It’s hard to believe that I’ve been working in the payments and financial services sectors for over two decades. Much has changed during that time. We’ve seen new market entrants, shifts in business practices, and the emergence of digital systems that have transformed how services are delivered. However, much has also remained the same, particularly in how people in finance approach their day-to-day tasks.   

Until recently, those of us working in these fields were still grappling with the same issues I encountered in the early years of my career. Individuals across the payments and financial services sectors continue to have to switch between different solutions to get tasks done, in a phenomenon often dubbed ‘swivel-chairing’. For example, imagine you’re preparing a list of suppliers to pay in an accounting tool. When it’s time to make the payments, you have to log into your bank app on a separate screen. 

Going from one to the other is a classic case of ‘swivel-chairing’, which hinders finance and accounting professionals from achieving full productivity. Research has found that the average office worker spends 1.5 hours copying and pasting data from one business application to another (e.g. spreadsheet to CRM, CRM to ERP), which has created a huge opportunity to remove swivel-chairing among small- to medium-sized businesses (SMBs) across the globe. Based on our calculations, we believe the potential to integrate financial functionality into digital services could represent a $983bn opportunity. 

Tackling persistent inefficiencies in financial services 

Despite decades of change in the payments and financial services sectors, inefficiencies like ‘swivel-chairing’ have persisted, leading to costly manual errors and reduced productivity. I have witnessed this first-hand throughout my career. If you’ve worked in finance, you likely have as well, and you’ll understand just how detrimental these inefficiencies can be to completing work in a timely and cost-efficient manner. 

Companies across the fintech sector have been striving to tackle this and many similar problems, aiming to make financial services a seamless and invisible part of everyday experiences. While there has been some trial and error along the way, new technologies have now emerged that are capable of addressing these workflow inefficiencies.

Ultimately, the goal of these new systems is to enable tasks to be initiated and completed in one place, eliminating the need to switch between screens, paperwork and other manual processes. Now, as more companies embrace digital transformation, the opportunity has arisen to integrate financial services in ways that not only enhance customer experiences but also simultaneously improve internal business processes. 

Addressing the challenge with BaaS 

One of the initial approaches to achieving improved user experiences through the integration of financial services was with Banking as a Service (BaaS). BaaS functions like Lego: it provides companies with the building blocks—financial services via APIs. However, the company must assemble the remaining components themselves. As a result, the BaaS model places a significant burden on middle and back-office teams, such as operations, compliance and finance. There’s a whole new financial world for them to get to grips with – one that comes with risks.

Oftentimes, the scale of the additional people and processes required to successfully operate a BaaS programme is just too much to accept. Moreover, if the risks associated with BaaS are not fully managed, regulators will intervene — and they have. Over the past few years, we’ve seen a major push by regulators to ensure those operating under the BaaS model are doing so in a compliant manner.   

While fintechs may feel more equipped to handle the challenge, most non-financial companies struggle to meet these requirements and are uncomfortable placing such a significant burden on their support teams. For those companies that do adopt BaaS, there’s a need to invest heavily in building the necessary teams, processes and infrastructure to manage it—an approach that is far from ideal, and more critically, takes them outside their core business. 

Overcoming Obstacles 

Overcoming these challenges is crucial if we are to fully unlock the potential of integrating financial functionality into digital services to reduce issues like ‘swivel-chairing’. However, while companies outside the finance and fintech sectors—such as software companies—recognise the competitive advantages of this integration, they are hamstrung by the significant investment required to realise their ambitions, inevitably slowing adoption rates.  

By contrast, embedded finance truly excels in this regard. The technology allows companies to achieve this integration without the need to overburden middle and back office teams with additional responsibilities. With embedded finance, the product, processes and security are bundled together to seamlessly integrate financial services into everyday workflows. The result is a model that reduces the risk, cost and complexity associated with previous approaches like BaaS. 

Across the fintech and tech sectors, we are already seeing excellent examples of companies leveraging this technology to embed financial services into their platforms. The integration allows companies to build stronger products with enhanced user experience, resulting in higher engagement, increased customer retention, and, in many cases, a 2x to 5x rise in revenue per user. Overall, it presents a far more compelling proposition for commercial and product teams than BaaS.

Embedded Finance: The Next Evolution

Moving forward, embedded finance is becoming an increasingly important consideration for businesses across a range of sectors, including B2B SaaS. Earlier this year, we published a report “The Next Step for B2B SaaS“, which found that nearly three-quarters of software-as-a-service product managers in the UK plan to implement embedded finance as part of their future roadmap. The research highlights why analysts expect the global market to grow exponentially in the coming years.

As the regulatory environment becomes increasingly stringent, the value of embedded finance is more apparent than ever. While BaaS offers flexibility, it also requires significant effort, with companies needing to manage much of the burden themselves. Additionally, new regulations mean that BaaS providers must now impose even greater demands on their customers. For many companies, particularly start-ups, this demand is simply too overwhelming. Fortunately, the rise of embedded finance offers a robust alternative.

As a result, the technology is poised to transform several business-critical tasks where ‘swivel-chairing’ remains common. Succeeding where BaaS has fallen short, embedded finance is likely to play a pivotal role in the next wave of digital transformation across industries, with the potential to unlock the aforementioned $983 billion opportunity related to integrating financial functionality into digital services.

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