In our previous post, we discussed how embedded investment solutions can be a game-changer for banks. By offering low-risk, high-yield investment options alongside traditional deposit accounts, banks can significantly reduce their funding costs while keeping customers happy. But let's get real, how much money are we talking about here?
Data Tells the Story: A Win-Win-Win for Banks, Fintechs, and Customers
We've crunched the numbers to showcase the tangible benefits of embedded investing. Here's a scenario comparing a bank without an investment sweep program to one that utilizes it:
Without Investment Sweep Account Program:
Bank Data:
- Total Deposits: $100 Million
- Bank Deposit Yield: 4% (offered to Fintech)
- Bank Net Interest Margin (NIM): 3.5% (industry average)
- Bank Cost of Deposit: 2% (industry average)
- Implied Bank Lending Yield: 5.5% (2% + 3.5% NIM)
Bank Program Revenue: $100M * (5.5% - 4%) = $1.5M
- Fintech Deposit Yield: 3.5% (offered to customers)
- Fintech DDA Margin: 0.5% (profit from bank deposit yield)
Fintech Revenue: $100M * 0.5% = $0.5M
With Investment Sweep Account Program:
Assumptions:
- Deposits Split: $50 Million in Sweep Account / $50 Million in DDA
- Investment Sweep Account Yield: 5%
- Investment Sweep Account Margin: 0.35% (Fintech profit)
Bank Data:
- DDA Yield: 1.5% (lower yield offered due to sweep accounts)
- Bank NIM: 3.5% (remains constant)
- Bank Cost of Deposit: 2% (remains constant)
- Implied Lending Yield: 5.5% (remains constant)
Bank Program Revenue: $50M * (5.5% - 1.5%) = $2M
Fintech Data:
- DDA Yield: 0% (no yield offered on DDA)
- DDA Margin: 1.5% (profit from lower bank yield)
Fintech DDA Revenue: $50M * 1.5% = $0.75M
Fintech Sweep Account Revenue: $50M * 0.35% = $0.18M
Total Fintech Revenue: $0.75M + $0.18M = $0.93M
The Impact is Clear:
- Bank Wins: Bank program revenue increases by $500,000 despite a 50% decrease in DDA deposits. This is due to the lower yield offered on DDA accounts.
- Fintech Wins: Fintech revenue increases by $430,000 thanks to the combined income from lower DDA yield margins and the new sweep account offering.
- Customer Wins: Customers benefit from a higher yield (5%) on their sweep account compared to the traditional DDA yield (offered by both scenarios).
The Bottom Line:
Embedded investment solutions are a strategic win for all parties involved. Banks can significantly reduce deposit costs, Fintechs can expand their revenue streams, and most importantly, customers gain access to better financial products and the potential for higher returns.
Ready to unlock these benefits for your bank? Contact Treasure today and see how we can seamlessly integrate embedded investment options into your platform.https://www.treasurefi.com/
The information provided is for informational purposes only and should not be construed as investment, financial, legal, or tax advice. Calculations and mathematical examples shown are for demonstrative purposes, and do not represent hypothetical or actual performance of any strategy, product, account, client or business partner of Treasure. While information and sources are believed to be accurate, Treasure does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information. This material should not be considered an offer or recommendation to buy or sell a security, or a recommendation of any specific investment or strategy. You should consult your own financial, legal, and tax advisors before engaging in any transaction. For more information about Treasure, please visit treasurefi.com.
