The rise of Banking-as-a-Service – and how it is changing the face of finance

Fortunately, the industry is waking up to this industry boom. Increasingly, traditional banking services are being disrupted by Banking-as-a-Service (BaaS) to become pioneering multi-channel banking solutions, which provide the functionality needed to create both traditional offerings and new products that sound with digital native consumers. In short, these innovations enable pre-existing SF and non-SF businesses to quickly deliver truly game-changing financial offerings to their customers, including digital wallets, P2P lending, and payments.

According to a recent report commissioned by Yobota, which surveyed 251 banking and financial services industry leaders, 72% of companies have worked with technology vendors to launch new products or services in the past 12 months. An even higher number (79%) said their business has seen increased demand for more personalized financial services.

So, before we dive deeper into the benefits of BaaS, let’s look at how it works…

What is BaaS?

Banking-as-a-Service is a model that allows both incumbent banks and non-SF businesses to provide customizable banking services, using the technological capabilities of fintech services.

Basically, these products cannot exist without banking services. Through the BaaS model, vendors build the components of a typical banking infrastructure and bundle them together for businesses, which can then offer integrated financial and other products with the existing banking license and regulatory clearances of legacy or challenger banking institutions.

Although many new products brought to market by BaaS are technology driven, this is not exclusively the case. Traditional banks, which already have the infrastructure to operate, can also use BaaS to access basic banking functionality, supporting the development of more traditional financial products, such as credit and debit cards.

Typically, APIs (Application Programming Interfaces) are used to deliver these products. APIs are developed and provided by fintechs/core banking providers, providing banking and non-SF businesses with the infrastructure to build and launch almost any financial product or service to their customers. While many vendors claim their capabilities, the key to true BaaS inherently lies in the “B”: true BaaS offerings will allow customers to access the banking license. and the balance sheet to really facilitate access to the market.

This means that third parties can bring innovative new financial products to market quickly, without having to develop them in-house or deal directly with burdensome regulatory requirements. For companies looking for flexible financial packages, some BaaS providers offer a modular way of working in the fintech ecosystem where companies can choose the elements best suited to their customer base. The results are significant: first, companies can ensure that their financial product is fully integrated into their organization’s ecosystem, thereby boosting their brand recognition.

Beyond that, companies can even deploy their new product under white label so that other brands can benefit from their solution with the assurance that it has been proven, while consumers benefit from a customer journey. tailored and frictionless.

The changing fintech ecosystem

Looking to the future, 83% of businesses are confident in their ability to meet changing customer needs, according to Yobota, raising important questions about the role BaaS will play in growth in the years to come. .

Naturally, the introduction of banking products and financial services into retail and e-commerce markets will subject the industry to a level of competition it has never experienced. As fintechs continue to innovate, putting more efficient, specialized and powerful solutions directly into the hands of businesses and consumers, this will push traditional banks to offer newer and more flexible options in order to stay competitive.

Non-financial organizations, from travel agencies to e-commerce and beyond, will be able to derive real value and customer loyalty from their BaaS platform of choice, providing another tool in their arsenal in the face of fierce competition. Currently, BNPL is the single fastest growing payment method in the UK, worth £9.6 billion every year to retailers, proving that the ability to tailor offers that speak to their customer base is critical to success.

Ultimately, the ultimate beneficiary of BaaS will be the end user, as these platforms offer consumers a much wider range of options to choose from when engaging in financial services. With a wide range of services on offer, consumers will have more options and a more competitive marketplace, resulting in lower costs and first-class customer service from brands competing for their attention.

Ultimately, BaaS provided the ideal premise for banks and third-party companies to generate higher revenue streams and drive innovation in the financial services industry. As the BaaS proposition continues to thrive in the fintech ecosystem, I look forward to seeing what new and inventive solutions will emerge in the months and years to come.

Ion Fratiloiu, Sales Manager, Yobota