Any company can embed banking products — but that doesn’t mean they should
- While every company can embed banking into their business, not every business should — those that deeply integrate banking into their product ecosystem instead of tacking on a feature are more likely to differentiate themselves and succeed in the long run.
- To optimize your odds for success, define your strategy, product hooks and business models early; pick the right partners; and play to your strengths so you have a competitive advantage going in.
By Ahon Sarkar, GM of Helix
Five years ago, a non-bank would have never considered launching a banking account service. But now, with the prevalence of Banking as a Service (BaaS), virtually any company can build a bank account. But should they?
Over the years, we’ve seen companies span the spectrum from resounding failure and dramatic success. What determines the difference?
Embedded banking products improve your business when they solve a specific problem for your users and add a new dimension to your product ecosystem. But when they don’t fit well with your long-term strategy, they strain your business by shifting your focus to include an area where you have no competitive advantage.
Having been in the BaaS industry since its inception, we’ve learned a few things along the way, including the steps to follow if you’re considering embedded banking for your business.
Step 1: Decide if embedded banking is a good fit for you
Companies that have successfully embedded banking when banking isn’t their first product tend to share five common traits:
- Their customers trust them.
- They have context about their users that can give their banking products a competitive edge.
- They differentiate their business by solving a real problem, ideally by integrating banking into their existing business.
- They have a history of building popular, user-centric products.
- They identify a clear target audience, business model, and product focus.
It’ll be difficult for your firm to get traction among other competitors without these prerequisites, so evaluate whether you have these five traits before making a decision.
If you decide to go for it, follow these next steps.
Step 2: Do the necessary prep work
- Build a product that expands your moat
Embedded banking should enhance what you already offer and integrate into your existing moat to expand it and create something new. This is key to creating a solution with longevity. If you launch a basic product any competitor can offer, you probably won’t achieve practical differentiation. Learn more in 6 Steps to Designing a Great Embedded Finance Product.
If your product deals with customer money, it’s probably clear that it would benefit from embedded banking. However, that isn’t a requirement. There are many interesting use cases across industries. For example:
- Gaming companies can extend their ecosystems into the real world and drive engagement.
- Insurance companies can expedite disbursement and improve revenue growth.
- Retail companies can improve their rewards programs with a digital wallet.
- Hosting marketplaces can help hosts manage their businesses.
- Develop the business model as soon as you know what problem you’re solving
Are you building a standalone profitable banking product? Using banking as an acquisition/retention tool? Driving increased engagement? If you’re not sure, see how these goals can play out in real life:
Revenue: A personal financial management (PFM) company could add banking to transition from giving advice to creating real savings, and profit from transactions and deposits.
Acquisition/retention: An app that sells cars could help customers save their down payments with a savings account that offers discounted prices on their cars, preventing dropoff and improving acquisition
Engagement: A lender that serves users who often take only one loan can add banking, enabling them to affordably fund their loans instantly and create new use cases that increase demand for loans.
- Carefully plan for the resources you’ll need
The level of resourcing you’ll need will vary widely based on the specifics of your product. The larger you are, the more complex your product, and the more integrated your product is into your ecosystem, the more time and effort you need to put it in. Plan for this accordingly.
Step 3: Pick the right partners
There are tons of BaaS providers to choose from, so evaluate how large your client base is, how much you plan to scale the product, and how complex your product is when picking the best fit.
Some providers focus on companies that are starting up and can help you get an inexpensive, highly standardized product to market.
But, if your company is larger or has a meaningful base or product, you’ll need a provider like Helix that has proven scale in the space. It’s relatively easy to create one prototype; the challenge comes with creating a million products and handling all the resulting logistics.
To avoid scaling problems, find a full stack platform that scales with you, helps differentiate your offering by integrating into your existing moat, and caters to your specific business model.
To date, we’ve brought over 12 million users onto the Helix platform and we’ve continuously refined the infrastructure to ensure robust security and a stable environment for product development.
At Helix, we match companies to their perfect bank partner based on over ten factors, but if you’re looking for a bank on your own, make sure you find one that:
Understands your long-term vision and is aligned with your products
- Has experience and has previously launched a similar program
- Has an executive team that will help you overcome roadblocks and optimize usage
- Has experience operating at the relevant scale
Step 4: Play to your strengths
Typical design best practices often apply to banking products, but there are also unique considerations in finance.
Trust. Trust is crucial when dealing with people’s money. Avoid issues that destroy trust, like hidden fees or a buggy app, and include product features that reinforce trust, like extra user authentication.
Personalization. Users want products that cater to their individual needs. Personalization features that evolve with users as you learn more about them will drive long-term engagement and retention.
Want to get started? There’s lots more we can share. Check out 6 Steps to Designing a Great Embedded Finance Product. There’s a long and exciting road ahead for those entering the embedded finance space. With the right strategy, preparation, and foundation, success is around the corner.