Embedded Finance: A Transformative Path Forward

The landscape of financial services is rapidly evolving and embedded finance and Banking-as-a-Service (BaaS) solutions have further accelerated the evolution of a rather traditional business sector: the banking and finance businesses. André Gardella, CEO of Treezor, provides valuable insights into the transformation of this industry in the latest edition of Bank und Markt – a specialized German media outlet focusing on banking and financial market topics.

The Rise of Embedded Finance and the role of BaaS providers

Embedded finance, as André Gardella explains, has immensely gained traction over the past few years, opening up new ways for businesses to integrate financial services seamlessly into their products and services. He emphasizes that “the digital revolution has given birth to entirely new business models and established them in the market. Today, companies need more than ever to offer their customers a user-friendly and straightforward experience. However, complex payment processes and financial intricacies often present a challenge, especially for companies that lack financial expertise.”

This is where BaaS providers like Treezor come into play. BaaS providers offer a range of resources, including technical core banking solutions, payment services, and even white-label banking licenses. These resources can be seamlessly integrated into the IT systems, products, and the customer-facing channels of diverse companies. This enables them to transfer regulatory responsibilities to the BaaS provider.

Interoperability and Market Expansion

One of the unique strengths of embedded finance, according to Gardella, is its interoperability. It makes adding new financial services to existing platforms easy, continuously expanding the services offered by BaaS providers. As a result, these providers are venturing into market segments traditionally dominated by banks, effectively challenging their monopoly in particular financial services. Gardella adds, “The economic potential of embedded finance is enormous. The global market is set to more than double between 2020 and 2025, surging from $22.5 billion to approximately $230 billion.”

However, he suggests that instead of seeing BaaS providers as threats to traditional banks, there is a potential for collaboration between various players in this rapidly changing environment. He argues, “It is not a zero-sum game. The global financial services industry remains highly profitable and is far from reaching its full potential. There are still billions of underserved or unbanked individuals worldwide, and embedded finance can help unlock this untapped market.”

Modernization and Adaptation

André Gardella believes that embedded finance, based on open API infrastructures, allows traditional banks to modernize their existing IT systems and customer interfaces. By collaborating with BaaS providers, they can reach new customer segments and continue to offer innovative products and services.

He asserts, “Embedded finance will not lead to the marginalization of traditional banks. They are essential for the global economy and deeply ingrained in our financial ecosystem. However, it catalyzes change, pressuring institutions to respond to the digital transformation if they wish to remain competitive.”

Embedded finance, as illustrated through the insights of André Gardella, is reshaping the financial industry. Rather than viewing BaaS as a threat, it is an opportunity for collaboration, modernization, and expansion of financial services. In this ever-changing landscape, traditional banks, new fintech players, and BaaS providers must adapt to meet the evolving needs of consumers and businesses, creating a more inclusive and innovative financial future.