Banking as a Service (BaaS) Continues to Gain Steady Momentum: Report

Finastra recently published a market assessment report, titled “Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance.”

The research canvassed the opinions of 1,600 senior industry executives, “exploring the opportunities presented by Banking as a Service (BaaS) – to provide retail or wholesale banking products and services to customers in context, as a service, using an existing licensed institution’s secure, regulated infrastructure with modern API-driven platforms.”

The Finastra research reveals the “true extent” of the appetite for BaaS, “with almost 85% of respondents already implementing or planning to implement BaaS over the next 12-18 months.”

Key findings are as follows:

  • Over 80% of regulated financial services providers “expect the overall BaaS market to grow.” Of these, 30% “expect it to grow by more than 50% per year over the next five years.”
  • BaaS “represents a $7 trillion opportunity – distributors, including retailers, e-commerce firms and other consumer brands, are migrating towards BaaS solutions and expect overall growth to exceed 70% per year over the next three years; 60-70% of distributors want to increase their spending on financial partnerships (including BaaS).”
  • SME lending, corporate lending and corporate treasury/FX services “are poised to gain the highest traction. Simplifying SME lending through BaaS is expected to drive growth of 30% by 2024.”
  • The majority of enablers, “including bigtechs and fintechs, expect the overall BaaS market to grow by more than 50% over the next five years.” Some 40-50% of enablers want “to increase their partnerships with distributors and financial services providers by more than 50% in the next five years”

Angus Ross, Chief Revenue Officer, Banking as a Service at Finastra, stated

“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, while distributor brands can open up new lines of revenue and build deeper relationships with their customers.”

Ross added:

“It’s clear from our research that consumers (retail or corporate) are changing where they source financial services and shifting to non-bank channels. This trend will only accelerate as integrating regulated products into the customer journey becomes as simple as creating a social media account.”

Marwan Forzley, CEO and Co-founder for Veem, a global payments platform that works directly with small and medium-sized businesses, remarked:

“Banking as a Service democratizes access to innovative payments solutions for all sizes of financial institutions. It enables even the smallest institutions to offer best-in-class products allowing their customers to thrive. Small businesses look to their banks as trusted advisors who will now have the capabilities and technology solutions that will help them grow and scale effectively.”

Finastra’s research also “assessed the monetization strategies of providers, enablers and distributors in BaaS, and explored the importance of partnerships.”

All respondents were in favor of “a transition to a platform and marketplace model, where a greater range of niche solutions at competitive prices can be sourced by end customers.”

Andrew Turner, CEO, Loanstar Technologies, remarked:

“BaaS gives traditional brick and mortar financial institutions the ability to compete in a digital-first world, allowing the institution to nimbly embed their offering where and when a consumer transacts. In the lending business, this gives the financial institution flexibility in their offer both from a product and a channel perspective, while giving consumers the ability to repay responsibly over time.”

Finastra’s research shows that financial services providers “need four key capabilities to work with distributors and enablers and to monetize BaaS.”

From a technology perspective, these include:

  • an open API platform;
  • an integrated data and analytics platform; and
  • specialized digital solutions to seamlessly integrate customer journeys

From a product perspective, providers “need dynamic and compelling offerings to entice customers,” according to the update shared with CI.

You may find out more about the BaaS opportunities available for distributors, enablers and providers – and “the growth potential of different market segments” – in the complete market assessment report here.

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