Embedded Banking: Accounts and Cards Inside a Brand's Product
Instead of sending the customer to a bank, brands can offer their own banking products, embedded in their non-financial core product. But how does that work, why are they doing it, and what should builders know before getting into it? This page sets out to answer those questions and support builders on the way.
What it is
In order to explain Embedded Banking, we can compare it to Open Banking:
Open Banking
With Open Banking, brands can connect to existing bank accounts, such as high street banks or neobanks. The connection happens through PSD2 APIs, and allows brands to read data and initiate transfers.
Embedded Banking
Instead of connecting to an external bank account, brands can offer their own accounts. This requires more effort from the brand to build, however it allows more product control, more features, and opens new revenue streams.
Use cases
A business account inside the product
Marketplaces and vertical software give their business customers an account, often with a card alongside it, for running day-to-day finances. It behaves like a business bank account, except it sits inside the tool the customer already uses to run the business, so balances and payments appear next to the orders and invoices that produced them.
Receiving customer payments
The customer can issue a dedicated IBAN for each of their own customers, per project or per invoice. Incoming payments then arrive already identified and match against open items automatically, instead of someone reconciling a bank statement against a list of invoices at the end of the month.
Cards with the controls the brand sets
A card the brand issues can be shaped around the job it is meant to do: where it works, when, up to what amount, and on which categories of spend. That level of control is not available on a card the customer holds elsewhere, and it lets the card become part of the brand's own workflow rather than sitting outside it.
Control over how money moves
Holding the account means the brand can act on money as it arrives rather than only showing it. Funds can be split, held, released or forwarded automatically, according to rules that fit the business the brand serves: setting aside income tax as revenue lands, for example, or releasing a payment once a job has been signed off.
Paying out to the people the platform owes
Marketplaces and gig platforms can pay their users into an account the brand provides. Because the platform knows when the work is finished and who is owed, the money can land immediately rather than waiting for a settlement cycle, and it lands somewhere the brand still has a relationship with.
Balances held for consumers
A consumer brand can hold a balance inside its own product, topped up, spent and refunded without the customer leaving. Refunds return instantly, value from a return stays in the brand's environment rather than going back to a card, and the balance becomes a reason to come back.
Why they offer it
There are four major reasons to launch an Embedded Banking offering. Most of the public data is based on embedded finance generally, however, this aligns with what we see in the market for Embedded Banking as well.
Valuation
Public and private markets pay more for software companies that also offer financial products.
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Acquirers pay more for companies with an embedded finance offering. The independent investment banking firm William Blair, looked at around 100 of its own transactions with private North American software companies. They found platforms with embedded finance valued at a 23% premium on revenue multiples and 19% on EBITDA multiples against software-only peers. The gap widens for platforms running more than one financial product: 12.7x EV/revenue against 8.4x for software only, and only around one in ten companies in the sample were there. (William Blair)
Growth
Customers who can finance stock buy more stock, and embedded channels are taking share from direct distribution.
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Customers who can finance stock buy more stock, and customers who can finance a job take on bigger jobs. McKinsey puts the effect on the merchant side as higher conversion, larger baskets and higher lifetime value. In Europe the volume shift is already visible: embedded finance volumes grew three times as fast as directly distributed loans over the last ten years, and embedded channels could account for 20 to 25% of retail and SME lending, up from 5 to 10% today. (McKinsey)
Retention
A business with an outstanding advance running through your platform has a reason to stay that a feature release cannot buy.
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William Blair found gross revenue retention of 89% among customers using the software alone, against 95% among customers who also use the embedded financial products. At platform level the same pattern holds: gross retention of 93% against 95%, net revenue retention of 105% against 111%. (William Blair)
Revenue
The revenue pool is large, growing, and mostly unaddressed.
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Bain forecast revenue for software platforms and the providers powering them to more than double from $21bn in 2021 to $51bn in 2026 in the US. McKinsey has the European market at €20bn to €30bn in 2023, around 3% of total banking revenues, heading past €100bn by the end of the decade. BCG, in research published with Adyen, sizes the addressable opportunity for SaaS platforms at $185bn with less than 20% of it addressed so far. (Bain · McKinsey · BCG and Adyen)
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How it looks in practice
Three companies can serve as (random) examples of why they have launched banking and how it benefits their business.
Business software suite
The business software suite launched an expense card with Stripe and Mastercard, aimed at its 15 million users across more than 175 countries.
Read the story
Tax app for freelancers
The German tax app built its own banking product with Swan, after open banking under PSD2 failed to give its users a smooth experience.
Listen to the episode
Global marketplace
UK drivers get the Uber Pro Card with instant payouts, fuel cashback and a linked account, built on Griffin's banking platform with Mastercard.
Read the storyLatest banking coverage
Everything we published on embedded banking, with the most recent pieces first.
Latest stories
Expensify launches its card in Europe, with Marqeta as both processor and issuer Samsung launches the Galaxy Card with Barclays, a co-branded card that does not go as far as the Apple Card How Squarespace Built a Financial Stack for Its Merchants How Fortnox Built Its Embedded Finance Stack Dutch neobank bunq launches banking-as-a-service on its own bank licence See all banking coverageEmbedded Finance in Europe
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