Rabobank perspective on the growth of Embedded Finance and BaaS

Olaf ten Duis from Rabobank offers his insights over the growth of Embedded Finance and BaaS, their future potential, and opportunities for banks.

In my opinion, there are a few drivers that we see in Embedded Finance:

First, people are used to quick, easy, and seamless journeys. SMEs now expect the same experience when running their business and are willing to pay for these services.

At Rabobank, we have always been there where our customers needed us. In the past, this meant a local presence across regions in the Netherlands. We now see that customers are managing their businesses increasingly online, both in our own app and on other platforms. Our strategy remains the same, we will be there where our customers need us.

Secondly, technological developments enable the adoption of embedded services. At Rabobank, our strategy is fully on Open Banking. PSD2 has also been a strong driver to serve the long-underserved SME market. It is the pathway towards fully digital credit decisioning, increasing the profitability of SME lending.

Within embedded lending, Rabobank is currently offering end-to-end solutions. Distribution partners can integrate a fully embeddable solution within less than a week. Our lending propositions are PSD2-based. Offering the entire value chain as straight-through processing (STP) can be challenging. Looking at the value chain of embedded lending, there are several roles that you can describe. At Rabobank, we have a clear USP with a state-of-the-art model to do the underwriting, which is also available as a service to others. Additionally, we translate our access to low-cost capital into beneficial, fair priced solutions to SMEs.

As a bank, we are constantly exploring how we can improve our lending value chain, via automation and innovation, but also by teaming up with partners that already have solutions in place that are superior to ours. To collect the PSD2 data, we, for example, work with an external PSD2 data aggregator. 

We provide a full range of products in different categories. We’ve seen that the ability to combine several services makes us stand out in the market.

Our lending propositions focus on short-term loans for SMEs. We offer short-term loans and credits based on revenue data. Also, invoice finance – in which we advance an outstanding invoice – is successfully implemented with a large number of partners. There are more products in the pipeline which I can tell you more about soon!

Our BaaS propositions consist of several APIs within the focus areas of identity services, payments, and account information. Of course, these cover the basics such as bookkeeping APIs, direct payments, and bulk payments. But on top of that, we also innovate. A great example is Credit Estimate, a service in which we provide our partners with a very accurate estimate of a client’s creditworthiness.

At Rabobank, we actively explore partnerships in parallel to in-house development. The challenge is to find the balance between ‘in-house built’ versus ‘partnering’.

Looking at the embedded value chain of lending, Rabobank has clear USPs. Our strong history has helped us build a state-of-the-art risk model which is officially approved by the ECB. Secondly, we have a strong brand and many existing customers. Lastly, as a bank, we have access to low-cost capital.

Obviously, as a bank, we also have challenges like existing ‘legacy’ IT infrastructures, high exposure to regulation, etc. Originally, Rabobank was focused on the Dutch market. However, embedded lending is a cross-border market and fintechs can increase our go-to-market speed to new markets. 

By leveraging fintech assets, like the agility and effectiveness of consuming alternative data sources, as well as the opposite of legacy infrastructure, we can create value for our customers faster. 

These synergies can be quantified and we base our choices to partner across the value chain on go-to-market speed, access to clients, and long-term profitability.

At Rabobank, we fully embraced the strategy of Embedded Finance and we are working very hard to offer our value propositions where our customers need them. Through our Embedded Services offering, we are pooling different financial services together with the aim of making them as readily and easily available across all types of channels.

Specifically for lending, we believe that roughly 30% of all SME financing will have moved towards non-banking channels in 2030. As a leading SME bank in the Netherlands, we want to lead this transition, as we aim to continue to be the strategic partner of choice for Dutch businesses, large and small.

This article was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2023, which is the latest comprehensive market overview and analysis focusing on the key products and players within the Embedded Finance and BaaS ecosystem.        

About Olaf ten Duis

Olaf ten Duis is passionate about scaling tech and businesses across multiple industries. He is currently Lead Partnerships Embedded Lending at Rabobank. Prior to joining Rabobank he was active in various innovative roles and worked in Berlin for the corporate venture capital arm of E.ON SE where he did several investments across Europe and Israel.

About Rabobank

Rabobank is a cooperative bank with strong roots in the Dutch retail space and a global market leader in the Food & Agri industry. In the Netherlands we are the leading SME bank and service over 8 million private customers. Through cooperation we are determined to grow a better world together.