Two European banks join forces to reshape BaaS

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Hi embedded finance friend

Welcome to your weekly embedded finance digest. Somehow it still feels like a slow start to the new year with the overall embedded finance news stories. But luckily, there are still big relevant news for me to cover ;-)

I am excited to share that our first event of the year will be held on February 11th in Frankfurt. The links and details are below. This is my first embedded finance event with a strong focus on the role of banks, and given this week’s top story, it looks pretty well-timed.

I will share more details about the event in the next few weeks, but if you happen to be in Frankfurt on February 11th, register (space is limited!) and share this with your coworkers and friends.

This edition covers

• Two European banks partner to grow BaaS offering

• Nelly raises €50 million for its fintech-healthcare platform

• Is embedded accounting the next big thing?

• Link section

And now let’s dive in 👇

_{Announcement:}

Embedded finance is evolving quickly. Many non-financial brands launch financial products in partnership with specialised infrastructure providers. But what role can banks play? How should they react?

Join us for the first Embedded Finance Review event in 2025: Register here

When: February 11th, 2025; Start at 17:00 (end ~22:00)

Where: TechQuartier, Frankfurt/Main

Thanks to our sponsors Banxware and Thought Machine. Our event is a side event of the Frankfurt Digital Finance Conference.

Two European banks partner to grow BaaS offering

What happened: The German bank Sutor Bank has announced that Swiss bank Hypothekarbank Lenzburg has become a minority shareholder of Sutor Bank (Private Banking Magazin; Germany only). The Swiss bank acquired 9,9% of the Hamburg-based private bank. Both companies are actively involved in the banking-as-a-service world and announced that they aim to grow their BaaS offering with the partnership.

My comment: Sutor Bank is not the biggest brand in banking-as-a-service but has partnered with multiple fintech companies over the past years. Most notably, they partner with Raisin (pension products), Fintiba (blocked accounts for international students), and Timefonds (investment products). Sutor Bank’s core focus remains on private banking, which was the starting point for the bank in 1921. In recent history, the Sutor Bank got involved in various crypto-related projects and peaked in 2021, when it announced its plan to sell the bank to BCB Group, a payment provider in the digital asset space. However, in 2023, Sutor Bank announced that the partnership was called off due to a non-alignment in the strategies of the companies. Thus, Sutor Bank’s two directors remained the only shareholders until Hypothekarbank Lenzburg’s buy-in.

Hypothekarbank Lenzburg is a well-known player in the local banking-as-a-service market. This is most notably due to its partnership with retail giant Coop (I covered the launch and shut-down nine months later) and challenger bank Neon. In August 2024, Hypothekarbank Lenzburg also acquired Swiss Bankers Prepaid Services (Finews.ch).

This may all be very interesting, but what exactly does the partnership of the banks mean for their banking-as-a-service proposition? So far, we can only speculate. The two banks can offer their banking-as-a-service offerings only in their home country. Probably the easiest way to partner would be to support each other's clients in the expansion to Germany or Switzerland. If this works well, perhaps the endgame is to offer one technology layer with two licences for German and Swiss operations. This would be a fascinating outcome for many, but that would likely take years. Whatever the outcome, I am confident we will hear more from the two banks in our banking-as-a-service bubble in the coming months and years.

Nelly raises €50 million for its fintech-healthcare platform

What happened: The German startup Nelly has announced a new funding round led by Cathay Innovation and Notion Capital (PYMNTS). Nelly operates at the intersection of fintech and healthcare. They describe their offering as a “Patient Experience Platform” and Financial Operating System (FinOS) that enables medical practices to streamline workflows and provides patients with a fully digital experience.

My comment: I spoke with Nelly’s cofounder Niklas Radner in our podcast episode, last year. Technically, Nelly is not a non-financial brand and is more of a fintech company. This means Nelly is not a pure embedded finance player; however, it is fascinating how they have leveraged non-financial features to build their vertical fintech company (listen to the podcast!).

In recent years, I have looked at a few players who wanted to enter the fintech-healthcare intersection. Due to its size and outdated technology, this market is highly attractive, but figuring out an actual value-add for medical practices and a strong GTM strategy is crucial. A €50 million round indicates that Nelly is on the right track, and I wonder how this market will continue to change over the following years.

Is embedded accounting the next big thing?

What happened: US startup Open Ledger has announced a $3 million funding round for its embedded accounting offering (TechCrunch). Open Ledger is not the US's first startup in this space; the most prominent name is likely LayerFI. The third provider was Teal, but SME banking provider Mercury acquired the startup in September 2024.

My comment: Embedded finance describes the process of embedding payment, banking, lending, investment or insurance products into a non-financial customer experience. Accounting is one of the standard answers when considering where this concept could be extended. A simple example is a vertical SaaS provider that doesn’t only want to embed a banking or lending product but aims to offer its clients a full-fledged accounting solution. The challenge for embedded accounting infrastructure providers is that different industries have different demands, and being more attractive than an in-house solution can be a tough pitch. Perhaps it is easier in the US than in Europe, where the localisation challenges are even more significant. There are also providers in the European space, most notably Monite. However, these players tend to focus on specific elements (e.g., accounts receivables & payables) and don’t aim to offer the whole accounting stack.

Link section

• Modulr secures Confirmation of Payee contract for HMRC (The Paypers)

• Barclays to wind down fintech accelerator programme Rise by “mid-2025” (Fintech Futures)

• Airwallex expands its offering to the UK following ClearBank partnership (The Fintech Times)

• Will Banking-As-A-Service survive in the U.S.? Spoiler: Yes, the question is how (Forbes)