You’ve probably heard that embedded finance technology is reshaping the financial world.

“[Embedded finance is] creating a new role for technology companies in the financial lives of consumers and enterprises.” – Forbes

“[It means] financial services on the customer’s terms, from anywhere and at any time.” – FinExtra

“A $7 trillion opportunity.” – Business Insider

But what is embedded finance, exactly?
And what does it mean for the people using these services, such as businesses looking to expand their financial offerings or launch a start-up?

To dig into those questions, we spoke with the Co-founders of HUBUC, which uses Currencycloud APIs, to discuss their transition from banking-as-a-service (BaaS) customers to embedded finance providers. This article dives into the industry’s evolution from the unique perspective of business leaders who have worked on both sides of the aisle: CEO Hasan Nawaz and COO Ignacio Javierre

Banking-as-a-Service: “A trade-off”

Banking-as-a-service (BaaS) is part of the growing trend of “as-a-service” models worldwide, where companies can plug into existing infrastructure — in this case, banking — via relatively simple integrations. On the ground, BaaS typically means an API connected to a chartered bank, so financial companies can provide the bank’s capabilities via that integration. Examples include Solaris and Railsbank.

For infrastructure as convoluted as financial services, that innovation has proven incredibly valuable because it dramatically lowers the industry’s barrier to entry. With BaaS, you can accomplish the same things as a physical bank branch, but digitally and in a more automated way — paving the way for thousands of experiments in how banking services are delivered.

A wealth of financial start-ups seized the opportunity to link their technology and customer service with this pre-built, pre-regulated financial service. Thus, Fintechs were born.

BaaS in action: Starting with a start-up

It makes sense that when Hasan and Ignacio built their first solution, a corporate expense management service, a few years ago, they turned to BaaS.

For their fledgling start-up, BaaS was the ideal way to get their minimum viable product (MVP) to market quickly: “The most important thing for a start-up is speed and price… without becoming an agent, we could start issuing a few cards to start testing our Fintech idea,” shared Ignacio. BaaS enabled a core aspect of their offering with minimal bureaucracy and broad flexibility across their target market.

Unfortunately, both he and Hasan noted that the current BaaS model could not work for their solution in the long term. They highlighted several drawbacks:

  1. Minimal transparency and support
    • There’s limited transparency into partnerships and banking channels within BaaS’s vertical model.
    • Providers don’t usually offer robust, 24/7 support.
  2. Limited features
    • BaaS may provide a rigid set of banking services without much flexibility or range.
    • Companies in need of specific features — IBAN accounts, or live payment processing data for streamlined expense management, in HUBUC’s case — have to turn elsewhere.
  3. Manual processes
    • Many BaaS providers retain some highly manual processes because of their connection with traditional banks, despite being digital — particularly KYC and client onboarding.
    • Because of this, Hasan and team would wait 3-5 days sending zip files, collecting data, filling in forms, and waiting for responses. 
    • This resulted in an unsatisfactory experience for them and for their clients.
    • They knew that it would be impossible at scale.
  4. Price margins
    • Because BaaS providers are built on layers of banking, prices are high
    • Fintech providers either have to cut margins or raise charges for customers.

The bottom line? “We knew that we were not able to scale the product,” said Hasan succinctly. They need a more robust way to provide their customers with the financial services their company set out to deliver.

Embedded banking: “The next level”

After facing challenges with the available financial services, Hasan and his co-founder Ignacio looked to create a new solution. They worked to build a new, horizontal service model, creating a company called HUBUC, while pushing forward the trend of embedded banking.

As a step beyond BaaS, embedded banking is still typically API-based, but it integrates multiple financial providers like Fintech and bank partners to provide the best service in each region and domain. Embedded banking providers enable partners to tailor and embed fully digital banking services directly into their platform, then white-label them.

It is because of this evolution that the industry has seen a broader range of services beyond digital banking, including things like stock market apps, early salary programs, and even well-known apps like Uber and Airbnb. Critically, though, these examples still fall within the business-to-customer model.

Embedded banking in action: HUBUC and Currencycloud

To make HUBUC work, Hasan needed top-tier partners, particularly for services as crucial as cross-border transactions. He dug into the back-end of international routing and discovered the “secret in the sauce,” as he called it: Currencycloud.

HUBUC’s goal was to cut through the layers of BaaS models and work directly with wholesale or hosting companies in order to provide the most cost-effective options for their customers. With this partnership, HUBUC’s customers could now embed Currencycloud’s services via one HUBUC API.

Now, HUBUC is an embedded banking provider and “technical process orchestrator  that aggregates and integrates with as many service providers as possible through a single API.” This model creates enormous flexibility compared to BaaS, for instance, a tax agency customer can embed the compliance and reconciliation features of a Fintech without having to turn over their whole system or build it themselves.

Embedded finance: “One step further”

For Hasan, HUBUC is in a transition moment: “We have a vision of that embedded financial services platform, but we are at embedded banking right now.” 

The difference is simple: more services, not just banking, that can serve more businesses.

It’s reflective of the industry more broadly. Embedded finance is the next big thing; more businesses are starting to bet on it — Stripe Treasury is a good example, but no one is really there yet, providing all those services to all possible verticals via an API. 

Hasan sees this trend as a chance to provide services to the “sleeping majority”: B2B companies in desperate need of better financial technology, from the likes of insurance companies to loan and debt services.

With Currencycloud as a partner, for instance, HUBUC’s embedded technology enables its customers to open additional accounts without buying licenses or worrying about regulations. It’s been “a great partnership since day one” for this type of model, with Currencycloud’s agile methodology and capabilities in 38 currencies and 180+ countries rounding out HUBUC’s approach to process orchestration and customer success.

At Currencycloud, we believe that HUBUC is an ideal use case for the industry’s evolution. This type of embedded finance model is reshaping international business by making it easy for any company to provide financial services to its customers, anywhere — particularly in that critical B2B space. 

Crucially, it’s now possible to set your business up for success from day one rather than accepting the status quo. Embedded finance enables you to future-proof your business by embedding the right API from the start and integrating the full range of services you need — whether you’re launching a start-up or scaling your product — without compromising on speed and cost. 

That transformative value is why we’re dedicated to offering our own services via an embedded finance model. It’s also why businesses, particularly non-financial ones looking for new opportunities, need to capitalize on this shift in the financial industry. 

Make sure you understand how to position your business to take advantage of the right service model for your needs, including embedded finance. To find out more about how Currencycloud could help your business, speak with a payments expert.

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This article is part of a series that explores the nature and evolution of embedded finance. Don’t miss the introduction, Embedded finance: Cross-border transactions, and make sure to continue your journey with the next article, an interview with Alex Reddish of Tribe Payments on embedded finance in banking. 

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