Finastra has found that more than 80% of regulated financial services providers expect the overall Banking as a Service (BaaS) market to grow. Of these, 30% expect it to grow by more than 50% per year over the next five years.
The research, 'Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance', interviewed nearly 50 senior executives, and surveyed a further 1,600, to assess the market maturity of BaaS, revealing the high potential for disruption and transformation across a number of sectors, including banking, healthcare, retail and technology.
Almost 85% of respondents are already implementing or planning to implement BaaS over the next 12-18 months.
Jim Marous, Co-publisher of The Financial Brand said: "Opportunities associated with BaaS are exploding in the banking ecosystem as organisations not only search for new ways to improve customer engagement and enhance experiences, but also find new sources of revenues from inside and outside the financial services marketplace."
Changing the consumer's banking experience
According to the report, BaaS represents a $7tn opportunity. Distributors, including retailers, e-commerce firms, and other consumer brands, are migrating towards BaaS solutions and expect overall growth to exceed 70% per year over the next three years; 60-70% of distributors want to increase their spending on financial partnerships (including BaaS).
Angus Ross, Chief Revenue Officer, Banking as a Service at Finastra said, "There's no doubt that BaaS is an incredibly exciting opportunity for the entire financial services ecosystem. Financial institutions can reach a greater number of customers at significantly lower cost, while distributor brands can open up new lines of revenue and build deeper relationships with their customers. It's clear from our research that consumers (retail or corporate) are changing where they source financial services and shifting to non-bank channels. This trend will only accelerate as integrating regulated products into the customer journey becomes as simple as creating a social media account."
Point of Sale (POS) financing includes both BNPL (Buy Now Pay Later) and other financing options (e.g., interest-bearing point of sale loans). Over the last few years, BNPL has become increasingly available at numerous merchants across the globe. BNPL is still expected to grow, but its growth will be more moderate than other POS financing BaaS offerings.
POS financing users are growing 70-80% annually in the UK, and the global market is expected to double in size over the next three years. BaaS-enabled expansion to debit card customers, as opposed to BNPL, will drive much of the growth.
Creating new value for businesses
SME lending, corporate lending, and corporate treasury/FX services are poised to gain the highest traction. Simplifying SME lending through BaaS is expected to drive growth of 30% by 2024
The majority of enablers, including bigtechs and fintechs, expect the overall BaaS market to grow by more than 50% over the next five years. Some 40-50% of enablers want to increase their partnerships with distributors and financial services providers by more than 50% in the next five years
Brian McKenney, Chief Innovation Officer, HSBC said, "The application of BaaS represents an attractive opportunity to create new value for businesses around the world. Embedding financial solutions will bring contextualised, integrated banking services into the products and platforms that businesses use every day. How providers partner and support this unique international need of businesses will, over time, be the real differentiator."
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