Banking as a Service (BaaS) is seen as one of the biggest opportunities in financial services and is experiencing rapid growth in APAC.
Indeed, almost 9 out of 10 APAC executives surveyed by Finastra said they had already implemented BaaS solutions or were planning to.
But this adoption does not just include banks, as the nature of BaaS means that growth is being driven across an entire ecosystem of players, from banks to bigtechs and fintechs to retailers and SMEs.
This rapidly maturing market is expected to be worth US$7 trillion by 2030.
Whilst this valuation might seem high, it is in fact limited only by how successfully organisations across the BaaS value chain can forge successful partnerships.
This is because collaboration – between providers, distributors and enablers – is inherent in the BaaS model, and is what is enabling the creation of completely new propositions for the end customer and alternative revenue streams at each part of the value chain.
Choice, scalability and agility, are all at the very core of successful BaaS offerings.
A recent study by Finastra, Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance reveals the extent distributors – the consumer facing brands that offer BaaS solutions such as BNPL – plan to spend on leveraging partnerships over the coming years.
Over the next three years, a third of the largest distributors whose annual revenue exceeds US$1 billion, say they are planning to spend 15% more on partnerships each year.
Over the same time period, over a third of distributors expect to increase their BaaS offerings by more than 15% per year, showing their confidence in this rapidly growing industry.
The biggest priorities for distributors when choosing which providers or enablers to work with are cost, data security and ease of integration, but requirements differ according to industries.
For instance, telecommunications and technology distributors have a higher preference for ensuring brand reputation than other segments, while transport and automotive brands place emphasis on the breadth of the services offered.
To cater for such a wide range of priorities and preferences, a marketplace model is required.
This allows distributor brands to select the provider that best suits their particular needs, in turn helping their customers get access to the right products, at the right time, for the right cost.
For instance, a BNPL marketplace model for e-commerce platforms would allow merchants to significantly increase both customer conversion rates and average order value.
A competitive marketplace offers similar benefits to retail payments, POS financing, SME lending and beyond.
With decreased barriers to entry and an increasing number of players vying for product market share, the onus has shifted to enablers to show diversification of both their product offerings and capabilities.
Enablers must also provide proven use cases and promising ROI during partnership discussions with distributors and providers to demonstrate that the full potential of BaaS will be met.
Collaborative and mutually beneficial partnerships, along with an open marketplace model, are required for an open and competitive BaaS ecosystem that will drive the success of a multi-trillion dollar industry.
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