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Banking as a Service (BaaS) and Embedded Finance, innovation for today’s challenges

Few could have anticipated the margin and deposit growth pressures financial institutions have suddenly faced in 2023. Traditional models cannot always solve balance sheet shortfalls.

As innovative banking technologies evolve, they offer opportunities to broaden customer relationships on a different, deeper level. This is especially true in the case of Banking as a Service (BaaS) and its fast follower, Embedded Finance.

Forward-thinking bankers can lean into these types of solutions to cement existing relationships, open doors in new markets, and create alternative deposit sources to succeed in threatening times.

BaaS and Embedded Finance defined

Wikipedia defines BaaS as seamlessly integrating as many banking platform service providers as needed into one comprehensive process to complete a financial service in an effective and timely manner. As BaaS expands, consumers can begin using these innovative technology platforms to access services such as e-commerce, travel, retail, health, and telecom.

According to FinTech Global, the chief purpose of Embedded Finance is to streamline the customer journey by eliminating any extra steps in the consumer experience. BaaS allows non-banking institutions to offer banking services, by connecting to a banking system via API technology.

BaaS is a perfect example of white-label banking that extends a bank’s reach into new markets and geographies. But as with all modern banking, success requires the right technology and a collaborative culture. In this respect, Embedded Finance and BaaS can be seen as complements rather than substitutes.

Embedded finance is generally concerned with the financial aspect of a purchase or transaction – such as integrating payment in an Uber app to simply the customer experience. BaaS on the other hand is more about empowering specialist companies — mainly fintechs — to deliver innovative digital banking services quickly.


These types of solutions are attractive to fintech partners as bankers can offer banking charters and regulatory framework.  Bankers must be prudent in assessing those organizations and the bank’s appetite for risk.

The opportunity for financial institutions

Recent research from Oliver Weyman points out that for a financial institution, BaaS is an opportunity to reach a greater number of customers at a lower cost.

The traditional banking delivery model based on existing technology and operations has the cost of acquiring a customer typically in the range of $100 to $200, according to their analysis. With a new BaaS technology stack, the cost can range between $5 and $35.

Complementing those findings, the Global Innovation Report from FIS surveyed leading financial institutions and found:

  • 54% of banks surveyed are offering or planning to offer embedded financial services.


  • 45% of banks will significantly invest in developing Embedded Finance products in the next year. 


  • 42% of banks that see an impact on their business from Embedded Finance will respond by increasing their tech or R&D budget in the next 12 months.

Foundational elements for BaaS and Embedded Finance success

  1. 1.    An understanding of your bank’s market opportunity. Savvy community bankers will identify potential fintech partners to offer BaaS and the opportunities for Embedded Finance within commercial customers they serve.  


  1. Identification of the type of banking products needed for each partnership. Partnerships can need very different and sometimes customized financial service products. Bankers must ensure their technologies are current in all areas including deposit accounts and KYC, loan origination, ACH, debit, and credit payments.


  1. 3.    A robust library of banking application programming interfaces (APIs) APIs provide the engine to meld BaaS and Embedded Finance functionality into consumer experiences.  


  1. 4.    An understanding of any new risks and the relevant risk profiles introduced by new partnerships associated with Embedded Finance and BaaS solutions. 


  1. 5.    Advisory services to jump start the effort. If your institution is evaluating BaaS and Embedded Finance strategies, consider reviewing the offerings of larger peers in current fintech partnerships.


Get started now

Embedded Finance and BaaS can help secure new partnerships and cement existing relationships. These partnerships are not an original concept – for several decades, retailers, airlines and other brands have offered private-label credit cards to increase brand awareness, boost customer convenience and build loyalty.

The new partnership opportunities are limitless. Examples of innovative solutions include consumers taking out a small loan when they pay for a holiday on a travel site; the instant calculation and sale of micro-insurance for newly purchased jewelry; or a small enterprise mitigating its cashflow challenges through an instant working capital loan from an e-commerce site.

There is too much at stake for banks to fully embrace this innovation – banks must get in front of the growing wave to stay relevant with their customers.




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Maria Schuld

Maria Schuld

Head of Regional and Community Banking


Member since

11 Feb 2021



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