Banking-as-a-service is an integral part of financial services and is no longer limited to banks. Many non-banking companies offer services like wallets, payments, and lending. Such companies use the concept of embedded finance intending to increase their lifetime value and retain customers.
Embedded finance acts like a monetization lever and can make every company into a fintech company. From retailers to logistics firms, embedded financial services serve customer segments effectively. Customers are attracted to this scheme as it is easy to use, and payment can be handled in the same place as their original requirement.
Banking as a Service (Baas) is a solution banks offer for their embedded finance schemes to other businesses.
How to identify opportunities at banking-as-a-service successfully?
Increase in integrated services for customers
The main reason why BaaS has been offered as a solution is that customers have been seeking a simple and holistic experience from their product provider. Such multiproduct customer experience providers are called ecosystems. These ecosystems often include as much integration as possible, and embedded financial systems fit this model perfectly. Finding a banking partner and using their services is the most profitable for both organizations.
Need for innovative fintech and more
Many fintech organizations are getting launched every year. These organizations require banking partners to enable payments and lending. Such organizations can only offer financial services and not completely convert themselves into banks as the regulatory bar for such a conversion is very high.
Embedded finance enters into this picture and Banking as a Service acts as the adequate balance between the two solution providers.
Banks handle balance sheets, regulatory support, and other funding sources while the original business handles its services to support its customer base.
A shift to open banking models
Open banks are promoting the development of banking APIs and universal access.
Compliance with modern standards is done by shifting to the latest IT architecture. Hence, BaaS acts like the best business model to recover costs and make the most of tech builds. Many banking aggregators are changing customer expectations regarding account information portability, which further demands IT modernization and Baas projects.
Lookout for new revenue models to scale banking-as-a-service
Some trends have reflected a decline in the projected revenues for the banking sector. Financial institutions are actively exploring alternative sources of revenue to protect their product and promote their growth.
A valuable source of scalable business comes from distributed channels like embedded finance. It divides the focus between the various modes of revenue generation and ensures that all the capital is not invested in the same place.
Adopting technology capabilities
Growing digital capabilities like automation allow banks to scale their BaaS model faster. This makes embedded finance reachable for more companies that are considering it. Such companies see embedded finance as a core module of their business model. Software engineering is a required competency for any online payment, lending, or deposit. Hence adapting to advanced technology is a must.
A decline in trust in financial services
Incumbent banks have been seen to lose their customers over trust. Customers have higher trust levels in fintech companies, which they are using to leverage financial services. If banks choose BaaS and co-branded with our fintech services to offer their services, they can rebuild the trust in their customers and distribute their products.
Thus, Banking as a Service and embedded finance are technologies that can help standard banks and fintech companies win over customers and generate profits. With the rise in importance of a unified customer experience, we help banks to develop the integration of payment services. Such integration can create an ecosystem where holistic product financing is possible for fintech companies and banking institutions alike.
