Embedded Finance: The Art of Choosing Between In-house Development and Outsourcing

Embedded Finance has revolutionised the fintech landscape, with numerous companies now offering financial services as a service. However, these B2B providers typically sell white-label solutions to businesses seeking to provide financial services to their customers. As a result, companies must choose between developing their fintech services or outsourcing to a specialist provider. This article examines the key factors that influence this decision-making process.

1. Time Constraints: For companies whose primary focus is not Finance, dedicating time to develop, test, and ensure compliance with rigorous security measures can be a significant diversion from their core business. Engaging an external plug-in finance provider may be a more time-effective solution that allows the company to concentrate on their primary product or service.

2. Regulatory Hurdles: Managing customer card data requires adherence to strict rules and regulations, with numerous steps involved in becoming a certified processor of sensitive information. Understanding the applicable laws and regulations is crucial before embarking on in-house fintech development. External providers, such as Paymob Smart Payments, have already undergone this lengthy and costly certification process, offering a streamlined solution for clients.

3. Budget Considerations: Developing an in-house embedded finance solution can be expensive, regardless of the company's size. Embedding a pre-certified solution from an external provider is often more cost-effective, as embedded finance companies typically charge a monthly fee for their services. In contrast, building an in-house solution requires significant investment in human resources, time, and resources.

4. Expertise: Companies like Starling Bank, Booking.com, and ASOS rely on embedded finance options within their infrastructure. By partnering with external providers that specialise in specific financial services, businesses can leverage the expertise of these fintech companies to excel in their desired area. In addition, traditional and challenger banks and e-commerce platforms often use external plug-in financial services to offer value-added features to their customers.

In determining whether to buy or build, businesses must ask themselves whether they aim to sell Finance as a Service or embed a finance option within their company. If the former is true, then the building is necessary to become an embedded finance provider. However, if the latter is the objective, outsourcing to an experienced fintech company is recommended. This enables businesses to maintain focus on their core operations while benefiting from the expertise of a dedicated fintech partner.