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Banking as a service gaining unstoppable momentum

Banking as a service gaining unstoppable momentum

Almost 85% of senior executives surveyed are already implementing Banking as a Service (BaaS), or are planning to in the next 12-18 months, says a market assessment report published by financial software company Finastra today.

Finastra’s ‘Banking as a Service: Outlook 2022’ report canvassed the opinions of 1,600 senior industry executives and highlights the potential of BaaS to provide retail or wholesale banking products and services to customers in context - via secure infrastructure with API-driven platforms.

“There’s no doubt that BaaS is an incredibly exciting opportunity for the entire financial services ecosystem,” comments Angus Ross, chief revenue officer, BaaS, Finastra. “Financial institutions can reach a greater number of customers at significantly lower cost, while distributor brands can open up new lines of revenue and build deeper relationships with their customers.”

Key findings of the report include:

  • Over 80% of regulated financial services providers expect the overall BaaS market to grow. Of these, 30% expect it to grow by more than 50% per year over the next five years;
  • BaaS represents a $7 trillion opportunity - distributors and other consumer brands, are migrating towards BaaS solutions and expect overall growth to exceed 70% per year over the next three years;
  • Small and medium-sized enterprise lending, corporate lending and corporate treasury or foreign exchange services are poised to gain the highest traction. Simplifying SME lending through BaaS is expected to drive growth of 30% by 2024;
  • Most enablers expect the overall BaaS market to grow by more than 50% over the next five years.

“It’s clear from our research that consumers - retail or corporate - are changing where they source financial services and shifting to non-bank channels. This trend will only accelerate as integrating regulated products into the customer journey becomes as simple as creating a social media account,” says Ross.

Brian McKenney, HSBC’s chief innovation officer adds: “The application of BaaS represents an attractive opportunity to create new value for businesses around the world. Embedding financial solutions will bring contextualised, integrated banking services into the products and platforms that businesses use every day.

"How providers partner and support this unique international need of businesses will, over time, be the real differentiator."

Comments: (1)

Andrew Smith
Andrew Smith - RTGS & ClearBank - London 28 March, 2022, 10:541 like 1 like

When Nick Ogden and myself sat down to define what a modern clearing bank (agency banking provider) should deliver, we coined a phrase, Banking-as-a-Service back in 2014. The principles were simple, enable others to utilise banking capabilities as if they were the bank. Provide banking capabilities but in a highly de-constructed fashion, allowing customers to subscribe to the modules that they require, not necessarily all of them, only those they require to build their propositions. Make sure you have a cloud architecture and platform to deliver infinate scale because you simply need to grow with your unknown number of customers, and their unknown number of customers and the demands these unknowns place on your solution.

BaaS is a fantastic opportunity for those that have the banking capabilities, but as a warning, it is only a fantastic opportunity for those with the correct architecture in order to support it, ensuring customers do NOT get a second rate experience.

Though BaaS represents $7 trillion opportunity, it really will only work well for those banks that have invested heavily in ensuring they have the right IT capabilities to deliver a true BaaS solution.