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Five factors that will drive Banking-as-a-Service adoption in 2024

Banking-as-a-Service (BaaS) is one of the key trends reshaping financial services, and we’ve only just scratched the surface in terms of the impact BaaS can have across multiple sectors.

Between 2022 and 2032, experts forecast that the global BaaS market value will grow more than 5x, rising from $4 billion to $22.6 billion. Why? Primarily because non-financial companies are becoming ever-more alert to a wide range of opportunities that BaaS-enabled embedded finance presents for them to attract, retain and upsell to their customers. 

But there are more specific, timely reasons, too. Looking at the coming 12 months, here are some of the important market dynamics that are likely to drive BaaS adoption and grow the BaaS sector.

  • Economic climate sharpens focus on customer needs 

From a macroeconomic perspective, combined high inflation and rising interest rates have placed significant financial pressure on consumers and businesses alike. The costs of both living and borrowing have risen markedly, which has increased consumer appetite for financial products and services that offer tangible value.

Buy now, pay later (BNPL) is a great example. In a recent survey of more than 3,000 European consumers commissioned by Aion/Vodeno, two in five (37%) respondents said they were more likely to use BNPL and flexible payment options due to the cost-of-living crisis. This played out in recent shopping data over the holiday period – during the latest Black Friday, US shoppers bought over $7.3 billion of goods with BNPL, an increase of 17% from 2022.

Inflation has fallen in most major economies, but remains higher than usual. Meanwhile, interest rates will continue to reside at higher levels than consumers and businesses have been accustomed to over the past 15 years. Both factors will continue to encourage companies to consider how BaaS and embedded finance solutions can solve the challenges presented by the current economic climate. 

  • Customers looking beyond banks for their financial products

Aion/Vodeno research underlines how millennials and Gen Z are leading the adoption of embedded banking products. Our survey found that 52% of 25-34-year-olds prefer using financial products and services from their favourite brands over traditional banks. A similar number (51%) of respondents in that age group said they believe that brands are making banking more accessible, while 52% think brands offer financial products better tailored to their specific needs compared to traditional institutions.

Early adopters are already realising the benefits of this shift in consumer behaviour. Brands with established, captive customers are working with BaaS providers to offer solutions like instant payment, BNPL, cards and loans  to their customers.

Embedded banking is seen as a competitive advantage to attract and retain customers, which will  drive further adoption of BaaS.

  • Ensuring successful BaaS deployment

A successful BaaS deployment involves the BaaS provider having an in-depth understanding of its client’s customer journey – its offering, its customers and its ecosystem. The first step in any successful BaaS provider/Client relationship is to gather customer insights, in order to understand the areas of frustration and friction in the customer journey, and identify the best BaaS use cases to help make the experience better. From this point, bespoke solutions can be delivered that fit the precise needs (or solve specific issues) of the client’s customer base. 

If there was previously a rush to jump on the BaaS bandwagon and quickly bring products to market, there is now an increased understanding of the necessary detailed planning in order to achieve success with BaaS. A thoughtful and considered approach must be followed to determine not only the right mix of financial products to offer, but also to identify how and where to embed those products into the customer journey, and how to market and scale the solutions once deployed.

As the BaaS sector matures, adopters will increasingly value BaaS providers that can collaborate to consult on strategy, rather than acting simply as an out-of-the-box tech vendor. Gartner’s Hype Cycle would state that this is the natural journey all emerging technologies must go through as they climb the ‘slope of enlightenment’ towards the ‘plateau of productivity’. This is where the BaaS market finds itself today.

  • Expanding beyond payments

Payments have been the most widely adopted use case for BaaS deployment to date. The rapid growth of the global Payment-as-a-Service (PaaS) market – a sub-sector of BaaS where financial institutions outsource payment processing infrastructure and expertise to other businesses – highlights this trend. The global PaaS market is predicted to more than treble in value from $12.8 billion in 2022 to $40.6 billion by 2030.

Such growth is easy enough to understand: the ability to offer a quick and frictionless experience when processing transactions is the foundation of any good customer experience. So, when starting conversations with BaaS providers, solving payments headaches is a common starting point, with adopters of BaaS-powered payment solutions not only keen to improve the speed of payments and create cost efficiency, but also add different payment options at checkout to give customers choice.

Over the coming year, we should expect to see those businesses that have already adopted payment solutions start to build on their relationships with the BaaS provider, rolling out other embedded finance products. Loyalty, cashback and credit are all logical next steps for such companies, and having tested the BaaS waters by deploying new payment solutions, more far-reaching BaaS strategies will naturally follow.

BaaS providers that have the necessary banking licence in order to offer a full range of embedded finance solutions are best positioned to help BaaS adopters expand from payments, making sure products are fully compliant and offered in a contextual way.

  • More attention being paid to regulation and compliance

Regulation and compliance are vital considerations for those wishing to capitalise on BaaS opportunities.  To date, there has not always been rigorous focus on compliance amongst BaaS providers. Today, greater focus on regulation and compliance will influence the BaaS sector. In turn, BaaS deployments will be built on stronger regulatory foundations and with a more focus on compliance. 

We are now seeing a greater understanding that not all BaaS providers are created equal, particularly where compliance is concerned. Adopters increasingly recognise that BaaS providers need to offer a full end-to-end service, including technology, a banking licence, compliance and risk management – as well as strategic go-to-market support to ensure successful BaaS projects.

There has been a fundamental shift in how consumers and businesses want and expect to access banking products. Looking forward, BaaS adoption will continue to gather momentum as more use cases in more sectors are deployed, and the maturation of the BaaS industry will increasingly be led by those providers that can combine strategic, technical and banking expertise.

Immense opportunities lie ahead. Undoubtedly, 2024 will see BaaS break new ground, and it will be exciting to see new partnerships, growth and success stories emerge.


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Jean-Jacques Le Bon

Jean-Jacques Le Bon

Chief Strategy & Product Officer


Member since

20 Mar



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