Authored by: Alex Mifsud, Co-founder & CEO, Weavr.
In July, we announced that Weavr had secured an Electronic Money Institution (EMI) licence from the Malta Financial Services Authority.
Securing an EMI licence is obviously a huge step in Weavr’s evolution. And we also see it as a win for embedded finance in general, as we’re providing a model for everyone trying to answer the question… should we trust embedded finance?
But first, let’s establish the stakes.
Embedded finance innovation is a rare win-win-win
For businesses
There’s a world in which “business banking” doesn’t mean that businesses have to actually go directly to a financial institution.
Instead, they simply open up their invoice payment system or their accounting software, and can make all the payments they need to from there. There might be a financial institution’s logo in the corner to say who’s powering the financial side of it, but ultimately customers still interact with the same payment system or accounting software, and the financial institution is an almost-invisible touch point along the way.
For businesses, there’s tremendous value in fulfilling their banking and SaaS needs in one place. There’s already so much time wasted in teams moving from one application to another just to complete daily tasks – and in the US alone, data errors in finance cost businesses more than $3 trillion every year. Some of this might get fixed in post, but plenty slips the net.
Embedded finance EMI licence for SaaS
The incentives for SaaS to offer embedded financial services are sky high.
B2B SaaS revenue is mostly based on monthly subscriptions, but embedded finance opens up an opportunity to make new revenue from consumption of the platform itself.
For example, the value of invoices that pass through an accounting system will likely far exceed what a company is paying in subscription fees – they might be paying £500 a month for the platform, but paying £5 million of invoices through it. If the platform can make just a small percentage of revenue from the transactions flowing through the system, they can transform their whole economic model without needing to onboard new customers.
For financial institutions
For financial institutions, the cost of acquiring and servicing new customers keeps getting higher – but an embedded finance model that allows financial institution’s to deliver their financial services to SaaS players offers a way to acquire new customers at a vastly lower acquisition and service cost.
Put all of the above elements together, and you have a rare win-win-win for businesses, SaaS players and financial institutions. Which begs one very important question…
If it’s so great, why hasn’t it happened yet?
The short answer is the not-so-small matter of managing the potential risks.
Embedded finance is only a win for everyone if you can find a way to balance convenience and opportunity with security and stability. If not, everyone has a lot to lose – money for the end users, reputation and customers for the SaaS platforms, and licences for the financial institutions.
The reason for this is simple: it’s very difficult to get the worlds of software and financial services to work together.
In the software world, if your platform has a bug that leads to the end users losing something – settings, files, data, etc. – it’s not ideal, but it’s also not the end of the world, and SaaS platforms rarely have to take responsibility for this kind of event
“Financial services work the other way around. If a SaaS platform loses customer money, the responsibility is absolutely on them and the institution that powers their financial services. Sometimes it doesn’t even matter if the loss was due to the customer’s mistake – financial institutions still regularly have to pick up the responsibility of reimbursing them.”
This difference left a huge rift between financial institutions and potential embedders. The opportunity was there, but the traditional approach to embedding financial services, namely Banking-as-a-Service, has been for SaaS players to build what they want so long as they take care of compliance. It doesn’t give financial institutions or regulators much incentive to trust the embedded finance world.
This trust barrier brings us to Weavr’s latest project – applying for and receiving an EMI licence from the Malta Financial Services Authority.
When we take care of compliance, regulator trust follows
When we made our EMI application, we showed how Weavr takes care of compliance when we work with SaaS embedders and financial institutions.
Traditional BaaS solutions require embedders to share the burden of compliance checks and processes themselves. Weavr handles that compliance on our end instead.
For embedders, that means a more convenient and cost-effective route to embedding financial services into their platform. And for the regulators and financial institutions who have been wary of embedded finance until now, they can put their trust in the fact that all of the KYB checks, Strong Customer Authentication, transaction monitoring and so on are in the hands of specialist teams hired for exactly those tasks.
The reason we went through this process is because the best way to speed up the adoption of embedded finance is to prove that the model works. And not just in terms of technical functionality. We’ve shown our model’s security and adherence to standards is so robust that a regulator is confident in granting it a licence.
Embedded finance is on the product roadmap for most B2B SaaS platforms – and this opportunity is too great for Weavr to fulfil alone. Our ambition is to provide a model that other players and financial institutions can adopt – one that combines convenience for SaaS embedders and their users, and total compliance taken care of by the provider.
Whether your offering is an application, marketplace or platform, if you’re looking to embed finance into your business, set up a meeting with one of our experts in your industry and request a demo today using the form below.
Weavr is authorised by the Malta Financial Services Authority (MFSA) as an Electronic Money Institution (EMI). Customer funds are not protected by the Depositor Compensation Scheme (DCS) but are safeguarded in accordance with regulatory requirements.
