Has modern card issuing enabled a new mode of embedded finance?

The growing demand for banking as a service has led observers to forecast the rise of embedded finance. In one oft-repeated prediction, A16z general partner Angela Strange commented that in the not-too-distant future, “every company will be a fintech company.”

Through the decades, consumer brands have worked closely with banks like Capital One, Bank of America, Citi, and Barclays to offer credit or private label cards. Similarly, companies used traditional banks to issue corporate cards to their employees for business expenses.

However, despite bearing the high cost of building card issuing infrastructure and keeping pace with regulations, banks generally didn’t stretch their card issuing platforms beyond traditional use cases: cards with low interest rates, cashback rewards or mileage programs, or prepaid debit cards for high-risk cardholders. And, driven by the nature of these use cases, they also didn’t need to build developer-friendly APIs.

Enter the 21st century and modern card issuing, which made it possible to customize cards and control authorizations in real time. With the increasing digitalization of paper-based processes and a growing demand for open APIs and open payment flows, modern card issuing is becoming an imperative. Companies are looking to customize their payment experiences and authorize, approve, or decline transactions at the point of sale.

Take DoorDash, for example. To enable their drivers to pay for individual orders while reducing the risk of fraud, DoorDash needed tight controls around each transaction. With transactions happening by the second, for different amounts, and at different restaurants, a more flexible payment solution was needed. A traditional payment card would only be able to verify the identity of the driver — and only via PIN or signature.

Embedded finance creates a seamless experience

A modern card issuing platform, on the other hand, allows for payment cards to be customized to authorize each transaction based on exact spend controls such as the merchant ID, the transaction amount, the geolocation of the driver, and even the digital identity of the cardholder by using facial recognition techniques or biometrics.

In business applications, accounts payable automation applications are embedding finance in their workflows to pay invoices and bills by using virtual cards. This creates a seamless experience and an instant and robust way of making payments. Such embedded payments can be further customized to disburse funds only after certain criteria are met, such as invoice date, amount, or only according to certain payment terms such as installments.

To create a better user experience for customers and obtain a competitive advantage, consumer and business application providers are shifting to modern platforms with open API architectures. These platforms open up the payment flow and allow applications to authorize transactions in real time and based on criteria and data unique to each application.

The ability to embed finance and define banking via modular and programmable interfaces has led to numerous innovations across industries such as Buy Now, Pay Later financing, expense cards with built-in controls, personalized rewards that can change dynamically, and more. And while paying with a traditional bank-issued card will continue to be one way of payment, we expect that configuring payments within customer contexts and embedding finance will dominate the future of payments.

Learn more about modern card issuing platforms and how they have enabled embedded finance here.

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