Embedded finance continues to be the hottest buzzword in banking, with institutions of all sizes grappling with the best way to invest in this emerging market to serve their customers. Consumers are already using embedded payments in everyday transactions, such as ride-sharing or ordering a coffee. For credit unions and banks, embedded finance strategies represent a golden opportunity to create seamless, life-centric products tailored to their customers’ needs.
The latest whitepaper by American Banker and FintechOS dives into this topic, offering valuable insights for credit unions and regional banks looking to navigate the embedded finance landscape and expand their customer offerings.
New generations of consumers, accustomed to on-demand services in many aspects of their lives, increasingly expect financial services to be delivered in a “life-centric” rather than “product-centric” manner. Life-centric products focus on a longer, more holistic view of a consumer’s needs rather than a piecemeal approach. For everyday consumers, this can look like a bundled offering at a point of sale that serves multiple needs. Large purchases such as new kitchen appliances, for example, could be bundled with insurance policies, warranties, split payment terms, and complimentary installation.
Rather than stepping into a physical branch, today’s banking consumers prefer financial activities like account opening, depositing, and lending applications to blend seamlessly into their everyday lives. Innovations such as buy-now-pay-later loans and instant credit are reshaping consumer expectations, mainly driven by the preferences of Millennial and Gen Z customers who expect instant digital access to services.
Embedded finance is not just a buzzword– the worldwide market is a potential goldmine, projected to reach $1,029 billion by 2032. This growth is fueled by the rise of mobile financial services and ongoing digitization across industries. While large banks, tech companies, fintechs, and neobanks are already reaping the benefits, regional banks and credit unions, despite their unique challenges, have a significant opportunity to carve out their share of this market.
For smaller banks and credit unions, a comprehensive embedded finance initiative might seem daunting. However, a building block approach offers a practical and feasible strategy. It allows these institutions to start small, test partnerships, and gradually expand their embedded finance offerings, ensuring steady and manageable growth.
Vibrant Credit Union in Illinois is a prime example of using the building-block approach to expand into new lines of business. By partnering with FintechOS, Vibrant developed a point-of-sale loan origination system for an equipment manufacturer, enabling instant loan approvals directly from showroom floors. This strategic move resulted in over $40 million in loans within six months, with projections to reach $100 million in 2024. This success story underscores the potential benefits of the building-block approach for smaller institutions.
Regulatory risks are a significant concern, with federal regulators closely scrutinizing BaaS providers. Smaller institutions must navigate these risks carefully while overcoming the limitations of legacy core systems. A financial product management platform that decouples financial products from core banking processes can provide flexibility and integration capabilities.
Credit unions and regional banks interested in exploring embedded finance can benefit from FintechOS’s next-generation financial product management platform. This platform offers advanced analytics, generative AI, agile configurability, enhanced customer experience, compliance and reporting, modular solutions, and scalability, just to name a few.
Download the full whitepaper for a comprehensive understanding of how your financial institution can develop a viable embedded finance strategy. Discover how to leverage FintechOS’s innovative platform to navigate the embedded finance landscape effectively.
Download the full whitepaper here.
