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Banks Fintech North America Open Finance Spotlight

MANTL: Addressing the Threat of Embedded Finance – How Community Banks Can Compete

The rise of embedded finance represents a massive new opportunity – an addressable market opportunity estimated to be worth over $7trillion in the next decade, twice the combined value of the world’s top 30 banks today. However, this opportunity is not restricted to incumbent banks. Challengers and startups can get involved and capitalise on this through digitisation.

Nathaniel Harley is the CEO and co-founder of MANTL, an enterprise SaaS company helping traditional financial institutions modernise and grow. Founded in 2016, MANTL’s mission is to expand access to financial services. Here, Harley discusses how he believes tech, especially embedded finance, can be best used by community banks to help them catch up with larger incumbent and digital banks:

Nathaniel Harley, CEO and co-founder of MANTL
Nathaniel Harley, CEO and co-founder of MANTL

The rise of embedded finance presents a massive new opportunity, with an addressable market estimated to be worth over $7trillion in the next decade. The advent of banking-as-a-service, API-driven banking and payments services has allowed more non-financial companies to compete in the financial services industry – potentially squeezing out community banks if they’re not able to digitise in order to compete in today’s integrated fintech landscape. 

Embedded finance is best understood as integrating a financial service or technology with a traditionally non-financial service, product or technology. More specifically, it’s the use of Banking-as-a-Service and API-driven banking and payments services to integrate financial services within other environments and ecosystems. It benefits organisations by opening up new revenue streams and allows them to reinvent the services they offer to their customers for better user convenience. Companies from many different industries and with different levels of maturity — from retailers to big tech and software companies — are jumping on this trend. Many have already launched embedded financial services while others are preparing to do so to serve business and consumer segments. 

As it stands, banks are varied in their response. Some are playing catch-up by digitising traditional services; many provide the infrastructure and rails for embedded services; others are trying to compete by partnering with specialised fintech providers. Community banks and credit unions are already behind the digital transformation curve when compared to large national banks and neobanks. The best way for community financial institutions to compete with the embedded finance trend is to become a platform that provides specialised services with fintech partners while also utilising their deep relationships within the community.  

How community banks can digitise to compete

Community banks inherently have a better understanding of how to support customers in their communities. With the strategic advantage of being smaller, they’re often able to be more nimble and responsive to customer needs. They can offer better products and services, with a more nuanced approach to lending, more desire to build relationships with customers, and more branches / ATMs outside of the historically high-income areas the big banks target. The question becomes, how can community banks leverage their strengths to create a competitive advantage in the face of embedded finance? This can be done by:

  • Capitalising on the new distribution channels that embedded finance creates for their products and services.
  • Replicating the approach by embedding fintech products into their own digital banking platforms.
  • Combining the human-to-human strategy of community banks with a state-of-the-art digital experience to maximise customer acquisition.

Community banks also need to take advantage of new technologies to find new opportunities. APIs, for example, create opportunities around point-of-sale financing, eCommerce and other embedded financial experiences. Community banks and credit unions that partner with fintech companies that use open source technology responsibly and effectively can overcome their legacy infrastructure challenges and provide better and more diverse digital experiences. Leveraging an API-first core allows banks to innovate fast, push updates to production weekly and launch products quickly. These technologies are becoming table stakes and are vital for innovating in the future of banking.

The role data and relationships play in customer ownership

To challenge embedded finance platforms for customer ownership, community banks also need to create a competitive advantage with products that provide customers with what they need, when they need it. Community banks already have access to valuable customer data and can leverage that data to differentiate their services in order to cater to current clients and create more lasting relationships. For example, effective online account opening offers analytics to help community institutions understand how consumers are interacting with their products so they can better personalise the experience. Banks must prioritise utilising that data to develop tailored experiences across both digital and human channels in order to stay relevant, drive successful customer retention and inform their marketing approach and product offerings. 

Through a multitude of data sets, banks can build a more comprehensive picture of customer behaviour, including online interactions, geo-location data, and aggregated payments behaviour. To create an effective data-driven strategy for long-term success, banks must ask themselves:

  • Who are my most profitable customers, and how is this being evaluated?
  • Which clients process credit card payments but don’t use the bank’s service?
  • Which clients closed their account and why?

By doubling down on their customers’ unique needs and turning specialised fintech partnerships into new revenue channels, community banks can carve out a niche for themselves in the embedded finance trend, allowing them to retain and grow their customers. With the rise of embedded finance and other attractive features such as buy now, pay later, now is the time for community banks to shape their future in the face of these existential threats. The next few years will bring immense change in the industry and it’s important that community institutions leverage modern technology practices to protect and capitalise on their inherent competitive advantages.


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