As Banking as a Service (BaaS) approaches mainstream adoption, there is a huge opportunity for banks to join the BaaS ecosystem, develop new relationships with fintech companies, and create new revenue streams for themselves at the same time.
The mobile industry is a sector where we will see mobile providers, fintech companies and banks readily adopt BaaS. Smartphones (there are around 6.6 billion worldwide) have given people access to instant communication, and the financial services industry is beginning to understand that by offering smartphone users BaaS, they can make life easier everyday life and help families and businesses financially plan for everything from long-term goals to unexpected emergencies.
Most mobile operators around the world offer the ability to make payments via phones, but do not offer access to banking. Nearly 1.2 billion people around the world want access to savings and insurance accounts, for example, that BaaS can enable.
BaaS, while still in its early stages of evolution, is quickly becoming a part of our everyday lives. As consumers, we are used to using apps like Uber for frictionless transactions. We transitioned from cash to card and now to digital payments with relative ease, and our spending has probably increased as a result. In general, all players in the BaaS system will benefit: the bank provider, the bank-licensed technology company, the charter or fintech company, and the end consumer.
The benefits of BaaS far outweigh the short-term challenges
The banking business is moving beyond the purview of banks and into a holistic ecosystem to bring personalized, customer-focused offers to market faster. BaaS can enable banks to reach more customers, improve their economies of scale, and reduce costs. Access to data captured through BaaS leads to more personalized services and better customer relationship management and retention.
As BaaS becomes more mainstream, regulators have taken notice. Neobanks and fintech companies provide a seamless digital banking experience and need a bank that offers cards, loans, money transfers and other banking services. Fintechs also have limited experience with compliance processes. A BaaS model, therefore, becomes critical in a highly regulated and competitive market. Banks have responded by allowing fintech companies and neobanks to have the resources and infrastructure of a bank to expand their offerings and reduce operating costs.
Furthermore, banking services offered through APIs increase the risk of cyberattacks and security breaches if they are not managed carefully. Technical and operational constraints, such as legacy infrastructure, can delay deployments and may require costly manual processes to overcome limitations. Banks can align their business models and reduce risk by partnering with experienced financial technology that offers a secure digital layer that integrates seamlessly with multiple systems and provides an end-to-end connection of business data.
BaaS is developing globally
BaaS is in its infancy, but adoption is growing. In the US, where it is more difficult to receive a banking license than in Europe, BaaS providers are emerging.
Meanwhile, in Indonesia, an enterprise software provider that provides gym management software must also enable membership management, heavy machinery or equipment, and payment processing. The gym chain, along with a licensed bank, becomes a BaaS provider, another example of BaaS employed by commercial companies.
Customer expectations have changed: they want contextual, hyper-personalized and integrated banking experiences and access to banking on demand. BaaS presents a new opportunity for financial institutions to acquire customers at a lower cost, reach new customer demographics, increase revenue, and deliver customer satisfaction.
Amit Dua is the President of SunTec Business Solutions, where he leads sales, business development, customer engagement, alliances and industry solutions.
