Making Payment Contextual – An Idea Whose Time Has Come

3. There is a lot of buzz around the concept of “embedded” technologies – How is that likely to enable a better context in the payments experience?

Over the past few months, in literally every other client meeting that I have had, and all the conferences that I have attended in the post-Covid days, I have heard the terms Embedded Banking, Open Banking and Banking-as-a-Service almost consistently and I have had the enviable opportunity of speaking to a wide variety of bankers, consultants, analysts and market gurus on this topic. For those who are un-initiated on this subject, Banking-as-a-Service (BaaS) is the ability to embed financial products and services directly within the clients’ ecosystem as they serve their customers. BaaS provides the framework that allows banks to provide embedded finance and embedded banking products on their clients’ digital engagement platforms such as e-commerce or marketplaces.

To be more precise, the point of view that I have been sharing with the market is the whole evolution around three models of BaaS which are 1. Embedded Banking, 2. White Labeling
3. Enabling non-banks to function like a bank.

“What is BaaS and how does it add value to banks and their corporate customers?”.
That said, given the fact that payments processing is the backbone behind every banking product or service, the dominance of embedded payments processing is a complete no-brainer here.

This is also related to an earlier point that I mentioned about banks actively building their own APIs and microservices on top of their legacy core solutions. Embedded technologies are just using these and exposing them to the external stakeholders. See how most rideshare apps these days provide the payment options “within” their own digital experience without having to go the bank’s portal or app to make a payment and get a confirmation. Another rapidly growing example is how BNPL (Buy-Now-Pay-Later) options are available in a lot of shopping apps by embedding those services within such apps.

However, the challenge in markets like the Americas where such use cases can have a lot of potential, is that fact that Open Banking is still not in place with the much necessary regulatory framework (like PSD2 in Europe), so as a result, banks are still trying to work around that challenge to enable such Open-Banking-like services to their customers. This obviously means that the progress is slower than we would want it to be, but the market is learning, adapting and reacting to these scenarios by creating more point-to-point bespoke solutions in the interim.

So in summary, the art of making payments contextual is a treasure trove that many banks have already started tapping to make their products and solutions a lot more relevant and relatable to their customers, in turn helping the banks drive higher revenue and decreased costs.