Traditionally, people went to banks to get their “financial products and services” and then to other businesses to do “everything else.”

This separation was the result of a limited number of companies having the regulatory approval to offer certain financial products and services, such as bank accounts, payment processing, and more. 

But in recent years, a new trend has emerged that is breaking down this separation and changing the ways people access and engage with financial products. 

Technology and consumer brands such as Apple, Tim Hortons, and Uber have all launched products that were previously only offered by regulated banks. Now X (formerly Twitter) is even planning on building a super app that would give people the “ability to conduct your entire financial world” using its platform.

More and more of the financial products we use come from the brands we know, love, and already engage with on a routine basis — and less and less from traditional financial institutions. 

There is a name for this trend, and it’s called embedded finance. Embedded finance is the integration of financial products into a business’ existing platform or product line. It encapsulates all the different financial service offerings that can be added to an existing business. Think payments, insurance, lending, and more. 

Embedded banking is one of the subsets of the broader embedded finance trend. Embedded banking is when non-bank businesses offer products that would typically come from a bank, such as debit cards, bank accounts, or loans. 

In this article, we’ll be providing a deep dive into embedded banking, showing examples of these products already in-market, highlighting the benefits for businesses and their customers, and explaining how it all works.

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Examples of Embedded Banking

To get a better understanding of how embedded banking products are used today, let’s look at some great examples of how businesses of all types have started offering banking products to their customers.  

Shopify

In the world of SaaS, Shopify was an early adopter of embedded banking products, and it’s paid off for them. Going beyond their initial eCommerce platform offering, they launched a small business lending product called Shopify Capital in 2016 to help their small business customers grow — and ultimately sell more products on Shopify.

Many of Shopify’s customers struggle to get loans from traditional banks. Shopify, however, is able to underwrite the loans offered through Shopify Capital differently than a traditional bank would due to the unique insights they have into their customer base. These customer insights, combined with innovative solutions for repayments on those loans, allows small businesses to access working capital that may have otherwise not been available. 

Continuing on the success of their first embedded banking product, Shopify then began offering a business bank account product called Shopify Balance. Shopify Balance is a business checking and spend card product, integrated directly into Shopify’s platform, allowing their customers to “manage their money where they make it”. Customers can receive faster payouts through Shopify Balance and also earn greater rewards tailored to the needs of eCommerce businesses. 

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Uber

We all know Uber as the tech company we use to get from point A to point B, but they also were a pioneer in embedded banking. Uber built a complete banking ecosystem that provides unique benefits to their drivers. In fact, our co-founder and CEO, Peter Hazlehurst, led this initiative to launch Uber Money.

Uber’s embedded banking product allows their drivers to get faster access to their earnings and more efficiently manage those earnings. After each completed ride, the money the driver earns is immediately deposited into their Uber bank account, where it can then be transferred to another bank account or spent through an Uber Debit Card. 

Additionally, Uber’s debit cards come with added rewards tailored specifically to the drivers’ needs (think added cash back on gas purchases), providing incentives for them to keep money in the platform and use their Uber Debit Card.

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Housecall Pro

Housecall Pro is a software platform that serves as the operating system for home service professionals, such as electricians, plumbers, and landscapers. Housecall Pro helps their business customers work more efficiently by integrating scheduling, invoicing, customer experience management, and more all into one platform.

To bring even more efficiencies to their customers, Housecall Pro launched a suite of embedded financial tools to help home service professionals “master the financial side of their business”. 

One of these tools is a business expense card. Housecall Pro’s expense cards allow their customers to gain full visibility into and control of their employees’ spending. This is accomplished through improved expense tracking, individual spend controls, and streamlined accounting, all available within one unified interface.

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Tim Hortons

As a beloved Canadian brand, Tim’s sells 8 out of every 10 cups of coffee throughout the country. To further deepen that brand loyalty, Tim Hortons now offers a credit card to build stronger relationships with their customers. Using the card, customers are able to earn Tim’s reward points everywhere they shop — well beyond coffee. 

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Benefits of Embedded Banking

Now that we’ve seen some examples of embedded banking, let’s walk through how offering these products can drive growth for your business while creating better banking experiences for your end customers.

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Benefits for the End Customers

‍Utilize banking products more tailored to their needs or interests

Traditional banks primarily focus on offering banking products that cater to a wide audience. This is because, historically, banks catered to customers based on a shared location, rather than a shared interest. 

This horizontal approach to banking creates an opportunity for companies and organizations who work with specific audiences to offer banking products that are more tailored to their customers’ unique needs. 

