Banking-as-a-Service is a cutting-edge financial technology that is fueling fintech. It helps financial enterprises to deliver fast and hassle-free banking services. In short, it has made us achieve the unachievable.
Let us go back in time and have a look at traditional methods of banking. They were time-consuming and inconvenient. After all, nobody enjoys standing in a long queue and dealing with a lot of form filling. But courtesy of financial technology, banks can automate their processes using technologies like Artificial Intelligence and Machine Learning.
If you own a financial start-up or are planning one soon, you must know how BaaS impacts the financial sector. After reading this post, you will get a clear idea whether or not to invest in this technology. Below, we will discuss why Banking-as-a-Service is an emerging trend for fintech. Also, you will learn its significance in the financial industry. We will begin with the basics.
What is Banking-as-a-Service?
Banking-as-a-Service or BaaS is an end-to-end procedure. It enables fintech companies and other third parties to directly interact with bank systems via APIs. The purpose is to offer a variety of banking services, such as cards, insurance, cards, deposits, and payments.
It is a crucial element of open banking that helps eliminate intermediaries. As a result, it ensures customized banking services and an improved experience in real time.
Over the past few years, the concept of banking-as-a-service (BaaS) has taken the fintech community by storm. It is no surprise the size of the worldwide BaaS market is anticipated to reach USD 2,299.26 billion by 2028. Both banks and consumers are becoming more and more interested in BaaS offerings. Banking-as-a-service is a bliss for the finance industry to keep up with increasing demand and changing expectations. To know more about how it influences fintech, keep reading.
The role of BaaS in transforming fintech
- A door to Open Banking with APIs
Open banking is nothing less than a boon to fintech. But what is open banking?
It is a system that enables other parties to access financial data by using application programming interfaces (APIs). It offers several benefits like enhanced customer experience, creating new revenue streams, and offering a sustainable service model. All this provides the structure outlining how fintech, acting as a third party, can access and handle customer financial data without compromising safety. BaaS functions as a strategy for all stakeholders to cooperate in order to give customers integrated banking experiences under that framework.
Organizations can utilize BaaS to embed fintech innovations into their online applications. Thus, their clients can ensure a more comprehensive banking experience. With cloud and digital technology, financial companies can successfully add BaaS to their product offerings. This has opened the door for the systems’ quick scaling and automation deployment.
But the question is how to access the door to open banking. Well, your key is APIs that BaaS uses. They enable third-party distributors to integrate their BaaS offering into their experiences seamlessly. Considering their speed and flexibility, many financial technology companies have started investing in APIs.
- Opportunities to offer customer-based products
Today, fintech providers are not just technology firms, but they offer a lot more. For example, they serve as feasible partners for financial institutions, their counterparts, and enterprises outside the financial sector. Thus, post-lockdown, more businesses (small to large-scale) leverage this collaboration model to ensure faster digital transformation. The primary purpose is to meet customer demands and stay ahead of technology-savvy competitors.
Thankfully, BaaS opens new doors for the fintech industry to keep up with customers’ needs. It enables them to introduce attractive and innovative plans with relevant services. Also, fintech and its partners can use BaaS to work together and create a customer-focused financial ecosystem. Especially in B2B transactions, this inclusive and adaptable model has shown a promising future. Consequently, companies can extend their financial service offerings to meet the demands of their clients.
- Data accessibility to enhance customer retention
It is clear that embedded financial products and services are growing in leaps and bounds. BaaS is giving end users more authority and vice versa. However, we know that Fintech works in a dynamic ecosystem. They should innovate swiftly to provide their clients with the best experience possible.
We will soon enter an era where customers seek shared data from financial technology companies. Fortunately, BaaS provides excellent chances to fintech for collecting data using ecosystems. According to this survey in 2021, over 86% of consumers stated they would exchange their data if offered a better and more individualized experience.
Today, customers are more likely to share their data with distributors and financial businesses through BaaS platforms for analytics and innovations. Thus, it makes collecting data easier for fintech. Moreover, they can create better experiences without going through challenging legacy systems. The idea is to help financial firms to offer multi-channel and easy-to-use solutions to their potential customers.
Hopefully, this post answers how Banking-as-a-Service impacts the fintech sector to prioritize transparent and customer-centric solutions. Although several financial technology providers have started using BaaS, it is still in the initial phase. In the future, we can expect promising opportunities for the fintech industry.
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- What is Fintech?
Fintech refers to the technology that offers financial services. It consists of delivering service and price improvements through the use of scalable technology to reduce the cost of running a financial services operation in the current times.
- What are the common applications of Fintech?
Fintech has applications in different areas of finance. The following are some examples:
- Crypto apps: exchanges, wallets, and payment applications
- Payment apps like PayPal, CashApp, Block, and Zelle
- Investment apps
- Personal finance apps