Is BaaS integral for banks to survive in the future?

ARTICLE

API banking becoming as ubiquitous as Digital banking: Is BaaS integral for banks to survive in the future?

Increasing demand for embedded finance has simultaneously resulted in the increased popularity of Banking as a Service (BaaS). In layman’s terms, BaaS is a mechanism through which licensed banks integrate and provide financial services and banking products directly into the products of other non-bank businesses. This process enables non-bank businesses to offer their own customers’ banking services to their own customers, without acquiring a banking license of their own.

In simple terms, BaaS enables non-bank companies to include financial services into their goods. By incorporating digital banking into their systems, for instance, businesses that are not licensed as banks may offer loans or payment services to customers. Banks can either develop their own platforms or collaborate with providers of third-party BaaS solutions to make this happen.

The BaaS ecosystem encompasses 3 main components: brands, providers, and license holders.

Brands

Brands are non-bank companies that are attempting to improve consumer experience by integrating financial services into their current goods.

Providers

The term Providers refers to a fintech company that offers the BaaS platform using API technology.

License holders

License holders are legacy banks that provide licensing for Fintech aggregators and/or other providers.

Application programming interfaces (APIs) are typically used to distribute BaaS to customers. For banks to offer BaaS, they must undergo digital changes and may require new business models. Customers of the non-bank business can get banking services directly through the company’s website or mobile app owing to the communication between the systems of the two organizations via APIs and webhooks. BaaS is also sometimes referred to as “white-label banking” due to the possibility of non-bank businesses serving as an intermediary without completing any regulatory obligations.

The banking-as-a-service concept is gaining popularity. It is a cutting-edge strategy that enables firms to compete based on a customer-centric focus rather than a focus on transactions. This is the perfect opportunity for forward-thinking companies to fully scale and “become their own bank.” Even while BaaS may seem complex, it simplifies things for both banks and clients. Banking as a service is an essential component of open banking that enables any company to be a fintech. BaaS users like fintech, digital banks, and other non-bank enterprises can also tailor their client experiences using API technologies. Given that, Today, customers are are today more interested in a seamless customer experience than in products items, or prices., Aa a seamless, personalized journey is crucial to staying ahead of the competition. There is no denying that digital transformation paves the way for financial success.

With the widespread increase in consumer demand, we can predict that all banks to will start using BaaS in the near future, which will make financial products and services available at the point of customer customers’ needneeds. According to a Simon Torrence analysis, embedded finance programs could be a $7.2 trillion industry by 2030, which is over twice the combined value of the world’s top 30 global banks.

The financial services sector is advancing towards a time when sharing data and infrastructure will become consumers’ new expectations, as several countries have already started enacting open banking legislation. Banks who adopt this move will not only gain an advantage over their competitors by being ahead of the curve, but they will also benefit from a new source of income due to the high demand and monetization of their platforms.

Author

Zenab Murtaza

[email protected]

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