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Home Fintechs Banking-as-a-Service (BaaS): An Opportunity for Banks

Banking-as-a-Service (BaaS): An Opportunity for Banks

As BaaS nears mainstream adoption, banks have a significant opportunity to join the BaaS ecosystem, form new relationships with fintech firms, and create new revenue streams for themselves.

The mobile industry is one sector that is likely to flourish and become widely adopted, providing banks with the opportunity to reach millions of smartphone users who want access to financial services.

The Growth of Mobile Phones and BaaS

With over 6.6 billion smartphones globally, the financial services industry is beginning to understand the potential of mobile devices for delivering banking services. Offering BaaS to smartphone users can help people manage their daily finances, from long-term planning to emergency funds.

Unfortunately, most mobile operators only offer payment capabilities through phones, leaving 1.2 billion people worldwide without access to savings accounts and insurance.

By offering BaaS services to mobile phone operators, banks can encourage financial inclusion, which is a crucial step in reducing poverty and promoting shared prosperity, according to the World Bank Group.

BaaS as Part of Our Daily Lives

BaaS is quickly becoming an integral part of our lives, as consumers become more comfortable using apps for payments.

From cash to cards and now to digital payments, the ease and convenience of BaaS will likely increase our spending and benefit all players in the BaaS system, including banks, technology companies with a banking license, fintechs, and consumers.

Long-term Benefits Outweigh Challenges

The business of banking is evolving, and BaaS can bring personalized, customer-centric offerings to market faster. Banks can reach more customers, reduce costs, and improve customer relationship management by accessing the data captured through BaaS.

As BaaS becomes more widespread, regulators are paying attention. Fintech firms and neobanks need a bank to offer banking services, but they often lack experience with compliance processes. A BaaS model is critical in a highly regulated market, allowing banks to provide fintech firms and neobanks with the resources and infrastructure they need while reducing operating costs.

However, offering banking services through APIs also increases the risk of cyberattacks and security breaches. Banks must partner with experienced fintech providers to reduce the risks and sustain their efforts to add new fintech partners to their portfolio.

Despite these challenges, BaaS still provides numerous benefits to the financial services sector, particularly for customers who have more choices and a better overall experience. The entire ecosystem benefits from the value creation that BaaS offers.

BaaS Developing Globally

BaaS is still in its early stages, but adoption is growing globally.

In the US, many BaaS providers are emerging due to the difficulty of obtaining a banking license, while the UK has granted the maximum number of licenses in the world in the last 10 years.

In Asia, exciting cases are emerging, such as a gym chain and a bank partnering to become a BaaS provider in Indonesia.

Final Thoughts

As customer expectations change, BaaS presents a significant opportunity for banks to join the BaaS ecosystem, form new relationships with fintech firms, and create new revenue streams.

The benefits of BaaS outweigh the challenges, and the entire ecosystem will benefit from the value creation that BaaS offers.

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