New Study by Green Dot Reveals Increasing Demand for Embedded Finance as Business Leaders Weigh Compliance, Security & Other Risks

Despite ongoing concerns and uncertainty surrounding regulation, fraud and other risks, business leaders plan to increase investments in embedded finance, or banking as a service (BaaS), in the coming years. That’s the key message from a recent survey[1] of 250 industry decision-makers and leaders who believe BaaS, and embedded finance more broadly, will advance their companies’ overall value propositions – by boosting revenue and growth opportunities, improving customer experiences and retention, and improving other facets of their business.

What is driving these plans, and how do leaders feel about recent events and risks associated with investing in embedded finance for their businesses? Here’s what the data showed.

Embedded finance can benefit business, boost growth and strengthen relationships in meaningful ways

Over the next three years, 82% of business leaders surveyed plan to increase their investments in embedded finance, with 24% planning a significant increase. The survey involved both providers of fintech solutions (20%) and non-fintech companies that invest in and leverage those solutions (80%), and the data show that 35% of fintech providers are planning a significant increase while 21% of their prospective clients feel the same. Similarly, 98% of decision-makers viewed embedded finance and BaaS as key drivers of growth and revenue for their companies.

Companies are also turning to embedded finance and BaaS to strengthen their customer relationships. Among survey respondents, 91% said the business models help retain, attract or improve the experience of clients and customers, contributing to and driving engagement with their company. 61% of fintech providers felt embedded finance helps them attract new clients or customers while 47% of those leveraging those solutions felt the same.

With investment comes risks, but there are silver linings

Despite its many benefits, business leaders also acknowledge and are actively navigating embedded finance’s risks. Decision-makers rated regulatory risk and failure to meet compliance requirements (50%), security and data breaches (48%), and service disruptions for end users (48%) as their top concerns. 59% of fintech providers saw regulation and compliance as a top risk, while 47% of their prospective clients felt the same; and 43% of fintech providers saw security and data breaches as a top risk vs. 49% of their prospective clients.

When prompted about the current regulatory scrutiny around embedded finance following the collapse of certain BaaS providers however, 58% of respondents said they find increased regulation for BaaS providers a positive change and are optimistic about the future of the industry. 69% of fintech providers held this sentiment vs. 55% of those leveraging these solutions.

Exploring provider-company-customer (B2B2C) dynamics

Business leaders have tried to better understand their customers’ priorities to improve user experiences. As many customers focus on simple and smooth purchases, businesses have recognized they must focus on the underlying tech that makes these possible, including safeguarding consumer data.

Most survey respondents (61%) believed their customers have little understanding of which company holds their money, while 10% thought customers have no understanding at all.

The survey showed that 98% of decision-makers said it’s important that their BaaS provider has a bank charter and/or significant control over most aspects of the customer relationship; this includes half who felt this was very important. For companies that invest in BaaS and embedded finance but are neither a bank nor fintech, 52% said they’d rather have one designated provider for all services; the other 48% preferred different vendors for different services.

Looking to the future, compatibility is key

As business leaders evaluate potential partnerships with BaaS providers, 50% said they prioritize compatibility and ensuring services align with their business model and client needs.

Looking ahead with an eye toward necessary technology upgrades for BaaS, 45% of survey respondents said they would explore investments in cloud-based solutions. Meanwhile, others concluded that developing advanced APIs (43%) and AI integration for improved service automation (42%) would be the biggest drivers of tech advancements in BaaS.

An optimized, end-to-end solution to meet the needs of embedded finance clients – today and in the future

Green Dot has long understood the value embedded finance offers businesses and listened to their needs in this space. To meet them, we’ve launched Arc by Green Dot, our embedded finance platform and suite of services featuring all the secure banking and money processing capabilities that have fueled value, loyalty and growth for consumers and businesses for more than 20 years.

Integrated with Green Dot Bank, Arc provides partners with leading FDIC-insured banking products and tools, plus regulatory and compliance expertise, oversight and peace of mind. The Arc platform is cloud-based, modular and scalable by design – configurable to meet a wide range of business needs and goals, and flexible to adapt as our partners grow. Arc’s end-to-end banking services are powered by enterprise-grade APIs and offer partners access to comprehensive customer support, fraud protection, the largest retail deposit and ATM network in the U.S., and much more.

Arc by Green Dot powers some of the world’s most trusted brands and thousands of other businesses and their customers at all stages of growth with seamless, secure and useful financial tools and experiences. To learn more, visit greendot.com/arc.

[1] Survey was conducted by Wakefield Research among 250 decision-makers regarding embedded finance, between August 22 and September 5, 2024, using an email invitation and an online survey.