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Banking as a Service unlocks opportunities for brands, bigtechs, fintechs, and banks

  • BaaS is a gamechanger for more than the end-users, but the entire financial ecosystem: distributors, enables, and providers.
  • According to Finastra’s latest research, 85% of senior executives are already implementing BaaS solutions, or planning to within the next 12-18 months.
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Banking as a Service unlocks opportunities for brands, bigtechs, fintechs, and banks

By Angus Ross, Chief Revenue Officer, BaaS, Finastra

The way in which consumers interact with financial services is undergoing a revolution.

Imagine your favorite brands offering you a range of financial services, from BNPL financing, to personalized and proactive lending offers. Banking as a Service is making this possible and paving the route towards truly embedded finance.

What is Banking as a Service? BaaS is the provision of retail or wholesale banking products and services, in context, as a service using an existing licensed institution’s secure, regulated infrastructure with modern API-driven platforms.

The BaaS value chain consists of three key players besides the end-customer:

  1. Distributors (also referred to as ‘embedders’): Organizations that embed banking

services directly into their existing customer journeys for retail or corporate customers

  1. Enablers: Usually bigtechs and fintechs that help to embed financial services into third-party platforms and apps
  1. Providers: Financial institutions holding a banking license and offering regulated and complaint financial products

There’s no doubt that BaaS is an incredibly exciting opportunity for the entire financial services ecosystem. Financial institutions can reach a greater number of customers at significantly lower cost; distributors can open up new lines of revenue while building deeper relationships with their customers. Integrating regulated products into the customer journey will soon become as simple as creating a social media account.

While the BaaS market — including banks, wealth management, and insurance companies as well as those providing the enabling technology without underlying FS solutions — is expected to reach a value of $7 trillion by 2030, it is still an evolving industry. Challenges for distributors, enablers and providers lay ahead; streamlining customer experiences and building sleek, engaging products takes time.

Finastra’s latest research, Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance, provides insight into the market maturity of BaaS solutions. We interviewed 50 senior executives, surveyed a further 1,600, and calculated value pools and potential growth rates of BaaS for the next three years across a number of industries, including retail, eCommerce, technology, and healthcare among others. 

The survey found that 85% of senior executives are already implementing BaaS solutions, or planning to within the next 12-18 months. Amongst various participants:

  • 70% of distributors want to increase their spending on financial partnerships (including BaaS)
  • 50% of enablers want to increase their number of partnerships with distributors and providers by more than 50% in the next five years
  • 80% of providers expect the BaaS market to grow by more than 50% per year over the next five years.

Distributors clearly indicated that the BaaS market would shift from the retail segment towards the small and medium-sized enterprise (SME) and corporate segment over the next three years. SME lending and corporate treasury/FX services are poised to gain the highest traction and demand over the next three years, particularly in the banking and healthcare sectors.

Point of Sale (POS) financing (in which fixed-term loans provided by, or on behalf of, a retailer) is still emerging, but it is expected to grow by 104% in the banking industry, with the market almost doubling in size by 2024.With BaaS enabling an expansion of POS financing to debit card customers, the potential for growth is huge. 

Across all segments of the market, BaaS will proliferate over the next few years. Companies must now assess the opportunities it brings — potentially in a very nuanced way towards selected use-cases, sectors, and customer segments. Forging partnerships to accelerate market entry and penetration are key. 

As we look to the immediate future, one thing is very clear: consumers — both retail and corporate — are changing where they source financial services and shifting to non-bank channels. BaaS is paving the route towards truly embedded finance and a banking experience that adapts to this changed consumer behavior. 

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