortune 500 construction company, a social media network, or a SaaS platform for day spa managers– can add banking services, bring payroll in-house, or offer lending to customers.  

Conceptually, embedded finance isn’t a novel idea either - it’s been around since the early dot-com days. 

Take, for instance, payments and online point of sale: Amazon patented and embedded the one-click-checkout flow as early as 1999. Since then, Jeff and the gang expanded to embed their own credit and lending products alongside the multitude of payment buttons and logos from Apple, Shopify, and more that greet me when I want to buy a dog toy for my goldendoodle Sophie. Even Microsoft and Yodlee (a FinTech stalwart for the young builders out there) were embedding finance-like features in the early 2000s, where internet browsers would save login/payment info for fast(er) checkout.

Do these products sound familiar to you? They should, because these are the frameworks for Buy-Now-Pay-Later (BNPL), Apple’s growing payment ecosystem, and a world of other FinTechs ideas. It’s also because digital banking and FinTech solutions have been rebuilt over and over again for the last 30 years (this is a post for another day).

But, in recent history, the only folks that could afford to invest in FinTech innovation were digital-first tech platforms with big R&D budgets - the Microsofts, Googles, and Amazons of the world. A personal example (more on this in the next section) is my experience at Uber where I led a big team focused on payments.

At Uber, we had an idea to make a neobank for our drivers that helped them get real-time payments and access to amazing, intuitive banking products that were offered in a place where customers naturally used them.

But despite the talent and resources, it took a village of highly motivated people working tremendously hard for a long time to launch it. I'm talking years and countless iterations with teams in Product, Legal, Compliance, Engineers, Marketing. It was not easy.

Launching Uber Money, we learned that creating and launching a FinTech was both really expensive and really hard. And that led us to our problem that we're trying to fix today at Synctera: most FinTechs, startup founders, and even established companies don’t have the funds or resources to make their financial ideas into real, working products - no matter how innovative or helpful they are. 

That’s starting to change with Banking as a Service (BaaS) platforms -like the one we built- that can help non-financial companies quickly build functions like bill pay, payroll, accounts, branded debit and credit cards, and more into their own stack in relatively quick fashion.

What does an embedded finance use case look like?

Better, personalized services for customers, more revenue opportunities for companies

While smaller neobanks like Sincere, a debit card that rewards pet parents, or Tiphaus, a neobank for restaurant workers, will continue to help groups of people that don't have personalized financial solutions, we’ll likely see an acceleration of bigger companies expand their embedded financial services beyond eCommerce and payments.

What’s the value enterprises can create? How do you do it? Why should we keep investing here?

It comes down to the truism that providing financial solutions for people that make their lives easier makes sense. Having built financial products at large corporations and small startups, I’ve learned that embedding a financial service will only be successful if you structure it to meet these three customer-focused criteria: 

1. You have a highly engaged community of people who trust your existing company and products
2. Your customers have needs that aren’t being met by traditional financial services
3. Financial services complement your core products

Back to the Uber example: we worked on a really crucial problem – access to the banking system for our drivers, many of whom hadn’t had an account at all before using the platform and products.

We, Uber, were not a bank. But we knew that if we could offer a great product in partnership with a bank, we would be able to help our drivers in their financial lives and create value for Uber though better driver retention. Uber Money and the driver banking experience that we eventually launched in Mexico was a perfect, new embedded finance use case that:

1. Helped the hundreds of thousands of gig workers that were engaged and using our product to make money
2. Helped people get better financial access and a free banking option
3. Complemented our core product, keeping a driver in the flow of onboarding and a bank account if they needed it

The end result: we got to support millions of people with a product that improved access to financial rails. And that’s the amazing thing we were able to do as an enterprise: Help people get better access to their money so they could use it, quickly.

Let’s take an embedded finance use case for a non-financial enterprise into a deeper hypothetical: FinTech journalist and analyst Alex Johnson recently laid out how Starbucks is becoming a FinTech through its gift card program that’s embedded in its mobile app. 

I recommend you read Alex’s insightful post, but to summarize: Every year highly engaged customers pour billions of dollars into coffee gift cards embedded in the company’s app to take advantage of its rewards program. As a result, Starbucks gets access to an interest-free line of credit they can use to invest back in their business, while new cash stays in its ecosystem.