For example, businesses whose customers are all fans of the same sports team can offer enhanced cashback for purchases at the stadium or bonus rewards when their team gets a win, creating even deeper fan relationships. 

Additionally, companies who service small businesses in the same vertical can create new efficiencies for their customers by building functionality tailored specifically to how that industry operates. For example, they can offer restaurants better payouts for tipped employees or create a unique bank account structure that streamlines accounting for nonprofits.

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Experience a more streamlined banking process

By integrating banking products into the solutions your customers already use, you’re able to streamline how they manage their money or pay for goods and provide them with faster access to their funds. 

For business management platforms, embedding banking products creates new efficiencies for their business customers. For example, Housecall Pro highlights that their expense cards help their customers “save hours on admin tasks such as reconciliation, reimbursements, and more”. 

Additionally, if businesses use your platform to take payments from their customers, embedded banking allows you to offer them faster payouts. This is one of the key benefits of Shopify Balance. 

For consumers, embedded banking products can provide them with a more efficient payment experience with the brands they already spend with every day.

A great example of this is Starbucks’ rewards program. Within the Starbucks app, customers can preload funds into their account to save time when purchasing their coffee while earning twice as many rewards points. This program has proven to be wildly popular among Starbucks’ loyal customers with 57% of their total Q2 2023 revenue coming from rewards members.

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Receive easier access to banking products for underserved groups

Embedded banking also expands the opportunities for consumers and businesses to access banking products and financial services, allowing previously “unbanked” or “underbanked” groups to receive banking and lending products. 

Examples of improved financial access include different underwriting requirements for credit and lending products, or allowing immigrants coming to the United States who may not yet have a social security number to receive bank accounts.

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Benefits for the companies embedding

Deliver an improved customer experience

When you add banking to your existing platform or product line, you're able to solve new problems for your customers to make them more efficient and improve their overall experience. This may be faster payouts or better spend management for businesses, or a more seamless payment experience for consumers. By saving your customers time and solving even more problems they routinely face, you’re now able to stand out amongst your competitors. 

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Increase revenue per customer

Embedding banking products opens up new revenue streams for your business. By offering banking services, you are able to earn interchange revenue on the card swipes of your customers, a share of interest on deposits or loans, and other revenue opportunities through recurring or usage-based fees. 

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Boost customer retention

Both the improved customer experience and the inherent stickiness of banking products combine to help boost overall customer retention. In fact, a study conducted by Plaid and Accenture found that 88% of companies that began offering embedded financial products saw increased customer engagement, helping them further develop brand loyalty. 

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How Does Embedded Banking Work?

While any company can now offer banking products to their customers, licensed financial institutions still have to be involved in the process. To get started, a company that wants to launch embedded banking products must partner with a licensed bank, often called a “sponsor bank”. Partnering involves either forming a direct relationship with a sponsor bank or using a Banking as a Service platform, like Synctera.

Directly connecting to a sponsor bank is often difficult and few banks offer robust solutions, slowing down time-to-market and increasing the cost of launching an embedded banking product. This is why Synctera created a platform and set of APIs that provides all of the technology businesses would need to build scalable banking products.

Once a partnership is established, companies connect to the banking ecosystem through a set of APIs offered by their Banking as a Service provider to begin embedding the financial products into their platform or product line.

Beyond technology, businesses must also address the development of a comprehensive compliance program to support their solution. The financial services industry is highly regulated to protect both consumers and businesses, so as you launch embedded banking products you’ll need to keep the specific compliance requirements for those products in mind. To learn more, our experts have put together a 9-step compliance checklist detailing what you’ll need to do before you launch to build a secure and compliant banking product.

It is worth noting that every situation can be different depending on what types of banking products you’ll be offering, so it’s important to fully understand what compliance requirements your company is responsible for before launching. 

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The Opportunity of Embedded Banking

A transformation in financial services is underway as companies of all types now have the ability to provide more convenient banking experiences for those customers, whether that be better tailored solutions or improved access. In return, the business is able to benefit from increased revenue and a competitive advantage in their market. 

The rise of embedded banking infrastructure providers like Synctera, and the increase in banks looking to partner with companies to enable them to offer banking products, makes this opportunity more accessible than ever.

Synctera’s platform provides everything you need to launch and scale great embedded banking products, including a modern tech stack, sponsor bank connection, and the risk & compliance expertise. Also, our team of solutions experts will work with you to map out an embedded banking solution that maximizes value for your customers and your business. 

To learn more about how embedded banking can best fit into your unique business model, contact our team of experts.