Banking as a Service gains unstoppable momentum, Finastra research shows

85% of senior executives surveyed are already implementing BaaS solutions or are planning to in the next 12-18 months

Dubai, UAE – gulftech– At its Finastra Forum flagship industry event in Dubai, Finastra today unveiled a market assessment report: ‘Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance’. The research canvassed the opinions of 1,600 senior industry executives globally, exploring the opportunities presented by Banking as a Service (BaaS) – to provide retail or wholesale banking products and services to customers in context, as a service, using an existing licensed institution’s secure, regulated infrastructure with modern API-driven platforms.

The Finastra research reveals the true extent of the appetite for BaaS, with almost 85% of respondents already implementing or planning to implement BaaS over the next 12-18 months. Key findings include:

More than 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, including retailers, e-commerce firms and other consumer brands, are migrating towards BaaS solutions and expect overall growth to exceed 70% per year over the next three years; 60-70% of distributors want to increase their spending on financial partnerships (including BaaS)

SME lending, corporate lending and corporate treasury/FX services are poised to gain the highest traction. Simplifying SME lending through BaaS is expected to drive growth of 30% by 2024

The majority of enablers, including bigtechs and fintechs, expect the overall BaaS market to grow by more than 50% over the next five years. Some 40-50% of enablers want to increase their partnerships with distributors and financial services providers by more than 50% in the next five years

In EMEA, the majority of senior executives are looking to increase their BaaS expenditure by up to 49% over the coming year – more than their counterparts across the Americas and APAC

Nour Sabri, Lead Client Partner, BaaS at Finastra said, “Financial services in MEA has undergone a major digital transformation in recent years. Institutions have embraced new technologies and partnerships to improve how they serve their customers. The rise of BaaS is the next step in this evolution – providing services to customers where and how they want to receive them. While early adopters in MEA – in the UAE in particular – are leading the way, it can take time to develop partnerships and strong use cases, as well as to assess profitability and scalability. As BaaS reshapes the future of financial services, institutions cannot afford to delay acting on the enormous opportunity it brings.”

Angus Ross, Chief Revenue Officer, Banking as a Service at Finastra said, “There’s no doubt that BaaS is an incredibly exciting opportunity for the entire financial services ecosystem. 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. 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.”

Grant Niven, Head of Group Digital, Banque Saudi Fransi said, “Banking as a Service is a pivotal part of our bank-wide digital strategy. We see BaaS, open banking and open APIs as a three-pronged necessity for our bank’s digital future, acting as a fintech and BaaS promoter in Saudi Arabia. Embedding financial solutions into the point of context – consumer brands – will transform how financial services is consumed in the very near future.”

Finastra’s research also assessed the monetization strategies of providers, enablers and distributors in BaaS, and explored the importance of partnerships. All respondents were in favor of a transition to a platform and marketplace model, where a greater range of niche solutions at competitive prices can be sourced by end customers.

Theodora Lau, Founder, Unconventional Ventures commented, “I am encouraged by the growing embedded finance ecosystem, especially as it relates to extending services to communities and businesses that have been traditionally underserved with limited offerings. Small businesses and entrepreneurs form the backbone of our economies. With thoughtful innovation, we have the opportunity to create a more level playing field and a more equitable future for all. Technology innovation ultimately needs to be about people.”

Jim Marous, Co-publisher of The Financial Brand said, “Opportunities associated with BaaS are exploding in the banking ecosystem as organizations not only search for new ways to improve customer engagement and enhance experiences, but also find new sources of revenues from inside and outside the financial services marketplace.”

Finastra’s research shows that financial services providers need four key capabilities to work with distributors and enablers and to monetize BaaS. From a technology perspective, these include:

an open API platform

an integrated data and analytics platform; and

specialized digital solutions to seamlessly integrate customer journeys

From a product perspective, providers need dynamic and compelling offerings to entice customers.  

Learn more about the BaaS opportunities available for distributors, enablers and providers, – and the growth potential of different market segments – in the full market assessment report here.