Deutsche Bank Sees Opportunity in Unlocking Embedded Finance

The value proposition for embedded finance becomes clearer by the day.

Businesses see integrated, personalized payments and lending connected directly to their digital platforms. Consumers see new payment options added to their digital experiences. Nonbank financial institutions can offer new services within existing products. Banks see an opportunity to bring the Banking-as-a-Service (BaaS) model to both business and consumer segments.

If there’s any element of that equation that could use a sharper focus, it’s banks. As Dee Mitra, global head of product for Banking-as-a-Service, context banking and embedded finance at Deutsche Bank, told PYMNTS, embedded finance allows connection to BaaS APIs and opens up the infrastructure of the banks, providing new opportunities.

Banks are also making strategic partnerships and investment decisions for BaaS companies and FinTechs, as well as in-house builds related to embedded finance services. At a time when embedded finance is seen as a prime opportunity for nonbank financial services companies, Mitra said she sees the glass half full for banks with several arising opportunities

“We already enjoy the customers’ trust, and we have been with them for a multitude of years,” she told PYMNTS. “We understand their pain points. We are used to them. They’re used to us. If you look at banking as such, it’s in the middle. Every business uses banking. It’s the center of everything.”

Mitra outlined several use cases where APIs and BaaS are creating new opportunities, the most important of which center on cash visibility, cash flow forecasting and cash flow management. Here, APIs provide real-time information on account balances and transactions, offering clients a comprehensive view of their financial position. The rise of APIs has been a key enabler for embedded finance and BaaS, helping provide better visibility and transparency. Mitra said she views APIs not as an innovation but as table stakes in the industry.

“APIs are a standard now,” she said, highlighting their role in enhancing security, enabling modularization of services and exchanging data.

With better data access, banks can offer improved forecasting services to their clients. For receivables and payables, banks can provide solutions that automate and streamline processes, reducing manual work and improving efficiency. For financing, by using real-time data, banks can offer more tailored financing solutions, such as invoice financing and supply chain financing.

Mitra also emphasized the promise of embedded finance in cash flow and liquidity management. She explained how APIs are transforming these critical functions.

“APIs are enabling you to get access to your own account balances, real-time account balances, and your own real-time transactions,” she said.

This real-time visibility allows for more efficient cash management.

“With APIs, you’re able to do that and see that information on an intraday basis,” she said. “You’re able to save money, you’re able to optimize your liquidity.”

Mitra said she envisions a future where at “the click of a button, you could actually ask your bank to move money in order to make your entire cash flow management and liquidity management flow better.”

While the opportunities are significant, Mitra acknowledged the challenges banks face in the embedded finance space. Interoperability and scalability remain hurdles, particularly when dealing with legacy platforms.

“When you’re trying to do something like this, which really and clearly needs a cloud-based infrastructure, I think the scalability and interoperability is still a challenge in terms of implementation, timelines, costs, affecting user experience,” she said.

Regulatory considerations also pose a challenge leading to a more complex environment. Mitra pointed out that the line between regulated and non-regulated services can be blurry, especially when navigating different jurisdictions. She said she anticipates deeper regulatory scrutiny in the future but sees this as a positive development that will bring more clarity to the industry.

Despite representing a major global bank, Mitra emphasized the importance of a bank-agnostic approach in embedded finance.

“The reason BaaS, embedded finance or any of these new buzzwords … is important and picking up pace is because it enables the customers to have a choice, and that is the most important thing here,” she said.

To truly benefit customers, embedded finance solutions need to work across multiple banks and financial institutions, Mitra said.

“If you are only looking at one bank, and you’re coming at it from a one-bank view, the use case that I just explained doesn’t work,” she said. “You need to have all your bank accounts, all your data in a single solution.”

The bank-agnostic approach is particularly crucial for multinational companies operating across different geographies, enabling customers to make a choice and providing a certain level of flexibility.

“The phrase ‘bank-agnostic,’ in my view, is the crux of cracking the embedded finance game,” she said. “That’s the value that you are really adding to the customer. In the retail sector, I would even go further and say there will be a day where it’ll be easy to switch banks for a retail consumer like they do today for utility companies or phone providers. We should be able to get to that stage, and you can’t do that without being bank-agnostic.”

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