Understanding Embedded Finance: Why the Right Banking License Matters

Banking License

By Nikhil Sengupta

For Banking-as-a-Service (BaaS) adopters, the benefits of embedded finance are clear – a better customer experience, increased conversion and stronger brand loyalty. Vodeno’s recent survey of more than a thousand business leaders in the UK, Belgium and the Netherlands revealed that 64% believe BaaS offers lucrative opportunities to businesses, and more than half (51%) believe that consumers will engage with financial products offered by the brands they use every day vs traditional branch-based banking. 

However, in order to offer the right products to clients, BaaS providers need to offer access to the correct license, alongside their technology. Brands considering BaaS understand this, with 28% of survey respondents citing they would like to see their BaaS provider offering access to a banking license as a priority. Further insights from Vodeno’s survey revealed that 58% of respondents believe that providers offering a banking license alongside their tech solution will shape the BaaS market in the years to come. 

Understanding the different licenses that BaaS providers may offer is important for any business considering implementing embedded financial products. 

Understanding BaaS licenses

Today, brands that offer seamless financial products at the point of need are capturing market share. Being able to bring these products to market requires two things. The first is API-based technology that is modular and offers a quick implementation time. The second is access to the banking license. The scope of products that a BaaS provider can offer is dependent on the license of the service provider. 

For example, an Electronic Money Institution (EMI) license is primarily restricted to payment services, including transferring funds between accounts, payment settlement and issuing electronic money. Alternatively, a banking license , enables the BaaS provider to offer a more comprehensive set of solutions, including banking accounts with  a deposit guarantee, lending products, etc. 

Being able to offer a wide variety of embedded finance products across multiple countries is essential to brands considering BaaS, and a full banking license is the key to meeting this need.  

What the right license can do

METRO AG, a leading global wholesaler, wanted to create a set of  financial products to meet the specific needs of their customers. METRO Financial Services partnered with Vodeno to bring a decoupled debit card with flexible lending options and up to 1% cashback to their customers. The product sought to help solve some of the cashflow challenges hospitality businesses face by paying upfront for goods, with payback happening at a later date.

METRO FS chose to partner with Vodeno and Aion Bank because of its API-based, cloud-native technology combined with its access to a ECB banking license and regulatory and compliance expertise via Aion Bank. Powered by BaaS, the product grants a credit line during onboarding to METRO FS; this enables the Buy Now, Pay Later functionality to be integrated into the debit card, and post-purchase, customers can opt for different payment options for up to 60 days, or pay in up to 48 monthly instalments. 

Additionally, Vodeno’s platform uses PSD2/open banking standards, enabling the METRO FS app to check a customer’s bank balance with their existing bank four times per day to ensure funds are available for purchases. All of this BaaS functionality happens in the background, and the METRO customer sees an elegant product in the front end.

This innovative solution adds direct value to METRO’s customers and its development was only possible from a BaaS provider with access to a full banking license. 

Licensing matters 

API-based technology is now table stakes amongst BaaS providers. BaaS adopters want to ensure their provider offers the right license as well, alongside regulatory and compliance expertise in order to deliver fully compliant products. It is no wonder that 27% of Vodeno’s survey respondents cited compliance and security concerns as key barriers to BaaS adoption. As embedded finance gains popularity across multiple sectors and use cases, the BaaS providers that can offer a comprehensive set of products with access to the right licence will drive innovation in the market.

About the Company

About Vodeno and Aion Bank: Vodeno combines a fully API-based, cloud-native platform with access to an ECB banking license and a team of banking experts via Aion Bank. Together, Vodeno/Aion are uniquely positioned to offer comprehensive embedded financial services for banks, lenders and merchants across multiple sectors. Covering all areas of the banking ecosystem, from ‘smart contract enabled’ core banking to accounts, onboarding, payments, cards, investment and lending solutions, Vodeno/Aion offer the ability to meet the demands of regulation while enabling innovation at speed. Vodeno and Aion Bank are separate companies and backed by global private equity firm Warburg Pincus LLC.

For more information: https://vodeno.com/

About the Author

Nikhil SenguptaNikhil Sengupta is the Global Sales Director at Vodeno

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