Now, introduce Banking as a Service tech into the brew (maybe a little almond milk too), and suddenly those Starbucks gift card accounts are bank accounts. By adding an extra shot of BaaS to its “neobanking” strategy, hypothetically Starbucks could:

• Create an “open-loop” payments system with a personalized, Starbucks-branded debit card that allows customers to earn coffee rewards on purchases at merchants beyond just Starbucks. They could even add the debit card to their ApplePay or Google wallets for easy use, anywhere
• Unlock a new line of revenue by earning interchange fees on debit card swipes
• Offer interest-bearing bank accounts, rewarding coffee and tea lovers for holding money at Starbucks in a rising interest rate environment
• Utilize ACH to accept a portion of customers' paychecks to fund their accounts automatically on regular intervals
• Gain valuable insights on purchases that happen outside of Starbucks that could eventually inform business decisions like deciding where to invest in a new location or what new types of seasonal drinks and food to offer

I could go on for a thousand more words about how a Starbucks neobank would be amazing for the company and its consumers. But the cool thing is the market size for use cases like these is pretty open-ended. The folks at Bain & Co recently published research that financial services embedded into e-commerce and other software platforms accounted for $2.6 trillion of total US financial transactions in 2021. And by 2026, that number will exceed $7 trillion.

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How can I start embedding financial services and banking at my company?

The use cases for embedded finance are rapidly expanding beyond eCommerce and checkout. And as the complexity of new financial products grows, so too does deciding whether or not to embark on an embedded finance journey for your company. 

The real art of embedded finance is simplifying financial problems that are happening to your customers outside of your core products - things like getting a bank account to save money for your products, paying bills, speeding up payroll, or even getting access to credit to make purchases at your company more manageable.

It’s easier than you might think to bring your embedded financial ideas to life with BaaS technology and platforms, but you’ll need to do some planning. We have seen businesses gain a lot of value from following this three-step approach to adding embedded finance capabilities:

1. Figure out if it makes sense for your customers.

Again, it all comes down to focusing on your customers. Imagine a movie of the day-to-day flow of your work. Hit pause whenever you or your customers reach for their wallets. These are the moments where embedded finance can really add value. Ask questions like:

• Could you save people from the heartache of payday loans?
• Would themed rewards make your customers more likely to come back?
• Can you speed up the time that a business gets value for an invoice they generate?
• Can you help your customers earn money on their bank balances while running their daily business?

There are a ton of different opportunities with embedded finance, however, it’s important you don’t lose sight of how it will affect the people relying on you for business.

2. Choose technology that quickly scales‍

You have a financial idea, and need to bring it to life with modern technology tools. The reality is that much of big, corporate banking tech is pretty ancient. I built and sold software to banks in the mid ’90s that is still in use, and that is positively spry compared to some of what’s out there. To say it is hard to integrate with software that predates the modern internet is, really, putting it very lightly.

The fastest path to the market is with a platform that can easily interface or obviate the need to use prehistoric software your bank partner (more on that in the next point) is likely to use. You want something that will grow with you, not present a bottleneck that will require you to disrupt service while you switch providers. 

3. Find the right bank partner‍

FinTechs or companies offering embedded financial services operating in the U.S. today will need to be connected to a bank. And community banks can make the magic happen.

But on their own, these banks tend not to have giant marketing budgets or BaaS operations that can be quick enough to get you online and to market fast. Working with Banking as a Service platforms like Synctera, we can introduce you to the perfect bank match that understands your business and goals, and help you launch your embedded finance idea to market.

One tech stack from us, multiple banks that want to work with you.

Embedded finance isn’t just for your company - it’s for your community 

For me, one of the most exciting parts of the golden age of finance is the new ways builders are helping under-resourced communities solve complex problems or get better access to financial products and tools. Fortunately, the banking technology to embed financial services is ready and available today for any company, big or small, to start spinning up personalized financial solutions for engaged customers.

The hardest part of offering a financial product in your non-financial company is defining an interesting problem to solve, i.e. your “use case.” If you want to become a general-purpose FinTech or neoboank where you claim to “support everybody," you're effectively turning your company into the next Bank of America or Chase or Citi. While I always love and support innovators looking to shake up the banking industry, your scale and unit economics will likely have a hard time competing with their bulge-bracket budgets.

What any new product comes down to are your mission and values to help your community solve a problem that matters. Whether it’s creating better financial health and savings plans, or products for a group of people that have previously had limited access to financial services, it’s important to listen to your community and understand that financial services are something they need and that they complement the core products you already offer them. 

We can already see firsthand how tech and banking innovators are making it easier to add financial services at natural transaction points of business. In short, there are a lot of players with very strong motivation to make this work as seamlessly for you as possible. So if you want to see what embedded finance can achieve, the time has never been better to learn.

We’d love to support you in building what’s next.

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