“Banking as a Service” Paves the Way for Dynamic and Profitable Point-of-Sale Lending

Digital Lending

Business owners may not relish the thought of weaving specific aspects of banking into their operations, but they will soon have no choice. That’s for one simple reason: it makes buying things so much easier for their customers, it’s becoming a must-have in almost any setting purchases are made. 

Depending on where you stand, this business/banking integration has two names. 

  • Embedded finance typically refers to a financial-service suite of services and capabilities that equip organizations to provide one or more financial services to customers 
  • Banking as a service, or BaaS, is at one remove from the end customer. It’s the cloud-based financial-technology offering that gives organizations the means to provide embedded-finance services to their clientse3 

But this is no chicken-and-egg situation. Because most non-bank businesses lack the in-house expertise and budgets to build embedded-lending platforms from scratch, plug-and-play BaaS offerings have emerged in recent years to help organizations over that hurdle. That is, the existence of such offerings in BaaS has opened the flood gates on embedded finance. 

TurnKey Lender is a leader of this digital transformation, known especially for its pioneering work in bringing machine learning and artificial intelligence to bear on loan origination. 

A primary benefit of our loan-management software is confidence via machine learning and artificial intelligence,” says Dmitry Voronenko, co-founder and CEO of TurnKey Lender, which operates in more than 50 countries worldwide. “Our service software gives users not just the convenience of the cloud, but also immediate trust in a decisioning engine that weighs applicants against a range of configurable criteria well beyond typical application-form inputs — and it does so in seconds.” In this sense, he adds, “TurnKey Lender puts in the hand of business runners some of the most sophisticated underwriting tools available — and it couldn’t be easier to use.” 

Businesses saying “no” to BaaS now is like a bank saying “no” to ATMs a generation ago 

As a result of such innovations, BaaS is on the rise, with the trend fueled by economics. Almost half of US businesses (47%) offer embedded finance to customers — or they’re gearing up for it, according to Accenture. The consultancy adds: 

  • 88% of these outfits report having boosted engagement with existing customers 
  • 85% of them say they’ve added customers as a direct result of providing embedded finance 

The “smart” money likes the BaaS trend as well. Early-stage funder Lightyear Capital says embedded finance stands to add $230 billion in extra revenue for US companies by 2025, up from a comparatively meager $23 billion in 2020. 

Venture-capital boutique Andreessen Horowitz gives credence to this call, saying companies with embedded-finance offerings can increase sales up to fivefold per customer.  

Even the cautious Federal Reserve reports that consumers enjoy the “convenience, transparency of terms, interest avoidance, cash conservation,” and the diminished “impact on their personal credit scores” of point-of-sale, or POS, financing. Consumers, meanwhile, were recently diverting a cool “$10 billion in annual revenue away from banks” thanks to embedded finance, according to the consulting firm McKinsey. Capgemini SE, another big consultancy, tells us 60% of consumers with BNPL loans plan to repeat the process to fund within two years to fund new purchases.

In this light, a business saying “no” to BaaS is like a bank saying “no” to ATMs a generation ago — all the more so in light of the stealth ubiquity of embedded technology. Examples include:

  • Amazon: The retail distributor has showpiece stores without cashiers. Customers enter, scan an app, shop, and then leave. The price is deducted automatically 
  • Volkswagen, Honda, Ford, GM, BMW, Daimler, et al.: Their newer vehicles include in-car payment services that let drivers and passengers buy gas, pay tolls, and secure parking spots without cracking a window 
  • Lyft, Uber, etc.: Ride-share apps empower drivers to receive payment from the company up to five times a day. For Uber drivers, these payments are free of charge if they cash out to an Uber debit card)

And as an example of embedded technology in the immediate offing, Mastercard is working with electronic-device maker Xiaomi to devise a smartwatch that enables fast payments and opens the door to embedded finance by means of a new generation of “wearable” devices.

Fintech has built the BaaS infrastructure businesses need for a POS-financing revolution

With BaaS available to them, businesses as diverse as retailers, healthcare providers, and capital-equipment makers are making it easier for their customers to pay in ways that help them stay on budget and soften the impacts of seasonality and other variables. 

“I remember in the mid-1990s when people were predicting that companies would all have websites by 2000,” says Voronenko, who has advanced degrees in computer science and artificial intelligence. “It seemed unthinkable back then — but it happened, and it happened fast because the enabling technology was there to meet the sudden demand.” 

Adds Voronenko: “We’re at that stage now with banking software: customers want it from the companies they rely on for goods and services, and companies can meet demand right now because the supporting technology is available.” 

Intuitive white-label solutions, such as TurnKey Lender, allow businesses and other organizations — including community-development funders — to provide financing without banks and other lenders charging commissions and customers left wondering who exactly they’re doing business with.  

State-of-the-art embedded lending technology handles loans at every stage, from pre-approval to settlement, and it’s flexible enough to initiate loans at any POS, from e-commerce portals to physical cash registers in commercial settings as diverse as vehicle showrooms,  medical offices, warehouses, and industrial plants.

This flexibility yields concrete results for TurnKey Lender clients, including: 

  • 10% to 25% increase in credit-decision accuracy 
  • 25% to 30% less time spent waiting for decisions 
  • 10% to 25% higher lifetime value per customer 
  • 5% to 40% profit increase 

For Marc Pickren, TurnKey Lender’s new CEO for the Americas, “a lending platform that’s capable of conveying bank-grade functionality while making customers happier and more valuable to businesses is part of a massive digital transformation linked to user-friendly financial technology that delivers on the promise of fairer and less stressful point-of-sale lending. 

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