Modernization has introduced new innovations to transform the transactional space. Traditional banks have realized the need for additional revenue opportunities going beyond interest rates. Customers nowadays are willing to move to alternate providers in search of better experience and offerings. Given the wealth of data and customer trust that banks hold, they are best positioned to create their own BaaS platforms.
A recent survey conducted (in collaboration with the American Banker) shows 97% respondents interested in building a partner ecosystem for digital banking with availability of new products. The survey further suggests that while payments processing, and customer fees are the most common revenue strategies now, bundling offers and monetizing customer spending data are on the rise.
Non-bank businesses will require traditional financial institutions to provide them with the infrastructure, regulatory support as well as the utilisation of APIs. Financial institutions on the other hand can generate new revenue streams leveraging BaaS.
Neobanks and fintech firms are providing a seamless digital banking experience. However, they need a bank to offer cards, lending, money transfers, and other banking services. Fintech firms also have limited experience with compliance processes.
A BaaS model, therefore, becomes critical in a highly regulated and competitive market. Banks have responded by enabling fintech firms and neobanks to have a bank’s resources and infrastructure to expand their offerings while lowering operating cost.
Major Trend Shaping The Baas Space
BaaS is becoming the solution to banking service needs of fintech firms and neobanks – offers an opportunity for incumbent banks to widen their offerings, while being the custodian of the customer’s interests. Banks can enhance their reach with offerings that go beyond banking products, thereby improving their engagement with customers. This means customers get access to more products and services that are personalized and serve their needs.
Future Of BaaS : Opportunities and Risks
As more and more fintech firms are looking for bank partners to provide banking services, there is a significant opportunity for banks to offer BaaS and develop new relationships with fintech firms, creating new revenue streams for themselves. However, exposing banking services through APIs increases the risk of cyber attacks and security breaches if not carefully managed. Technical and operational constraints, like legacy infrastructure can delay implementations and may require costly manual processes to overcome the limitations. In addition, banks must sustain the efforts to add new fintech partners to the portfolio. Banks can further align their business models and reduce the risks by partnering with an experienced provider that offers a secure digital layer that can integrate seamlessly with multiple systems and offer end-to-end connection of business data.
Source : Fintech Magazine