The banking sector has witnessed a transformation since FinTech entered the market. Banking services business models are evolving and offering new opportunities from product developments and new partnerships.
While still in its early stage of evolution, BaaS is fast becoming a significant part of financial firms’ technology roadmap. It has grown through application programming interfaces (APIs) that connect easily with partners to provide banking services. By doing this, they can provide more integrated banking services to customers and enhance their experiences. In the future, BaaS will boom even more as firms embrace APIs after seeing its advantages and efficiencies.
Today, more traditional banks are eager to avail the benefits of BaaS models. However, with the increasing Banking-as-a-Service opportunities, banks transitioning their services will require new banking licenses to expand their services and products.
BaaS models allow existing banks and insurers to reach more users and customers at a lower cost. BaaS technology is a boon to acquiring maximum customers for legacy financial institutions and banks. By looking at the BaaS scenario, banking executives should include baas platforms for multiple opportunities.
Four Factors Making BaaS Possible in Finance Industry
The Growth of Cloud Technology
Cloud-based solutions have added advanced security options for banking services. The banking sector is adopting baas platforms to bring flexibility, transparency, and high speed into processes to deliver seamless services. The cloud offers high scalability and automation, and this way, it is boosting banking operations double-digit. These would help banking firms to embed advanced financial services into their banking operations.
FinTech is evolving and making financial services flexible, fasters, and more sophisticated. As firms continuously embrace technology in products and software developments, they need to integrate their products with banking capabilities and invest in BaaS platforms. This way, BaaS is gaining prominence, and with the continuous adoption of it by FinTech firms, it shows signs of booming faster in the future.
Widespread API Uses
Application Programming Interface (API) is pushing banks to adopt the Banking as a Service model to access customers’ data and interact to get insights about their banking needs.
Many banking firms leverage APIs to provide advanced services at once to a broader range of customers. Due to the high adoption of APIs, banks are becoming progressive by expanding their digital services across borders. Instant banking services are possible today due to the widespread adoption of the BaaS model.
Rising Customers’ Needs
Customers using digital banking services are aware of the rising banking advancements. Based on this, they also look for advanced banking services and experiences that fulfill their needs instantly. They now prefer the all-in-one approach from banks.
Switching among multiple banking options through various applications is what customers don’t prefer now. They want to use embedded finance and banking services under one big roof. Due to all these reasons, BaaS serves significant advantages for banking and finance firms in providing automated services and delivering them to customers.
With the combination of these prime factors, the BaaS system is growing. According to a study by Grand View Research, Inc. in Banking-as-a-Service Market Size Worth $74.55 Billion by 2030 – Grand View Research, with an estimated USD 74.55 billion market opportunities by 2030, the global banking-as-a-service market is expected to rise by a CAGR of 16.2%. Accelerated digitalization in banks and simplified financial services are the core reasons for pushing BaaS business model adoption. Banking as a Service (BaaS) will be the next big thing in the banking sector.
Long-term Profits of BaaS Will Outweigh Banking Challenges
The rising opportunities of banking-as-a-service are diminishing the challenges of poor banking service performances. Many banking executives have struggled due to slow and complicated processes previously. One of the reasons behind this has been the late adoption of technological tools and methodologies.
However, as banks are digitally advanced, they now provide optimum customer services faster and more precisely, primarily due to the adoption of BaaS platforms that allow innovations in various applications, websites, and portals. This way, banking executives can deliver optimum banking services to their customers and entice potential customers through effective marketing tactics.
BaaS is Developing Globally
BaaS’s adoption is growing worldwide. This business model appeals to banking and financial firms as it offers more opportunities to generate more revenue. Banks that ignore this digitalization trend may lose significant market share. But, banks that engage with BaaS partnerships must stay careful about specific risks, mainly from the licensing and regulations point of view.
In addition, the risks such as credit, operational, security, and skill for the new banking venture can add to the list. And executives need to address them.
In the middle of the risks, banking executives should look at opportunities primarily in the changing customer expectations. Customers want hyper-personalized, quickly accessible, and integrated banking experiences. So BaaS presents opportunities by enabling banks to go cost-effective by adopting technical methods, reach new customer demographics through accurate customer data mining, and boost revenue by delivering the customer experiences they seek.
BaaS will bring finance and banks together to transform the course of the economy that is still unstable. It is an opportunity to capture new revenue growth. Also, it is making businesses suitable for entering new markets and heading for expansion. The lists of possibilities are still undiscovered or being discovered as more banks are digitalizing.