What every business needs to know about Banking-as-a-Service

The market for embedded finance is growing incredibly quickly, with some predicting the sector is set to reach an estimated value of $7 trillion globally in the next ten years. This seems like excellent news for financial businesses and enterprises within the space, who stand to benefit from this momentous growth -- but why should non-financial companies care?

The truth is, embedded finance and banking solutions are no longer the exclusive territory of financial businesses. Any business that handles transactions, payments, or any sort of credit/debit exchange stands to benefit from integrating modern core banking solutions into their platforms – without having to become a regulated entity in the process.

Modern Banking-as-a-Service (BaaS) providers are knocking down the barriers to entry that have made proprietary banking solutions untenable in the past, and the rate of innovation and change in the space today is so great that businesses have no excuse not to sit up and take notice of the opportunity at hand.

Offering a smooth ride

54 percent of European business leaders said that they would explore embedded finance in 2022, which shows that the wheels of change are already in motion. Embedded banking products are becoming so seamless and ubiquitous that expectations for customer experience are rising fast, but with the right support, for any business to offer a peerless embedded banking experience is a walk in the park -- all it takes is the right BaaS partner.

The degree of variety and complexity among the different possible iterations of BaaS products might seem overwhelming, but solutions can be tailored to fit any business model and the needs of any demographics. What’s more, they can be designed to scale up with growing businesses without any friction whatsoever by using the cloud.

To any non-financial business out there that isn’t already taking advantage of BaaS solutions -- here is everything you need to know about the space, and what you should expect from your provider.

What BaaS is about

In short, the role of a BaaS provider is to enable its clients to benefit from offering financial products and services of their own, without the need to apply for a banking licence, to select and manage multiple third-party vendors to form your target state architecture, or to look for servicing partners. Some benefits of offering these solutions are universal: they can improve customer experience, and even generate additional revenues.

Some benefits are more specific to the type of business that offers them: retailers offering embedded lending services can accept more purchases, increasing their client base by offering financing in-platform. Any company that values Know Your Customer (KYC) can access more data about their users through Open Banking, using that information to improve their business model.

In the past, building one’s own financial products from the ground up was a financial and logistical impossibility, given the complexity of the products themselves and the level of regulation and compliance required to have them approved for use. BaaS providers make offering white-labelled, scalable products easy and cheap enough that any business that values its customers’ experiences can get involved.

Take a chance on BaaS

For a non-financial company, making the decision to offer its own embedded banking solutions might seem like a bit of a leap. Surely, for a customer-facing business, the sensible approach is to leave the banking to the banking companies and simply focus on their customers’ needs?

Well, in today’s markets, the only way to meet customers’ expectations is to ensure that their end-to-end experience is as smooth and seamless as possible. The modern consumer does not want to be bounced between external platforms and sites when dealing with their chosen brands – this sort of friction will only damage the existing relationship between brand and customer, and also increase your drop-out rates in the origination process.

Modern core banking service providers use best-in-class API technology to ensure that the banking products embedded in their partners’ platforms merge seamlessly with the existing interface and ensure a smooth experience for the end-user. The smart API technology and cloud-native infrastructure also ensure that products can develop and scale in real-time with the partner’s business, avoiding the problems that can exist with legacy technology.

What you need to know

Non-financial companies simply cannot afford to sit idly by as the embedded finance revolution transforms customer experiences forever. It would be unwise of any business to assume that what happens in this space does not apply to them -- businesses that don’t keep up with their customer’s expectations will inevitably and invariably be left behind.

BaaS providers are the easy link between worlds that can keep non-financial businesses on the right side of history. The technology behind BaaS is adaptable and sophisticated enough that other businesses don’t even need to understand how it works -- all they need to know are the ways in which they can benefit from it, and the ways in which their customers’ experiences are improved as a result.

White label banking works best for businesses that already have a large pool of existing customers. By sifting through the assortment of products on offer from leading BaaS providers -- whether that is lending products or checking accounts -- businesses can pick and choose which functionalities they want to integrate into their customer journey to add value to the experience. 

With a BaaS provider they can trust, any non-financial company can rest assured that they won’t be left behind by the rising tide of embedded banking -- rather, they will be one step ahead of the curve.

Photo Credit: Jakub Krechowicz/Shutterstock

Ion Fratiloiu is Head of Commercial at banking service providers Yobota. From launching his financial career at Deutsche Bank, Ion spent a number of years consulting in the equity capital markets space and leading sales growth for FTSE500 company Fiserv and core banking provider Thought Machine. He joined Yobota in 2021 to launch its commercial operation, leading GTM strategy and building a diverse and multi-faceted team to take the company to the next stage of growth.