How banking as a service opens up opportunities for the banking sector

How banking as a service opens up opportunities for the banking sector

As banking as a service (BaaS) approaches mainstream adoption, there is a significant opportunity for banks to join the BaaS ecosystem, develop new relationships with fintech firms and create new revenue streams for themselves at the same time.

Amit Dua, President, SunTec

The mobile industry is one sector where we will see BaaS being readily adopted by mobile providers, fintech firms and banks. Smartphones – there are around 6.6 billion globally – have given people access to instant communication, and the financial services industry is beginning to understand that by offering smartphone users BaaS, they can ease their daily lives and help families and businesses plan financially for everything from long-term goals to unexpected emergencies.

Most mobile operators around the world offer the ability to make payments via phones, but they do not offer access to banking services. Almost 1.2 billion people worldwide want access to, for example, savings accounts and insurance, both of which can be enabled by BaaS.

BaaS, while in its early stages of development, is quickly becoming a part of our daily lives. As consumers, we are used to using apps like Uber for frictionless transactions. We moved relatively easily from cash to cards and now to digital payments, and our expenses have probably increased as a result. Overall, all actors in the BaaS system will benefit — the bank provider, the technology company with a bank license, the charter or fintech and the end consumer.

The BaaS benefits far outweigh the short-term challenges

Banking is moving out of the exclusive realm of banks and into a comprehensive ecosystem to bring personalized, customer-centric offerings to market faster. BaaS can enable banks to reach more customers, unlock their economies of scale and reduce costs. Accessing the data captured via BaaS leads to more personalized services and better customer relationship management and retention.

See also  Do your homework before signing up for car subscription-based services

As BaaS becomes more mainstream, regulators have taken notice. Neobanks and fintech firms provide a seamless digital banking experience, and they need a bank to offer cards, loans, money transfers and other banking services. Fintechs also have limited experience with compliance processes. A BaaS model therefore becomes critical in a highly regulated and competitive market. Banks have responded by enabling fintech firms and neobanks to have a bank’s resources and infrastructure to expand their offerings while reducing operating costs.

In addition, banking services offered through APIs increase the risk of cyber-attacks and security breaches if not handled carefully. Technical and operational constraints, such as legacy infrastructure, can delay implementations and may require costly manual processes to overcome the constraints. Banks can align their business models and reduce risk by partnering with an experienced fintech that offers a secure digital layer that integrates seamlessly with multiple systems and offers end-to-end connectivity of business data.

BaaS is developing globally

BaaS is in its infancy, but adoption is growing. In the US – where it is more challenging to get a banking license than it is in Europe – BaaS providers are emerging.

Meanwhile, in Indonesia, a business software provider that provides software to manage gyms must also allow management of membership, heavy machinery or equipment, and payment processing. The gym chain, along with a licensed bank, becomes a BaaS provider – another example of BaaS being employed by commercial enterprises.

Customers’ expectations have changed: they want contextual, hyper-personal, integrated banking experiences and on-demand access to banking services. BaaS presents a new opportunity for financial institutions to acquire customers at lower costs, reach new customer demographics, increase revenue and deliver customer satisfaction.

See also  10 Best Music Streaming Apps for Android

Amit Dua is president of SunTec Business Solutions where he leads sales, business development, client engagement, alliances and industry solutions.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *