Fintech lending Consumer Financing

3 minute 4 Nov, 2022

Embedded Finance vs. Banking as a Service

Embedded finance has become a staple in almost every industry that sells its products and services online. The ability to embed financial apps from established fintechs and banks in online stores has opened the door for many valuable and convenient features for consumers and business owners alike.

A graphic of a bunch of blocks surrounding a banking institution connected by straight lines

As embedded finance has become more popular in the banking as a service (BaaS) industry, the two terms have become synonymous with each other despite being two distinct concepts. Today, we are going to discuss the differences between embedded finance vs. banking as a service and cover:

  • What banking as a service (BaaS) is
  • What embedded finance is
  • What the major differences are
  • How business owners can leverage either on their online store

What Is Banking as a Service (Baas)?

BaaS is a blanket term that refers to the technological foundation upon which banks and fintechs can provide digital financial services through sites and apps. Generally, it refers to the back-end operations that allow access to financial services on any digital platform. BaaS technology is what enables banks and fintechs to create apps and websites that allow consumers digital access to things that used to only be possible by going into a brick-and-mortar bank.

What Is Embedded Finance?

Embedded finance is a more specific term that refers to the utilization of BaaS to provide a bank's financial services on a third-party non-financial website or app. This includes ecommerce stores, healthcare provider websites, and online car dealers. Any website that offers third-party payment processing, lending, or insurance through their website or app is utilizing embedded finance.

This is achieved by using an application programming interface (API) integration to connect the merchant site with the technological back-end of the financial institution. This is why embedded finance falls under the umbrella of BaaS: The API integrations that make it possible require a lender that utilizes BaaS to connect these services to another website or app digitally. If there is no technological back-end to connect to, a merchant site has nothing to integrate with.

Embedded Finance vs. Banking as a Service: What’s the Difference?

Embedded finance vs. banking as a service is essentially a "square vs. rectangle" analogy: Every embedded finance solution is based in BaaS, but BaaS covers much more than just embedded finance. The key here is accuracy. To be more accurate when referring to embedded lending, insurance, and payment processing products on merchant sites or apps, journalists, business owners, and other interested parties should use the term "embedded finance."

For references to other digital banking use cases that don’t fall under that terminology, BaaS is the correct term to use, as it provides a much wider umbrella. There are several online financial services that don’t embed themselves onto third-party platforms, including:

  • Online banking apps
  • Consumer financing websites and apps like Klarna and Affirm’s business websites
  • P2P payment providers like Venmo, PayPal, and CashApp

These are all BaaS products, but they aren’t embedded finance products. Therefore, it is more accurate to use more broad terminology to ensure that they are described correctly.

Adding Embedded Finance Into Your Business With Skeps

Skeps offers a comprehensive, end-to-end consumer financing platform that helps businesses modernize their entire payment process. Working with an entire network of established lenders, we go above and beyond one-click payment, also offering a one-click application process for several different types of consumer financing, including:

If you’re looking to partner with a forward-thinking fintech company that will keep consumers' eyes on the purchase while offering best-in-class financing, Skeps is the perfect fit.

Do you have more questions about fintech terms like embedded finance vs. banking as a service? Or, would you like more info on how to integrate embedded finance on your site?

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Embedded finance has become a staple in almost every industry that sells its products and services ...


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