29th March 2022 – Finastra today published a market assessment report: ‘Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance’. The research canvassed the opinions of 1,600 senior industry executives, exploring the opportunities presented by Banking as a Service (BaaS) – to provide retail or wholesale banking products and services to customers in context, as a service, using an existing licensed institution’s secure, regulated infrastructure with modern API-driven platforms.
The Finastra research reveals that APAC’s appetite for BaaS services exceeds that of EMEA and the Americas. Across APAC, 88% of senior executives in a number of sectors (including banking, healthcare, retail and technology) said they are already implementing BaaS solutions or are planning to, compared with 80% in EMEA and 87% in the Americas. Other key findings include:
Over 46% of APAC distributors – the consumer brands that supply embedded financial products to consumers at the point of need – currently offer, or plan to offer, credit cards to their customers using Banking as a Service, with other popular offerings including savings accounts (41%) and payment cards (38%)
Distributors are spending US$10-$50m per year on financial products and service partnerships across APAC – a high level of spending which is expected to be sustained throughout 2022
Globally, more than 80% of regulated financial services providers expect the overall BaaS market to grow. Of these, 30% expect it to grow by more than 50% per year over the next five years
BaaS represents a $7 trillion 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 globally; 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.”
Kelvin Tan, Global Lead, Standard Chartered nexus, said, “Standard Chartered nexus is working with consumer brands of all sizes across APAC, such as Bukalapak, Indonesia’s first listed technology unicorn, and Sociolla, an Indonesian beauty e-commerce platform, to embed financial services on their ecosystems.
We provide brands our expertise, banking licenses and a modern tech stack to offer partners’ customers personalized financial products – enabling lucrative new revenue streams and a ‘stickier’ ecosystem experience.”
Finastra’s research also assessed the monetization strategies of distributors, enablers and providers in BaaS, and explored the importance of partnerships. All respondents were in favor of a transition to a platform and marketplace model, where a greater range of niche solutions at competitive prices can be sourced by end customers.
Theodora Lau, Founder, Unconventional Ventures commented, “I am encouraged by the growing embedded finance ecosystem, especially as it relates to extending services to communities and businesses that have been traditionally underserved with limited offerings. Small businesses and entrepreneurs form the backbone of our economies. With thoughtful innovation, we have the opportunity to create a more level playing field and a more equitable future for all. Technology innovation ultimately needs to be about people.”
Jim Marous, Co-publisher of The Financial Brand said, “Opportunities associated with BaaS are exploding in the banking ecosystem as organizations 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.”
Finastra’s research shows that financial services providers need four key capabilities to work with distributors and enablers and to monetize BaaS. From a technology perspective, these include:
From a product perspective, providers need dynamic and compelling offerings to entice customers.
Learn more about the BaaS opportunities available for distributors, enablers and providers – and the growth potential of different market segments – in the full market assessment report here.