Embedded banking for SaaS: build or buy?

What are your options for adding banking features to your product? Should you build them from scratch or get a ready-made solution?

Constance Laux
June 21, 2023

If you’re looking to embed banking technology into your SaaS platform, you’re not alone. Driven by the promise of higher revenue and greater customer lifetime value, organizations big and small are rushing to add embedded finance features into their products.

But what are your options for adding banking features to your product? Should you build them from scratch or get a ready-made solution?

Let’s dive into the benefits of partnering with a provider and explore key ways to scale successfully using this strategy.

Build or buy banking technology: 3 key trade-offs 

1. Speed: Building from scratch slows your business down

Developing a banking solution in-house is often more expensive and time-consuming than expected. According to research, 42% of development teams at banks expected to complete their in-house projects in less than six months, but only a quarter of these projects met the deadline.

If companies expert in finance are struggling to hit development milestones, a software company making its first foray into banking will likely also struggle.

It’s expensive and time-consuming to build banking features in-house. You need to obtain a license, report to the local regulator, and build up banking operations and compliance teams, just to name a few… 

Companies often miscalculate how much time this really takes. But it’s not only about saving time; it's also about saving resources.

2. Cost: In-house development comes with hidden costs

Building a banking solution from scratch can easily cost hundreds of thousands of euros. Not to mention, you’ll have to hire multiple teams in order to build, maintain, and upgrade an in-house solution. 

You’re also looking at costs related to talent acquisition, development, and retention. Not to mention the expenses of ongoing innovation in the face of rapidly changing and depreciating technologies that power your solution.

On the other hand, by partnering with a provider, you often just need a couple of developers to handle integration, in addition to the person running the business/product vision. And if you choose a no-code solution, you technically won't even need developers.

3. Control: Buying means faster ROI and innovation

It might seem counterintuitive to say that connecting to a provider gives you more control than if you'd built it yourself, but it’s often true. 

That’s because, with modern Banking-as-a-Service, you can build and customize banking features into your product more quickly and easily. Implementation cycles are far shorter - giving you much more freedom to focus on building the best customer experience, innovate, and address industry trends as they occur.

This means that working with Banking-as-a-Service accelerates return on investment (ROI) because all the benefits -  2-5x higher revenue, reduced cost of customer acquisition (CAC), and enhanced customer lifetime value (LTV) - arrive sooner! 

When should you build banking infrastructure in-house?

Often, it just doesn’t make economic sense to build yourself when there are so many options out there. A better use of your time and resources is to invest in differentiating your product. What will make you stand out? What user experience will you be known for? This is the driver behind many tech companies' ability to scale.

Building banking technology in-house makes sense in a few scenarios. One such case is when the features your SaaS platform needs aren’t accessible on the market yet.

Also, if your company’s guiding strategy is to innovate or disrupt the market using technology (instead of solving a specific customer problem), investing in in-house development is a smart move. 

Other scenarios include delivering a one-of-a-kind design for customers or having a sophisticated back-office interface where you can see many services in a single window, such as banking, acquiring, and lending.

Before making this decision, make sure that you have a clear picture of your company's goals and competitive advantage in the sector in which you operate.

4 scenarios when buying banking technology just makes sense

1. Banking is not the core of your business

Whatever banking features you need, it’s likely that similar software solutions have already been built and are available on the market. If you’re looking for banking technology that provides common features like creating payment accounts, making payments, financial accounting, and end-user applications (internet banking or mobile banking), there’s no need to reinvent the wheel. 

Building such features from scratch may take years, and before you know it, new banking technologies appear on the market, and customer expectations change. Will your solution be up to date given the industry's speed of innovation?

2. You don’t have an experienced team on board

Building banking technology and end-user apps from the ground up requires qualified specialists. Finding the right people who have development experience in this area is already a massive roadblock for SaaS companies - and this is just the beginning. 

It’s not just about technology. Your experts will also have to deliver many extra elements that client managers, AML/KYC professionals, and finance teams will use in addition to the functional components. You will need to hire teams of people to take care of crucial functions like fraud monitoring, internal control, and Know-Your-Customer (KYC).

So, you’ll be looking for seasoned specialists who have a unique mix of expertise and experience in information technology, banking technology, customer experience, security, and anti-money laundering (AML). Deviating from your company's core competencies by building completely new teams is just not necessary in today's world.

When you buy a ready-made solution, you’re also buying the expertise of the team behind it. We’re talking about years of experience in developing such complicated systems and extensive knowledge of the unique compliance requirements!

And even if you create a perfect team, you’re facing a new risk: if one of your team members leaves, you lose a critical competency that may result in months of downtime and losses. 

3. Waiting a year or two isn’t an option in your competitive niche

Developing a financial feature from scratch often takes more than a year from beginning to end. For a core banking system, you’re looking at a year and a half dedicated to development. Can your SaaS business afford to wait that long to deliver the banking features your customers need?

And that’s still assuming that everything goes according to plan and your team manages to deliver the features within the set timeline. Once the development process is completed, it might turn out that a feature doesn’t work as expected or something is missing. So, you’re looking at an even longer time to market.

In-house development is more than just building and shipping a solution. Once the basic system is complete, it needs to be integrated with payment service providers, currency exchange providers, and many others. 

Depending on local regulations, you may be denied a payment institution license if you can’t demonstrate a functional system within a specific time period.

4. Your business needs to generate revenue fast

When you decide to build banking features from the ground up, you need to make this decision with certainty that the time, money, and other resources invested will pay off swiftly. 

Compare the investment in in-house development against the return on investment. If you’re not sure when such investments will yield revenues and customer flows, starting the process is risky.

Introducing a product in a year or two means that you will only start generating revenue afterward. So, examine both choices from the ROI perspective. If your business needs a faster return on investment, buying is a much safer choice.

The solution to build or buy? Combine them for the best result

Many SaaS companies abandon the traditional “build or buy” approach and choose to combine ready-made solutions with development from scratch if they have additional requirements for certain capabilities. 

For example, you can build a core banking system and then extend it with off-the-shelf products from other service providers. It is common to develop a financial workflow solution that brings visibility into a company's working capital situation and then embed banking features like payment accounts or cards for expenses.

When service providers collaborate, they get the best of both worlds: the flexibility and control that come with building components from scratch and rapid development thanks to buying ready-made solutions. 

How do you create a proof of concept for embedded finance?

Depending on the business you're in, and the unique setup of your product, your path toward embedding finance can vary. Still, there are generally three essential steps:

1. Understand your customers and their expectations

Starting and ending everything with the customer in mind is probably natural to you, especially if you're embedding finance. After all, the main reason to embed finance is to give customers a much better experience! 

Here's what you should ask yourself as you get started:

  • How can my product make life simpler for my customers?
  • What are the key pain points and motivations along the customer journey? Where do they get stuck having to deal with money movement, or bounce back and forth between your app and a banking app?
  • How does my new financial feature integrate with the existing product suite?

By staying true to your values and acting on a verified hypothesis, you will be able to improve your consumers' experiences with helpful features.

2. Calculate the costs

Your profitability will vary depending on the features and money flows you expect. For your POC to work, you need to back your business case with data-driven projections for:

  • The number of prospective users,
  • The number of potential adopters in the first year,
  • Customer lifetime value,
  • Monetization potential.

3. Create and deploy a banking MVP

Once you've determined what your dream first financial product looks like, it's time to pick a provider. You’ll want to check out the quality of the APIs in advance, explore their testing environment, and make sure they have strong available support.

Now you’re ready to start building! Get your developers on board and start integrating the embedded finance solutions you need. No-code white-labeled banking apps are a great way to accelerate the project. 

When you're ready to launch your MVP, run a check to make sure that your project complies with banking regulations. Some providers will carry this out for you (we do at Swan!).

You’ll want to consider a modular approach here. Integrate parts of your product in stages rather than all at once. 

And plan for continuous improvement: test your beta version with the most dedicated customers. User feedback is key here. Your customers might entirely ignore a specific feature you thought would be a crowd-pleaser.

✨ Read more: How to embed financial features: the 3-step masterplan

Build a delightful banking product with the perfect infrastructure partner

SaaS platforms are now massively expanding financial services in the race to win customers over. By embedding banking features into your product, you build a competitive advantage that is sensitive to changing end-user behavior, making your product stickier, boosting the value of current users, and lowering overhead expenses.  

However, it's not always easy to grasp the complexities of the various options. That is why it’s important that you team up with a partner who will guide you through product development, integration, and launch. 

At Swan, we help SaaS companies brainstorm ideas for embedding finance in their platforms and advise them on how to get the biggest ROI. Talk to one of our fintech experts!

Constance Laux
June 21, 2023
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