It’s been more than 15 years since American Banker questioned whether turnkey “bank-in-a-box” products were too rigid. The article, “Weighing Customization Against ‘Bank-in-a-Box’ Solutions,” describes the frustration of financial institutions that wanted flexibility.

“If a community bank requires major platform changes, switching the technology altogether can be less cumbersome than modifying the existing platform.”

One of the key attributes of bank-in-a-box was that it came pre-configured to deliver basic banking services relatively quickly. However, it was like a shoe store selling a great pair of shoes, but only in one size. It was a perfect fit for some, but it was terribly uncomfortable for most.

BiaB vs. BaaS

The concept of Bank-in-a-Box was born out of necessity. Created by the legacy players, the solution was built to be a turn-key solution for credit unions. The idea of bank-in-a-box has long since been eclipsed by Banking-as-a-Service (BaaS) – one of the hottest trends in banking. However, BaaS faces similar criticism. Many BaaS offerings are inflexible and, as a result, constrain the creativity of innovators. Non-traditional financial services companies want to leverage BaaS offerings to deepen customer relationships and diversify their revenue streams, but they don’t want to be forced into a shoe that doesn’t fit. The modernization of BaaS should mean that your provider can give you the best of both worlds – the right solution, without sacrificing your ability to get to market quickly.  We recently asked about the preference for modularity vs all in one package in our Banking and Money Movement survey*. What we found was that, of the respondents,  57% said they prefer modular vs. 30%  that prefered an all in one package and 14% indicating they had no preference.

We see BaaS evolving to include a far more diverse collection of features. This evolution is enabling fintechs and other companies to further differentiate their financial offerings and go-to-market with something truly unique. A broad spectrum of potential capabilities – combined with the ability to pick and choose which functionalities are needed for the job – is especially important in times like these, when the economy is volatile and competition is intense.

Rise of embedded finance

The evolution of BaaS to diversify features and become more modular has contributed to an influx of innovative and differentiated embedded financial services. Most are familiar with the frictionless experience of money movement using ride sharing, food delivery, and peer-to-peer payment apps. Similar embedded finance experiences, in which financial functionality integrated into all sorts of apps and websites, are disrupting retail, insurance, travel, and automotive industries, to name a just a few.

Three quick examples make the point:

• DoorDash is embracing embedded functionality by furnishing its drivers with a payment card they use to pay restaurants – with strict controls over the geolocation and exact amount for which a transaction will be approved.
• Block has developed a range of payments products to enable small- and medium-sized businesses to accept payment and access funds immediately without additional fees.
• Klarna changed the idea of what’s affordable with its “Pay in 4” solution, which makes it easy to spread payments out.

Embedded finance experiences allow these brands to provide valued financial services to their customers, which enables them to deepen their relationship and their intimate knowledge of individual customers. This leads to a continuous cycle of more tailored, seamless, and compelling products and services.

What to look for in a BaaS provider

As BaaS has matured, the financial products that have filled the marketplace have begun to look similar. While BaaS has fulfilled the promise of making it possible to get financial products into the market quickly, the limitations of most BaaS offerings have made it hard for innovators to build truly differentiated products. The evolution of BaaS will make it possible to build unique banking into your product with banking code that differentiates. Here are four attributes to look for when considering a BaaS provider:

• Customizable accounts and money movement capabilities

Preconfigured solutions are often too limiting. You want a provider that offers a modular platform so you can pick and choose the banking products that meet your needs. When it comes to building the next generation of banking products, demand flexibility.

• The ability to move money with fine tune control

Creating the ideal customer experience requires control and transparency. Look for a provider that offers control at the user level and transaction level, not just at the program level.

• A partner you can trust and can bring you to scale

You want a BaaS partner that has a track record of enabling innovators to launch category-defining banking products. They should have a team of experts ready to help from setup to launch and scale. Their existing relationships with banks, networks and card providers can accelerate time to market and remove compliance burdens.

• A flexible partner ecosystem

Your BaaS provider should be a part of a growing directory of best-in-class banking and technology partners. Having an ecosystem of integrated partners can accelerate your timeline and strengthen your value proposition. Moreover, be sure they have open APIs that give you the ability to integrate your own ecosystem of partners. You don’t want a partner that restricts your ability to work with the partners you bring to the table.

We’ve come a long way since “bank-in-a-box” products were introduced, and we don’t want to see the market cluttered with banking products that all look the same. These attributes will ensure that you have the flexibility, control and ability to scale that you need to deliver truly differentiated finance experiences to your customers.

*The data in this report was collected from a Marqeta-commissioned survey of 400 B2B decision makers in the financial services space, conducted in August 2022.

Want to hear more about embedded finance?

Don’t miss out on the next edition of FTT Embedded Finance & Super Apps North America taking place at the Grand Hyatt at SFO, San Francisco, on December 1, 2022 and as part of the Fintech Talents Festival on 14th and 15th November 2022 (Europe) at The Brewery, London. Save the dates!