Embedded banking — which involves integrating traditional banking services with a non-financial company — is a hot topic today. Is this another passing trend or something that will live up to the industry hype? According to a report from Lightyear Capital, the embedded finance market could be worth almost $230 billion in revenues by 2025. Every financial institution, regardless of size, has a chance to grab its share of this relatively untapped market — and community banks that get ahead of the trend can capitalize on the opportunity.
Look at the example of ZenBusiness — a platform that helps small business founders launch, run, and grow their businesses. When ZenBusiness found that most small business owners needed a business bank account early when launching a business, the platform partnered with LendingClub Bank to enable embedded banking functionality. As a result, ZenBusiness customers can now open bank accounts from within their platform and don’t need to leave the site to complete this critical step. Not only is this a big win for ZenBusiness, but LendingClub Bank also gains access to new customers at a lower than typical cost of acquisition.
It’s important to note that the cost of participation in embedded banking is not prohibitive. Financial services being offered through these partnerships — checking accounts, savings accounts, business bank accounts, cards, and lending solutions — are services that community banks already offer. The technology behind embedded banking is also relatively straightforward to implement when partnering with a fintech that can provide the integrations between financial institutions and non-bank partners.
As a financial institution, the first step is identifying the non-bank partner you wish to work with. As you evaluate options, consider the following:
- Ensure that the non-bank entity’s strategies and goals line up with your own and that the relationship is mutually beneficial.
- Think about who your partner targets and how you can serve their customer base.
- Determine the risk profile and processes and procedures that must be in place. Set security and risk benchmarks that your partners must hit, and ensure they are following regulations set by their industry.
- Since the embedded banking experience lives within the partner’s platform, choose partners who understand how to host the experience and have a vision for how the experience should look and feel.
Forward-thinking community banks who seize the embedded banking opportunity can find new avenues to growth. Talk to us about how this strategy can support your goals to expand into new markets and increase your reach.
