KeyBank Sees a Bright Future in Embedded Banking

Betsy Fiden
Partner, Marketing and Strategy

While industry analysts were writing obituaries for regional banks, KeyBank was getting an early jump into the game of investing in fintechs.

They began in the payments and lending space and in doing so they’re expanding their customer base and revenues faster than ever, gaining momentum against non-bank competitors. This strategy has given KeyBank a virtual inside track on this lucrative trend in financial services: the embedded banking space.

As reported by The Financial Brand, embedded banking has taken what used to be the credit card model and modernized it with a tech-enabled kind of private-label banking. It involves incorporating financial services into non-bank companies’ software and products, making them part of a wider group of services. This represents a huge opportunity for significant growth at low cost and is well worth the risks of reducing the role of intermediaries.

Embedded banking is rapidly embedding itself in our daily lives

Business verticals from law firms to dentists to builders are being digitally disrupted as payment forms and banking are embedded into the everyday customer experience. Senior KeyBank execs are keeping a close eye on this trend. EVPs Ken Gavrity and Jon Biggs recently spoke with The Financial Brand about the enormous potential behind KeyBank’s launch of their embedded banking capability.

“We estimate the revenue pool by 2030 will be north of $400 billion across both embedded payments and embedded lending…materially outpacing growth of traditional payment and lending revenues,” Biggs said.

Banks will now become the engine that powers these new software platforms. Businesses and consumers now demand a seamless digital experience, and embedded banking gives them the software they need to transform their consumer and commercial payments.

“You have a consumer at the end of the value chain demanding a better experience…a business sitting in the middle…and SaaS companies delivering that technology…at every step there is a component of financial services and banking opportunities,” Biggs explained.

Bain estimates 40% of U.S. card payments will be embedded within software platforms by 2025

That’s up from 8% now and represents an exponential shift in how payments are going to be processed. And Gavrity predicts that KeyBank is seeing this trend across every type of business they serve.

Gavrity used KeyBank’s large dental customer base as a great example of the potential for growth in embedded banking. KeyBank doesn’t get dental offices to embed financial products into their software. Instead, they partner with Rectangle Health to embed payment capabilities into that fintech’s SaaS solution. A win-win for everyone. The bank also has eight other fintech partners, giving them access to thousands of technology clients for future potential embedding.

Embedded banking gives banks an edge

Although paytechs are still a threat to banking, with fintechs, banks have a distinct advantage. Fintechs may be agile, but it’s typically around single, less complex products. Banks, on the other hand, are well-equipped to handle more complicated payment types thanks to their holistic relationships. And banks are now focused less on front-end digital apps and more on digitization end-to-end. This new approach will help drive embedded banking to new revenue and growth heights for KeyBank and supercharge the potential for the banking business of tomorrow.

Read the full article from The Financial Brand.

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Betsy Fiden
Partner, Marketing and Strategy