How does Banking-as-a-Service create opportunity for global businesses?

By James Butland, VP of Financial Partnerships at Airwallex

Ever since open banking first emerged in 2018, increasingly companies are investing in incorporating financial products and services into their core business models. In fact, in 2022 UK open banking users reached 5 million.

To meet this rising demand for embedded finance which piggybacks the trend, traditional financial institutions and challengers alike are increasingly offering Banking-as-a-Service (BaaS) options. According to Allied Market Research, the global BaaS market is expected to grow to $11.34 billion by 2030, increasing at a CAGR of 17.1% from 2021 to 2030. Further to gains in customer experience and business growth, how will BaaS unlock the future of the financial services industry?

Putting customers front and centre

The biggest challenge facing any new fintech or payment method is trust. The whole industry is facing a battle with fraud, and even the solutions that aim to combat it are being met with scepticism. We are constantly being bombarded from our banks via TV, online banking and on our apps to be suspicious of anything that doesn’t seem like “normal” banking activity.

While BaaS has been around for a few years, it’s still a fairly new concept which has yet to be widely adopted. Despite this, some businesses have found great success with BaaS solution integrations. How? BaaS is a simple principle that puts the focus on the individual consumer. By enabling organisations to utilise banking capabilities, they can behave much like a bank on behalf of their customers to remove elements of friction from the payment journey and enhance the customer experience.

Businesses know their customers and understand their needs. So why not demonstrate that in the payment process? In doing so, business customers can reduce fears over identity fraud, stay on top of their spending and save time in the process – even when trading across borders, rather than dealing with bank licensing in a new market.

Drive new value for businesses

Competition is great for the customer, but puts all businesses on the treadmill towards the best possible service. Co-opetition, the act of competing businesses collaborating together, between banks and financial services providers, specifically newer fintechs via open banking allows brands to make seamless payments processes their unique selling proposition (USP).

Financial services are becoming easier for companies to embed into their own products and platforms. Embedded payments solutions are seamlessly hidden within everyday services enabling businesses to process payments and refunds between customers and merchants via their own apps. Most recently, countless retail financing options which allow customers to spread the cost of their purchases have become available directly through merchants too. Even better, full stack financial services, from payments to FX and expense management can be easily embedded into apps, websites and platforms for convenience, greater efficiency, and further reduce friction for the end user and businesses.

With these capabilities in their online armoury, companies can offer services directly to consumers or other businesses without redirecting them to a third party. Furthermore, with a suitable payments platform, businesses which are considering integrating BaaS solutions need only enable modules that they know they will need to build the propositions they envision.

As embedded finance becomes more common, consumers and businesses will choose convenience and simplicity when selecting suppliers or brands. By picking and choosing the best solutions to meet their customers’ needs, businesses can open up new possibilities, unlock the hidden value within their brand and ultimately improve conversion rates at check out

Ignite the stale financial services industry

Financial services have allowed bureaucratic and expensive processes to impede trade for many years. Increasingly, however, companies are investing in incorporating financial products and services into their core business models which are disrupting the status quo. Whether it’s called BaaS, embedded payments or embedded finance, the ability to easily add payment solutions into existing offerings is the new kid on the block.

BaaS represents a real, meaningful shift in the buy/sell dynamic of the finance industry because it allows businesses to eliminate the complicated process that was previously required to trade internationally. Getting licensed and establishing banking relationships all over the world is a long and arduous process that can add months, or even years for entry into a new market.

BaaS solutions make financial infrastructure simpler and more seamless than has been possible before. In response, for the first time the finance industry is being forced to innovate and stay relevant, forging a vibrant breeding-ground for financial disruption.

What will be the business impact of BaaS?

Any savvy CFO wants to streamline their treasury operations as much as possible. Now, full stack end-to-end platforms can attack efficiencies from all corners, not only payments, but also issuing, FX, expense management, or whatever the current market demands.

At the moment, open banking features unlock the opportunity to build customer trust amid an industry-wide battle with fraud. On the face of it, all novel solutions like open banking are under great scrutiny. To remedy caution while customers learn to adapt, solutions must demonstrate their value. BaaS solutions offer benefits in terms of cost, speed and ease of use from the first use.

There will always be a new challenge around the corner, but the real hurdle will be getting businesses on-board. Once businesses integrate BaaS solutions into their core offerings and full-stack solutions, the benefits will become exponential!