4 Benefits of Joining an Embedded Finance Bank Network

Faced with rising deposit costs, banks need new strategies to secure low-cost deposits and generate non-interest fee income. Embedded finance offers a path forward, enabling banks to partner with non-financial businesses to offer integrated financial services — like branded checking accounts — directly within digital platforms. 

However, pursuing embedded finance programs also poses unique challenges. Banks that act as the sole sponsor for non-financial brands and enterprises can encounter concentration risk driven by rapid deposit growth.

Enter embedded finance bank networks — collaborative networks that allow banks to share responsibility for these innovative programs. By joining a bank network, a bank can support a specific aspect of a fintech’s product rather than manage the entire program independently. 

Read on for a closer look at the bank network model and how it can help banks extend their services through embedded finance partnerships.  

‍What is an embedded finance bank network?  

An embedded finance bank network brings together multiple partner banks to support and manage embedded finance programs. 

This model addresses the reality that a single bank cannot always handle the diverse needs of a fintech partner. Instead, a bank network distributes responsibilities across multiple institutions, so each partner bank in the network can leverage their expertise. 

For example, one partner bank might specialize in supporting consumer accounts, while another might focus on treasury services for business clients. In this structure, no bank is pressured to handle aspects of a program that fall outside its capabilities. 

‍Embedded banking technology providers play a key role in bank networks by supplying the API layer that connects banks and fintechs. With this infrastructure, banks can seamlessly and efficiently extend their services into fintech platforms. 

Joining a partner network allows banks to tailor program components to their areas of expertise, while fintech partners gain enhanced support to meet their needs as they grow.

How does an embedded finance bank network function? 

In an embedded finance bank network, multiple banks work with an embedded finance technology provider to integrate financial services into a fintech partner’s platform. 

Technology providers supply the essential banking APIs to form the technical bridge between the banks and their fintech clients. For example, Treasury Prime’s OneKey Banking enables instant cross-bank transfers, so fintechs can move funds between bank network participants to tailor partnerships as they scale.

However, each bank in the network still has a direct line of communication with its fintech partner. That includes maintaining rigorous oversight of compliance and governance procedures. 

A bank-vendor partnership model encourages banks to collaborate to meet fintech needs while ensuring that each bank maintains an accountable relationship with its fintech partner.

‍Why join an embedded finance bank network? 4 key benefits for banks 

An embedded finance bank network offers a collaborative approach to managing embedded finance programs. By joining a bank network, banks can address operational hurdles and tap into critical benefits that drive growth.

1. Manage concentration risk

Embedded finance programs can drive substantial deposit growth. But banks that act as the sole sponsor for a fintech partner’s business can also face heightened concentration risk from the rapid influx of funds. 

Bank networks mitigate this challenge by distributing the deposit burden across partner banks. For example, a community bank considering a $1 billion embedded finance program can share the deposit load with other banks and pursue this growth opportunity without overextending their portfolio. 

2. Focus on core strengths

Bank networks provide flexibility for banks to focus on products aligned with their business model and expertise.

For instance, a bank that focuses on consumers could support the retail checking account portion of an embedded finance program while a different bank in the network oversees the business checking accounts. 

Here, both banks and fintechs benefit — banks avoid operational strain by working within their core competencies and fintechs gain access to specialized support suited to their goals. 

3. Expand deal participation without overcommitting

By sharing responsibilities with other banks, bank network participants can engage in more deals than they could independently.

For example, consider a community bank working with partner banks to manage integrated payment and credit solutions for a national retail chain. This collaboration allows smaller banks to participate in a high-value partnership that might otherwise be beyond their reach. 

Bank networks help banks to achieve a key goal of embedded finance — extending their products and services — without exceeding internal capacity or taking on unmanageable risk.

4. Ensure governance and compliance

Banks participating in embedded finance programs must be prepared to maintain rigorous compliance and governance oversight of their partners. Fortunately, bank networks are structured to ensure operational clarity. 

In a bank network, each bank has a direct contractual relationship with the fintech partner they sponsor. Banks can structure the program management agreement terms in advance, such as designating themselves as the exclusive deposit partner. 

These contractual safeguards mean that banks can confidently engage in embedded finance partnerships without compromising their compliance standards and controls. 

The bank network advantage

The evolution of embedded finance enables banks to expand their reach and serve new markets. And bank networks offer a key opportunity for financial institutions to pursue innovation responsibly, with greater flexibility and less risk.

Treasury Prime’s industry-leading bank network — now with over 15 partnering financial institutions — empowers banks to play to their strengths. With support to streamline compliance, standardize account structures and simplify reconciliation, you’ll join a network designed to let you do what you do best — deliver exceptional financial services.

Curious how your bank could benefit from joining an embedded finance bank network? Reach out to our embedded finance experts to learn more.