Banking-as-a-service is increasingly attractive to financial institutions looking to embed themselves in their corporate clients’ business.

You wouldn’t have to delve too far into the past to find a time when banks would have scoffed at the idea of allowing business customers to develop their own banking services. Now institutions of all sizes and types are jumping into banking-as-a-service (BaaS).

In October, HSBC announced that it would team up with Oracle NetSuite to provide international payments and expense management services embedded into the latter’s SuiteBanking product, enabling its clients to offer business banking propositions to their customers.

Down the line, the bank plans to broaden the range of services supported to include its multi-currency digital wallet.

An HSBC spokesperson says SuiteBanking would be available in the first half of next year. “Interest is growing rapidly as corporates realise they can create new revenue and increase value delivered to their customers,” he adds. “Relevant products will depend on the corporate’s growth plans and the user problems they want to solve for their customers. Key areas of interest include commercial cards, payments, lending and foreign exchange.”

Already this year, US fintech Jiko – which acquired Mid-Central Federal Savings Bank in 2020 – confirmed that it was shifting its focus from consumer to B2B services while (perhaps more significantly) Spanish multinational banking group BBVA has partnered with Banca Sella to offer local payment services.

The numbers make it easy to understand why financial institutions are embracing a model that would once have been described as akin to turkeys voting for Christmas. A report published by Future Market Insights in October suggested the BaaS platform market would expand by more than 15% a year until 2031, by which time it would be worth more than US$12bn.

One of the incentives for banks is the ability to strengthen their client relationships with clients, integrating their transaction banking services directly into clients’ core business models.

According to Mark McNulty, EMEA Head of Payments and Receivables at Citi Treasury and Trade Solutions, corporate clients at both treasury and sales level are increasingly demanding the ability to create business banking services.

“From a treasury perspective, the ongoing trend toward centralisation of cash and liquidity management activity into in-house banks is positioning these vehicles as the internal bank providers to all group subsidiaries,” he says.

Virtual ledger services help manage positions across clients’ subsidiaries and counterparties, while reconciliation tools streamline reconciliation and ensure transparency where on-behalf-of payments/collections are involved.

Corporates are also expanding their offering to services traditionally offered by fintechs, including creating their own licensed payment service provider businesses to more directly intermediate transactions across their ecosystem.

“BaaS solutions rely on access to a robust API interaction model, allowing real time integration of services offered by bank providers back into their clients’ underlying customer,” explains McNulty. “Payment gateway solutions are directly integrated into client’s sales platforms with access to relevant payment options including cards, e-wallets, instant payment and other bank transfers.”

Another driver of BaaS is an increase in the amount of B2C and B2B transactions executed on platforms as corporates create new marketplaces for their products and other vertically-integrated goods.

In the future, J.P. Morgan could end up financing suppliers on business-to-business platforms or providing them with access to other financing services explains Shahrokh Moinian, the bank’s EMEA Head of Payments.

“The motivation for corporates providing services through their own platforms is to increase customer loyalty by offering a choice of payment options,” he says. “They will also want to onboard as many merchants as possible and will need assistance with this process.”