In recent years, digital banking has become the go-to method for financial interactions for countless consumers worldwide. However, the ongoing COVID-19 pandemic has accelerated this trend further.
According to PYMNTS research, almost 75% of consumers have used digital channels to open a new account, unlocking the gateway to a digital customer’s lifetime.
With mobile apps being the most popular method of banking, younger generations, such as millennials and Generation Z are driving this shift towards digital banking.
Banking as a Service (BaaS): The Future of Banking
One key tool that banks used to provide digital experiences is Banking as a Service (BaaS). This approach involves leveraging banking charters to offer nonbank companies the ability to provide banking services to their customers. BaaS has two primary benefits.
Firstly, it allows customers to access financial services from a wider variety of sources.
Secondly, it enables banks to expand their footprints to include even customers not seeking traditional financial institution relationships.
The right BaaS partners are crucial for ensuring the industry’s long-term success.
Embedded Financial Services: The Rise of a New Era
Embedded financial services are quickly gaining market share in the banking industry.
A recent study found that these services will produce $230 billion in revenue by 2025, up from $22.5 billion in 2020.
The introduction of new services, such as Uber’s provision of debit cards for its drivers or Ulta Beauty’s partnership with Klarna to offer instalment payments to its customers, is fueling this growth.
Banking Industry: Embracing Digital Innovation
The banking industry remains in flux following the tidal wave of digital innovation during the pandemic.
BaaS is one of many new technologies banks are deploying to enhance the customer experience, including digital account opening, data analytics and reporting, and digital lending. 61% of bankers said investing in new digital technologies was a top priority in the coming year.
Banks are brands, but individuals care more about brands they engage with on social media or via mobile apps than FIs.
Therefore, BaaS platforms represent a huge opportunity for expanding use cases, such as early access to wages or payday advances.
Partnering for BaaS Success
Banks embarking on a BaaS journey may feel they have their work cut out for them, especially if they are relatively new to the digital banking scene. Developing in-house BaaS solutions might work for large FIs with dedicated IT staff, but most banks will need to partner with technology providers to implement BaaS. Choosing the right BaaS partners will be crucial to ensuring the industry’s long-term success.
In conclusion, digital banking is the new normal, and BaaS is the future of banking. Banks need to embrace digital innovation and partner with technology providers to implement BaaS successfully. By doing so, banks can expand their footprints, enhance the customer experience, and tap into the new era of embedded financial services.