The banking sector is going through a period of rapid change. This was true even before the pandemic, which has had a profound effect on what people expect from their banks and banking services, but the seeds of change had taken root long before. 

Technology and banking are intrinsically linked, and as technology progresses faster and faster, Tier-1 banks are finding it harder to keep pace with new waves of innovation. Consumer and business expectations of banking services are higher than ever, which has fueled the rapid propagation of new providers that artfully blend financial services with modern technology.

At the heart of many of these innovative new ventures is open banking, the widespread implementation of which has galvanised the digitisation of the sector. Banking services are now more easily integrated and interconnected between platforms and providers, with a new market emerging for unique financial products and services.

Tier 1 banks are not the force driving this digital revolution, but their solidity and status after decades of high street rule cannot be overturned. Many of these new fintechs rely on the support of these institutions to navigate the intricate jungle of banking licensing, regulations and compliance protocols that govern financial services. 

Matters grow even more complex with the introduction of non-financial companies offering their own integrated products like branded lending services, credit cards and even mortgages as part of their customer journey. The banking landscape today is full of steady giants unable to benefit from the swell of innovation, and agile challengers unable to meet the sector’s difficult requirements. There is a solution to this problem, a means of bridging the divide in such a way that both sides stand to benefit from the opportunity at hand – and that solution comes in the form of Banking-as-a-Service (BaaS). 

BaaS to the rescue

BaaS solutions translate the advantage held by the Tier 1 banks – security, reliability and regulatory licensing – and offers them to smaller businesses through tailored, customisable financial products that arrive ready-made and fully compliant. Financial and non-financial companies alike no longer need to contend with the headache of building safe, functional products from the ground up, nor with the minefield of banking regulations. 

Take, for example, a small eCommerce retailer that wants to offer split payments at checkout without including 3rdparty options that redirect users away from the site. This retailer would then have to design and build a fully functional credit lending system from scratch, ensuring users’ data privacy and protecting themselves from fraud. Even if they could manage such a feat, they would then need to jump through the many hoops of the bank licensing system, all of which costs time and money.

If this retailer approached a BaaS provider instead, they could receive a fully functional lending solution that works out of the box and comes pre-approved and compliant. Many BaaS providers offer white label solutions, meaning users don’t need to dilute their own branding, which in the highly competitive world of eCommerce has incalculable value for small businesses. With the help of the right BaaS provider, these solutions can be adaptable and scalable, growing organically with the business and evolving to meet customer needs at every level – all at high speed and low cost. 

The demand for these integrated credit services is already out there – just look to the meteoric rise of Buy Now, Pay Later (BNPL) solutions. The sector is growing at a rate of 39% a year, and in the UK alone there are 10 million online shoppers who avoid retailers that don’t offer split payment options at checkout.

For small businesses, failing to offer these kinds of services can exclude themselves from a growing proportion of the market – something no SME can afford to do. By opening themselves up to innovative financial services, they open themselves to a whole new audience of customers and can provide them with a better, more inclusive customer experience 

Working better together 

It's not only small businesses that stand to benefit from BaaS solutions – the Tier 1 banks do too. While typically slow-moving and highly risk averse, BaaS allow them to connect with smaller businesses that are more agile and better positioned to capitalise on these opportunities, and in turn reap the benefits themselves. BaaS providers act as a conduit between the well-established old guard and the sharp, bright-eyed actors who are driving a market full of innovation, forming lasting and productive partnerships that will reshape banking and financial services as a sector. 

Partnerships are at the heart of Yobota’s own operations, informing the way we provide our services and how we engage with both sides of the issue. Our core team is made up of ex-bankers and tech experts, providing us with insights from both worlds and helping us tailor solutions that help the old and the new benefit from the opportunities at hand. 

New ideas promote growth

I’ve heard some misguided concerns that the growing popularity of white label BaaS solutions will reduce differentiation within the sector, homogenising banking services and leading to stagnation. This simply makes no sense – white label solutions allow businesses and brands to create products uniquely suited to their own clientele, leading to an outpouring of new, useful services that cater to consumers of all kinds. 

It’s clear that there is a great opportunity on hand for BaaS providers. Those who can provide the best, most scalable products – products that can match and keep up with companies of all descriptions – are poised to grow in tandem with the new financial services market and redefine what people expect from their banking products, how they spend and how they engage with brands. 

To succeed in this arena, BaaS solutions need to be easy to use and integrate seamlessly, and above all else, they need to be totally safe – protecting both the primary bank and the users' data and adhering to all compliance criteria. Now is the time for BaaS to shine, and only the best providers will carry through the digital revolution that is already taking wing in the banking world.