The Banking as a Service market is maturing. No longer a potential or future market, it is now mainstream – so much so that brands not considering BaaS as part of their strategy risk “obsolescence”.
A few clicks are all it takes to order and pay for an Uber ride. With a few more clicks and you can update your work wardrobe with a few pieces that you can buy now and pay for later. Click, click and that’s next month’s business trip booked and paid for (including travel insurance, of course). This seamless payment reality is embedded finance in motion. And it’s all powered by Banking as a Service (BaaS). It’s no wonder it’s an industry in the throes of a major boom.
BaaS has become so enmeshed into our daily lives that most won’t think twice about the integrated experience they offer. And that’s the whole point.
The value that the BaaS business model holds – and the potential it bestows for business – is enormous. For the banking sector, like many sectors, customer experience is the focal point of differentiation. And BaaS allows an experience that’s so seamless and contextually relevant that many users probably don’t even pause to consider that a transaction has taken place. This is the core of embedded finance, and it’s transforming the way in which financial services are built, distributed and accessed.
With BaaS, services are being provided in more personalised ways, at the right place, at the right time and in the right form for customers.
A reminder that:
BaaS enables non-banking companies to offer their customers financial services without owning a banking licence or infrastructure. This allows brands to generate new revenue without using time and resources to generate new capabilities in-house.
The BaaS market forecast has been healthy for years. We reported earlier in the year that 85% of banking executives are already implementing or plan to implement BaaS within the next 12 months. The latest forecasts only underscore this boom.
Research released in September 2022, predicts:
“rapid growth driven by BaaS’ ability to deepen relationships between brands and their customers by providing a user-friendly banking and payments experience.”
Juniper Research
$38+ billion
Revenue for BaaS is set to exceed $38 billion by 2027.
240%
The market is forecast to grow by 240%, rising from $11 billion in 2022, according to the same report.
So mainstream is BaaS that TechCrunch echoed experts when it warned this month that:
“Customer-facing brands of all stripes could risk obsolescence if they don’t offer or at least explore a BaaS-driven embedded finance strategy.”
It added:
“The fintechs offering these specialised infrastructure services are typically focusing on a specific area of expertise and on doing it really well, instead of building the entire banking stack themselves. This crop of fintech enablers – or “fintech fabric” players, as some have described—are making it easier, faster and less costly to embed financial tools into platforms that did not historically focus on financial services.”
The outcomes for those utilising BaaS are just as positive as the market forecasts overall.
32%
Of consumers who access financial services directly from brands say that they now spend more money with the brand than they did before, according to a study by Bond and Cornerstone.
In addition,
30%
Of customers regularly choose that brand over their competitors.
A market ripe with opportunity garners healthy competition. That competition, however, isn’t necessarily coming from traditional banks. Slow to change and risk-averse, they’ve left a gap wide open for fintechs to capitalise on.
“The dismantling of incumbents is driving the progression of the financial ecosystem forward, opening space for new types of banks to thrive with new technology, services, and means of distribution.”
The Paypers
Fintechs have done the groundwork and traditional banks are only just making their way into the space – take Natwest, which just this month announced that it’s rolling out a BaaS offering in the UK.
“This means the smaller firms have successfully proven the benefits of offering such products – but also that they’ve essentially removed the risks and uncertainties that surrounded the technology in the beginning. Big firms can now take a safe chance.”
Business Insider
The speed of the evolution of BaaS proves one thing above all – being nimble enough to adapt to changing customer preferences is key to its success. Banks have proven they’re not up to this challenge, leaving fintechs to retain the lead.
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