The BFSI sector undergoes a paradigm shift from traditional to digital thanks to the customer’s increasing interest in online transactions and accessibility. Though many banks have already jumped into the digital transformation bandwagon, they find it difficult to keep the pace with the changing expectations of people. There, Banking-as-a-Service (BaaS) comes to the sector’s rescue.
Simply put, BaaS is a toolkit that assists banks to enter new markets and meet the demand of tech-savvy customers quickly. It also offers an array of profitable services. Let’s understand the concept and its importance in the thriving BFSI sector.
Banking-as-a-Service – Brief Introduction
BaaS or Banking-as-a-Service refers to an end-to-end process that enables fintech app development, non-fintech, and any third-parties to leverage the benefits of financial services.
BaaS enables third parties to access the bank’s core systems and functionalities. BaaS makes it possible to integrate financial services like banking and payments into tailored products.
Banks can get a robust platform to embrace a modular way of working into the fintech ecosystem, and the fintech app development can build apps using APIs based on BaaS. Some of the common use cases of BaaS in today’s competitive business scenario are-
- Payments- BaaS facilitates non-financial companies to add top-class digital payment services to their customized products.
- Identity Verification- Both financial and non-financial companies need to ensure security, and identity verification can playa vital role in it. BaaS assists companies across various industry sectors to verify their potential customers’ identities quickly and easily.
- Specific Applications- Many companies provide digital payment solutions for their customers through BaaS. Many financial startups can also grow by leveraging the benefits of BaaS through fintech app development. Currency exchange and cryptocurrency-based applications are also prevalent these days.
- Lending- eCommerce and travel industries sell big-ticket items and they can get assistance from BaaS API.
Benefits of BaaS
BaaS offers a lot of benefits to banks, insurance, and financial institutions.
1. More opportunities
In this competitive edge, banks need to find new ways to drive more revenue and profits. They need to explore competitive markets and target audiences without increasing their costs.
Here, banks can allow third-party service providers to access their platform using BaaS and generate revenue. Banks can take set up charges, subscription charges, revenue sharing, and other models to generate more revenue.
2. Increased customer base
Third-party service providers have a large customer base, but they are not banking customers. BaaS enables banks to get an opportunity to acquire those customers without spending extra bucks. Increase in customer base and more sales are obvious outcome of the BaaS implementation in the banking system.
3. Enhanced customer experience
BaaS platform facilitates banks to offer excellent customer experience through third-party service providers. Third-party service providers incorporate BaaS platforms offered by banks into their products and services related to fintech.
The fintech app development company also enables third-party providers to make the most of BaaS by developing customized apps from the scratch.
Even third-party users can get some noteworthy benefits like quicker TTM (Time to Market) and addressing regulatory complexities with ease. When third-party providers get an access to the bank’s functionality, they may face some hurdle.
However, BaaS can enable them to remove these hurdles and third-party providers can bring solutions quickly. Also, the finance sector is one of the most regulated sectors. BaaS facilitates third-party providers to partner with banks while meeting all regulatory requirements.
Beneficiaries of BaaS
From banks to fintech startups to end-users, every one can get a lot of benefits by incorporating BaaS in the system. Let’s go through these beneficiaries-
BaaS offers consumers a wide array of options from various financial service providers. Apart from banking and financial institutions, many startups can also come up with unique and user-friendly services through a customized fintech app.
These many choices or options can increase the competition that results in richer customer experience at reduced costs. What’s more, BaaS can be integrated with Machine Learning and other futuristic technologies to provide more personalized experience for the end-users with automation.
2. Financial Companies
When it comes to offering banking capabilities to financial firms that deal with accounting, SME lending, and corporate finance, BaaS always remains useful. Simply put, BaaS always gives financial companies an opportunity to serve their clients with improved services and automated processes in a cost-effective way.
3. Non-financial Companies
B2C sectors like eCommerce and travel needs a diversified revenue stream to survive in the competitive market. BaaS can serve this objective effectively.
Let’s understand this in detail. It is necessary for any company to understand the customer’s behavior and spending patterns to survive and thrive amid competition.
BaaS offers customer’s data and offers banking services to customers excellent services across a broad spectrum of industries with the help of a valuable data of customers.
In a way, BaaS can help the fintech sector to thrive and address challenges effectively.
BaaS can give a powerful platform to banks and third-party providers alike for generating higher revenue. BaaS enables traditional banks and financial institutions to meet challenges. This service is innovative and drives the growth for the fintech sector.
Whether you want to come up with digital banking solutions like digital wallets or meet regulatory requirements though a robust app, BaaS can always lend a helping hand. It assists the BFSI sector to improve the customer experience and get new ones. It is fair to mention that BaaS has a promising future.