At its core, Embedded Finance is not a completely modern idea, but its application and rise was hugely influenced by digital payments and regulatory changes such as Open Banking, and consumer demand for more seamless experiences.
Embedded Finance has a total predicted market size of USD 251 billion by 2029 and a Finastra study from 2022 expects the global BaaS market to be worth USD 7 trillion by 2030.
Embedded Finance can address wide-ranging business problems for non-regulated companies across sectors ranging from insurance and retailers to transportation and real estate. It provides these businesses with a plethora of new opportunities to attract new customers and retain existing ones. For example, businesses can now offer a more personalised financial experience by utilising user data, preferences and behaviours as well as more contextual information to create bespoke products and service offerings.
While firms like Uber, Klarna and Shopify always come up when people talk about Embedded Finance, there are so many other ways that Embedded Finance intersects with our lives. Taking a step back, we can think of Embedded Finance or Embedded Banking as having three distinct 'waves'.
The first was consumer- and marketing-focused, co-branding cards and banking services to give them a certain cachet or “cool”. The second wave can be seen in brands such as Toast, which brings financial services directly to a specialist restaurant SaaS system. The third wave will not wash away the first two but augment them—it will integrate multiple financial products that solve business needs, without necessarily offering an external product, but not excluding them either.
The third wave of embedded banking is about bringing banking to the point of need, wherever that point of need is within a business. In one way, nothing will change—it’s still all about banking as a necessity to conduct business. But at the same time, it has the potential to dramatically improve operating models as businesses find new advantages to Embedded Banking infrastructure.
The availability of financial services at the point of need is the future of Embedded Banking.
One of ClearBank’s biggest use cases we’ve encountered is actually in providing embedded savings accounts. For example, ClearBank provides Chip with an embedded-cash individual savings account, which is covered by the Financial Services Compensation Scheme (FSCS).
ClearBank is a purpose-built, technology-first clearing bank providing faster, safer, more reliable banking infrastructure. It was the first new, full-service clearing bank in the UK for more than 250 years.
It was founded on the core principle of innovation. The bank itself has evolved from an agency banking partner to a BaaS partner and today, a leading preferred Embedded Banking partner.
ClearBank designed its technology from scratch, bolstering competition and innovation and allowing for more efficient and cost-effective transactions.
Through its banking licence and intelligent, robust technology solutions such as its API which integrates with a client’s operating system, ClearBank enables institutions to offer real-time payment and innovative banking services to their customers.
ClearBank is the only fintech bank that delivers direct access to all bank payment schemes including Bacs, cheques, CHAPS and Faster Payments, all allowing transactions to clear rapidly and over a secure platform as well as offering Financial Services Compensation Scheme protected bank accounts.
ClearBank provides services to over 250 companies that include financial institutions, banks, some of the UK's largest fintechs and credit unions. 15 of the last 36 Bank of England authorised banks in the UK are powered by ClearBank.
Embedded Banking – enabling regulated financial institutions to use ClearBank’s licence to offer fully-regulated accounts and savings products, without incurring the cost of becoming a bank themselves.
ClearBank was founded to address a gap in the market around reducing friction in clearing and allowing for greater innovation for fintechs. It set out to remove the barriers in banking for pioneering fintechs, and enable them to integrate innovative banking services without the cost and complexity of acquiring a banking licence.
ClearBank’s Embedded Banking proposition came when banking infrastructure slowed down meaningful progress. Opening and managing accounts was tedious and clearing payments in real time was impossible. ClearBank realised that each client needed individual banking products and new propositions that they could, in turn, take to their customers.
There is a lot of noise about Embedded Banking and BaaS, arguably because of poor definitions but also because of misunderstandings of the roles that participants play. The landscape has broadened, with Embedded Banking players picking niches, functions and sectors. ClearBank is the infrastructure and bedrock on which banking innovation is built for all of these and allows the experts to find their space.
