How Banks Can Go Beyond BaaS


Embedded finance, the seamless integration of financial services embraced by non-financial corporations, has been making waves in the payments industry for years. One of its forms, BaaS (Banking-as-a-Service), has received particular attention for its innovation in the sector that takes advantage of the competitive banking market.

In BaaS, a financial institution partners with a fintech or other non-financial institution brand to offer financial services to the partner’s customer base. Now, banks must leverage this B2B2C model to further leverage customer data from a more human-centric customer experience (UX). Banks should use all the tools at their disposal, such as artificial intelligence (AI) chatbot, to create data analytics to better understand consumer behaviors and needs. This is BaaS at its best: when it allows businesses to customize and upgrade their financial services offerings.

BaaS opens a gateway to new sales opportunities, white label solutions and credit services for merchants. Well-known examples include Starbucks, which offers an integrated wallet and payments in its app, and Lyft, which provides a debit card to its drivers. A customer-centric mindset helps companies gain a competitive advantage as they dive into consumers’ lives to see where convenience and efficiency could be improved – and offer the right products and services in response.

Let’s see how an integrated finance BaaS model helps banks and businesses connect to new growth paths.

Baas hype so far

Let’s first look at the current integrated finance market. Due to regulation and a lack of financial capital, fintech companies and retailers prefer to use banks’ financial products rather than develop their own.

Cornerstones’ survey of financial institutions found that 11% of banks already have a BaaS strategy, 8% are developing one, and 20% are considering one. Growing competition is pushing banks to adopt advanced technologies and offer their services to many consumers. Extending the current BaaS approach is good for brands because it means better oversight, control, and more program flexibility with a direct relationship with their customers.

However, BaaS has some significant drawbacks for banks. As such, partnerships bring in a lot of money for entrepreneurs, while the risk remains on the side of financial institutions. This risk can even lead to significant financial losses: according to American Express, a few years ago, 21% of outstanding credit card credit was to people with a Delta credit card. There can be a myriad of personal factors that explain why individuals are unable to pay off their credit cards. Banks that take a holistic view of their customers will be better placed to understand why and help individuals find tailored solutions.

Moreover, when companies are used as BaaS platform providers, it is difficult to establish a direct interaction between the brand and the bank. Therefore, banks should find additional ways to sell individual financial products or services to merchants. Then they can prove themselves in the area where they are best known: being customer-focused financial service providers.

When established banks offer white label or co-branded financial products, their customer acquisition and brand awareness can be negatively affected. A collaborative co-branding approach allows banks to reach multiple customers (B2B) at lower cost, but they lose on the customer side (B2C) because this relationship is passed on to the merchant.

BaaS for new revenue potential

Effective BaaS solutions could upgrade the status quo UX of financial services offerings such as payment processing, credit fraud management, compliance and account management to all businesses and corporations which in turn , issue them to their employees and customers. BaaS represents a new way of looking at customer service at scale. In the digital age, the traditional link between bank and customer has been lost, but technology is also here to re-humanize mass banking, and profitability will follow.

The idea is for banks to expand their products into this B2B2C space and focus on financial services and wellness. While banks often just license BaaS, the core is licensing the services. To put it bluntly, banks can endorse their entire platform and fully loan it out for a reasonable amount of money. One example is where banking giant Goldman & Sachs reached a new market by providing all of its banking services to end users via the Apple Card. In turn, Apple seems to have reinvented the credit card to have the simplicity it is widely regarded for.

Elsewhere, Amazon has implemented its own approach to integrated finance by introducing banking services for sellers on the Amazon platform. The fast-moving consumer goods giant (FMCG) is known for revolutionizing industries and methods, and its offerings to small and medium-sized enterprises (SMEs) could further disrupt the financial sector. Twitter CEO Jack Dorsey has also been building financial services for small businesses as his financial technology company Square expands beyond payment processing to an integrated approach to business banking.

Discover new integrated financing possibilities

But this is far from exhausting all avenues for growth. Growing competition makes it harder for banks to attract new customers, and there is pressure to differentiate themselves further; So where are the other market opportunities? An emerging trend is the rooting of banking potential at the corporate level: the employee/employer.

BaaS allows customers and employees of Company A to use Bank B’s product through their platform. Typically, employees of a company using their own bank account can provide it to the company and give them their pay. But therein lies the great potential of banks. What if the company worked closely with a bank and offered much more than a payroll transfer? For example, what if this account helps the user to strengthen the financial health of their employees?

Whether someone is employed or working in the gig economy, integrating bank accounts with the employer or contractor is becoming a key trend, especially for large corporations looking to improve their recruiting.

BaaS offers a chance to reinvent our current banking system so that banks and businesses can go beyond what they currently offer. Fintechs may have disrupted traditional financial markets, but this disruption has also opened up new possibilities in the sector. Banks that think collaboratively with corporate partners and prioritize customer experience will see the value of creating holistic, BaaS-based customer journeys.

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