How Banking-as-a-Service is Reshaping the Future of Finance


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In 2023, the trend toward BaaS will continue as FinTech companies look to broaden their customer bases and offer new services

Banks worldwide are working to implement a new business strategy that shifts the focus from competition to collaboration, planning to co-evolve and co-exist with various players in the banking ecosystem to succeed in the open banking and BaaS industries.

By collaborating with non-financial companies, banking-as-a-service, or BaaS, offers existing banks, insurers, and wealth managers an excellent opportunity to reach a more extensive customer base at a lower cost. BaaS could also be a threat if they respond slowly and strategically, as it invites fresh competitors into the financial services market. Current banks and other financial institutions must decide how to strategically enter this growing market, including what products to offer and which partners to partner with.

To succeed in Open Banking, incumbent banks utilizing legacy systems must undergo a digital transformation using new technologies in the cloud, made possible through partnerships with innovative banking software providers.

The Rise of Banking as A Service

BaaS is made possible by seamlessly integrating financial services and products into other customer activities, frequently on digital platforms that aren’t financial. Customers use these platforms more regularly to access e-commerce, travel, retail, health, and telco services. It presents a chance for a financial institution to reach more clients for less money. Offering financial products allows the distributor to expand its revenue streams with favorable margins, strengthen customer relationships, and leverage cross-selling opportunities.

As established providers of financial services struggle with poor performance, this opportunity arises. One reason is that established financial institutions struggle to lower the cost of technology and do not utilize their technological resources as effectively as they can.

The operating costs of digital challenger banks are currently much lower than those of incumbents. Some technology companies obtained banking licenses to offer their BaaS platforms to distributors who want to provide financial products to their customers. Some established financial institutions are investing billions of dollars in digitizing their current business models as a form of defense. However, it might be more fruitful for them to launch new models, such as BaaS, by integrating their goods into other platforms.

How to Supply BaaS

A FinTech company must typically collaborate with a traditional bank with the required infrastructure and regulatory approvals to offer BaaS. The FinTech company can then access and provide these services to its customers using the bank’s APIs. The FinTech company might also need to integrate its systems with the bank’s to enable seamless and secure transactions. To protect customer data and transactions, it is also essential to comply with applicable laws and take the necessary security precautions.

Benefits of BaaS

There are many advantages to BaaS. It enables FinTech businesses to provide their clients with a broader range of financial services, which can improve client retention and loyalty. Customers benefit from a more convenient and seamless experience because they can access their financial assistance from a single platform. It gives conventional banks a new source of income and a way to attract new clients.

Banks intend to boost API

The adoption of APIs will fuel the expansion of BaaS in 2023. Fintech companies can more easily integrate banking services into their platforms thanks to APIs, which give them a standard way to access these services. This will make it simpler and faster for FinTech companies to grow their service offerings. Additionally, FinTech businesses can alter their offerings to suit their client’s requirements better.

Prioritized Features in Mobile Banking Apps

Account management, bill payment, and mobile check deposit were the three most used functions of mobile banking apps in 2022. The convenience of managing their finances from any location at any time adds great value to customers. Fintech companies can offer their clients a complete range of financial services by making these features available through BaaS. At the same time, traditional banks can expand their customer base and generate more revenue.

The shifting FinTech industry

According to Yobota, 83% of companies believe they can meet the changing needs of their customer base in the future, which begs some crucial questions about the part that BaaS will play in fostering growth in the years to come. Naturally, the industry will face a level of competition it hasn’t previously experienced with the introduction of banking and FS products in the retail and eCommerce markets. Legacy banks will need to offer more innovative and flexible options to compete as FinTech continue to innovate and put more effective, specialized, and powerful solutions into the hands of businesses and consumers.

From travel agencies to eCommerce businesses and beyond, non-financial organizations will benefit from their chosen BaaS platform regarding the real value and customer retention, giving them an additional weapon against fierce competition. The ability to deliver specialized offerings that speak to their clientele is critical to success, as demonstrated by the fact that BNPL alone is currently the fastest-growing payment method in the UK and is worth £9.6B annually to retailers.

Since these platforms give customers a much more comprehensive range of options when interacting with financial services, the end-user will ultimately benefit from BaaS. Consumers will have more options and a more competitive market with a wide range of services available, leading to lower prices and top-notch customer service from the brands vying for their business.

Also Read: How Banks Can Drive Fintech Growth by Embracing API and Fostering Open Banking

Ultimately, BaaS has given banks and third-party companies the ideal framework to increase revenue streams and promote innovation in the financial services sector. Organizations are eager to see what innovative new solutions will materialize in the upcoming months and years as the BaaS proposition thrives in the FinTech ecosystem. BaaS has the potential to revolutionize the banking sector and give customers a more thorough and convenient banking experience with the right partnerships and implementation strategies in place. In 2023, the trend toward BaaS should continue as FinTech companies look to broaden their customer bases and offer new services. Adoption and implementation of BaaS will continue for growth, as APIs give FinTech companies a standardized way to access banking services. It will be crucial for banks to incorporate mobile services into their offerings to stay competitive as the use of mobile banking increases.

Swapnil Mishra
Swapnil Mishra
Swapnil Mishra is a global news correspondent at TalkCMO, with over six years of experience in the field. Specializing in marketing technologies, Swapnil has established herself as a trusted voice in the industry. Having collaborated with various media outlets, she has honed her skills in content strategy, executive leadership, business strategy, industry insights, best practices, and thought leadership. As a journalism graduate, Swapnil possesses a keen eye for editorial detail and a mastery of language, enabling her to deliver compelling and informative news stories. She has a keen eye for detail and a knack for breaking down complex technical concepts into easy-to-understand language.


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