Spotlight on Embedded Banking.
Trap? Or handy convenience?
Uber, Shopify, Klarna... What do these three companies have in common? They are all taking advantage of the world of embedded banking.
What is 'embedded banking'?
Embedded banking is, simply put, banking which has been embedded into a third party. For example: when you use any ride-share service, you can order, communicate, and pay for your journey, all from the same app.
If embedded banking were to disappear tomorrow, the process of paying for your ride would involve having to separately open and navigate through your bank account. Even more likely than this, we would return to traditional taxi practices, with cash-in-hand payments when you reach your destination.
Why do you need to know about this?
Embedded banking is convenient, but it also makes spending easier than ever.
The reason that so many retail companies have rushed to incorporate embedded banking is because it makes it that much easier for us to part with our money. This can even go as far as having a negative impact on your credit score.
So, if you are currently trying to save or manage your budget, watch out for easy purchases. :)
What else do you need to know?
The benefits of embedded banking.
You, as the customer, are the priority.
The stand-out point of embedded banking is to make the customer journey as easy. and as straightforward as possible. Finextra describes embedded banking as 'financial services on the customer's terms, from anywhere and at any time', and this is largely true.
Think about Uber, who announced 'Uber Cash' in 2018. This service allows you to add funds to your Uber account in advance, pre-plan payment limits for your journeys, and you even receive discounts on future Uber services if you pay via Uber Cash. This flexibility and choice means as many people as possible will have a good experience using the app.
It's small-business friendly.
Embedded banking totally eliminates the need for companies to invest huge amounts of both time and money into building their own financial systems. Instead, they simply need to decide on the different functions they require. For Uber, this means enabling payments, whereas for Klarna, they also need a credit element.
The list of financial requirements can then be sourced from existing companies or 'neobanks' - banks which only exist online, with no physical branches for you to visit. This typically works out far cheaper than building the systems from scratch, which can be a life-saver for start-up or small businesses with little capital to spend!
The cons of embedded banking.
Spending is easier than ever.
Embedded banking makes it much quicker for us to purchase items online, and that can lead to some unhealthy habits.
For example, 'buy now, pay later' (BNPL) schemes can be 'embedded' directly into the sales pages of retail sites, providing the opportunity for shoppers to pay in smaller installments. Though this can provide a sense of relief to shoppers, it can also encourage overspending.
Complaints of BNPL schemes encouraging debt and ruining the credit scores of their customer base, many of which are young women, led to the UK Treasury announcing greater supervision of this growing market earlier in 2021.
Olga Miler, co-founder of SmartPurse, spoke about this with Yahoo News:
"These types of products and services succeed partly because women don't have the luxury to spend hours researching through the information that isn't readily understandable, or tailored to their own personal and unique situation."
Whatever your opinion on embedded banking is, it's clearly here to stay, and that means more and more non-financial industries will begin to use it over the coming years. There have even been predictions that this could finally force traditional banks to change with the times, otherwise they risk going out of business completely!
For now though, what you need to know about embedded banking is that just because it's easier than ever to pay, doesn't mean you always need to buy. :-)