The industry is now at an inflection point where compliance, risk and resilience are the most paramount factors in Embedded Banking providers. Developments and trends to be aware of include:
The industry is nervous because of US consent orders.
The EMI model that is popular in Europe comes with limitations and is also under the regulatory microscope.
BaaS providers are pivoting business models to work only with banks.
Banks with BaaS have struggled with the new business model.
Having a bank license is just a starter. Operating it in the name and spirit of the law/regulations is now what’s key.
ClearBank is different because it was built purely to offer infrastructure services to regulated firms.
Through our banking licence and innovative financial technology, we enable financial institutions to offer secure accounts, clear payments in real-time and enhance their banking propositions for their customers.
Technology is the cornerstone of ClearBank’s offering and out of the company’s total employees today, around 150 are software engineers. All the IP ClearBank uses is owned and built by its team. With a constant flux of regulatory requirements underpinning financial transactions, the industry demands an agile platform like ClearBank’s which ensures compliance and best-in-class delivery.
ClearBank delivers a resilient, financially sustainable, and low-risk proposition, never lending any customer funds to third parties and all sterling deposits held securely at the Bank of England. It offers the stability and security of a fully regulated bank and the agility and technology-first model of nonbank providers.
Our latest report, 'The Total Economic Impact Of ClearBank Embedded Banking', produced in collaboration with Forrester, examined the return on investment (ROI) firms can realise with our Embedded Banking proposition. Key findings include:
ROI of 90% - previously, dysfunctional partnerships and limitations of EMI licences led to innovation delays, operational inefficiency and customer trust issues
3% improvement in customer retention
ClearBank delivered its first full year of profitability in FY23 with total income growing 91% YoY to GBP 111.3 million and payment volumes increasing 54% YoY, totalling GBP 108 million for 2023. This was a standout milestone for the company and a success story on the UK's fintech scene, particularly in such a challenging and uncertain year for the financial services market.
ClearBank’s combination of fully licenced banking services and innovative financial technology has allowed it to grow across every segment and business line, attracting high-profile customers including Raisin and Tide as well as enabling the launch of a market-leading Cash ISA product with its Embedded Banking partner, Chip.
As ClearBank’s first three Embedded Banking customers, Tide, Chip, and Raisin, saw an average transaction volume exceeding 10 million per month in 2023 and 1.2 million customers now hold FSCS-protected accounts through them. ClearBank’s model enables highly competitive interest rates to be passed along to embedded banking clients’ customers.
Tide: this initiative combines ClearBank’s Embedded Banking infrastructure and Tide’s digital banking platform to provide SMEs with a compelling and digital-first alternative to the poor customer service, high costs, and bureaucracy of high street banks.
Chip: Through ClearBank Embedded Banking, Chip launched Instant Saving accounts that today serves 200k customers with GBP 2.7 billion in deposits. Flexible Cash ISA were launched on the same platform in early 2024 and already serve 85,000 customers, with GBP 1.3 billion in deposits in the first five months of availability.
Wealthify: the partnership launched in early 2024, allowing Wealthify to launch its first Instant Access Savings Account to its customers.
This editorial piece was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2024, which is the latest comprehensive market overview and analysis focusing on the key players and products within the Embedded Finance and BaaS ecosystem.
Paul Staples is Group Head of Embedded Banking at ClearBank and has had a 20-year career founding, building and scaling tech and business platforms across multiple industries. Paul’s been involved in Banking as a Service and Embedded Banking for many years and is an active commentator and advocate for safe and well-regulated Embedded Finance. Before joining ClearBank in 2023, he was formerly a founder of HSBC’s Global Embedded Banking business. `
ClearBank launched in 2017 as the first new, full-service clearing bank plugged directly into the UK’s banking and payment infrastructure for over 250 years. For decades, payment clearing remained unchanged and unchallenged, and so ClearBank found a way to change it, making banking infrastructure faster, safer and more reliable.
ClearBank works with over 250 companies, including financial institutions, banks, some of the UK's largest fintechs, and credit unions.
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