The global fintech market was valued at around $227 billion in 2023, and is expected to exceed $917 billion by 2032. As financial technology evolves, companies and customers are interacting with financial services in different ways. . Two business models that represent this change are integrated finance and banking as a service (BaaS). Integrated finance is expected to reach $7 trillion in total financial transactions through 2026 in the US alone. Integrated finance and BaaS eliminate the need for intermediaries from traditional financial institutions. They are redefining the way people interact with money and the types of companies that participate in these interactions. However, embedded finance and BaaS models differ in the methods used, technical implementations, and target markets. Below, we will discuss their differentiating technical aspects and explain how companies use these models to create a wide range of financial services for customers and other businesses. “Integrated finance” refers to the integration of financial technologies in non-financial ways. These platforms offer services such as payments, loans or insurance through an Application Programming Interface (API), making financial transactions part of the customer experience What is Banking as a Service (BaaS)? Banking as a Service (BaaS) A model in which financial institutions provide access to their core banking services through an API. Thus, other companies can develop their own financial products, where banks typically do not. APIs allow these companies to create and run a wide range of services including payments, account management, credit and risk assessment as well as more complex functions BaaS is driving the revolution of modular and scalable banking experiences in 2008, directly affecting the way financial services are delivered and used. Integrated finance and banking as a service Integrated finance and BaaS models have accelerated the transformation of traditional financial systems, although each operates differently. Both use APIs to offer services, but their objectives, target audience, and overall impact on financial transactions are different. This is a summary of the differences and similarities between them: Integrated finance Integrated finance incorporates financial services into platforms that are dedicated to different activities. Whether it's retailers, travel agencies or social networks, integrated finance allows these platforms to add banking functions, such as payments, loans or insurance. This integration allows platform customers to complete financial transactions without leaving the platform they are using and already know. For example, a ride-hailing app can offer its customers a loan for a ride and direct debit it to a linked account in the same app. Banking as a service BaaS provides the foundation on which to build financial services by offering companies a menu of financial function modules through APIs. IThis can be seen as banking on demand, where a new company can choose which banking activities it wants to include in its portfolio. This is especially useful for fintech startups that want to get up and running quickly without setting up a full banking system. For example, a fintech company can use BaaS to give its customers the ability to create accounts, transfer funds and invest in banks, all through an API provided by its banking partner Regulatory considerations The two business models manage regulatory considerations differently. Companies using integrated finance often collaborate with financial institutions to share regulatory compliance responsibilities, as the primary platform often has little knowledge of financial regulations. BaaS, for its part, usually implies a more direct relationship between fintech businesses and their customers, since the company functions, in a way, like a bank. As a result, companies offering BaaS are increasingly subject to regulatory oversight, licensing requirements, reporting obligations, and the need to have regulatory compliance officers on staff. Data and analysis Integrated finance and BaaS offer different types of data for analysis. Integrated finance typically provides insight into customer behavior in a specific activity or sector, such as retail or transportation. Companies can use this data to refine their financial products in that specific context. BaaS provides more general financial data, as it focuses on stand-alone financial services. This data can be invaluable, but it does not provide the context-specific information that integrated finance does. Target markets Both models try to cover market niches, but each of them adapts to a different set of customer needs and preferences. The following is a brief summary of the types of customers that each of the models is primarily aimed at: Integrated finance General Customers: Anyone who uses a customer-centric platform can fit into this category, especially those who value single-store experiences for different needs. Freelancers: As they incorporate on-the-ground payment solutions into their platforms, these workers represent another notable group of customers. Small business owners: Integrated finance can meet the needs of small business owners , especially those who run online stores and need to have integrated payments or financing solutions. Banking as a service Fintech lovers: BaaS often attracts early adopters willing to immediately try new financial products, such as challenger banks and robo-advisors. SMEs: Companies that want to have modular financial solutions without committing to a single banking entity may be suitable users for BaaS. Underbanked: BaaS can offer more relaxed requirements and be more accessible to the underbanked than traditional financial services. Integrated finance models primarily target a broad customer base and focus heavily on convenient, feature-rich experiences. BaaS has a more specialized target audience, such as those dissatisfied with traditional banking options, those who require modular solutions, or those who are underrepresented in traditional financial systems. Integrated finance expands the capabilities of non-financial platforms to include financial services, while BaaS enables businesses to quickly offer stand-alone financial services. Both models will play an important role in the future of finance and actively define how services are delivered, by whom, and how customers interact with their finances.