The Future of Banking as a Service and Trends in Embedded Finance - The Financial Brand

Over 1,000 SMEs who launched their business in the last five years were surveyed. What were their main sources of funding? What do they want from lenders?
The Future of Banking Depends on Your Technology Ecosystem

Consumers are redefining brand expectations for banking. How can you drive next steps to increase relevance and engagement?
Read More about Master the Science of Data Personalization or Get Left Behind
What megatrends and forces are driving Open Finance and the democratization of financial data? How can we build Open Finance together?
Read More about Open Finance: Unlock Data and Limitless Innovation [Webinar]
It’s more important than ever for banks to get customers engaged. Watch this on-demand video to learn more.
Read More about Drive Customer Engagement and Non-interest Income
By Jim Marous, Co-Publisher of The Financial Brand, CEO of the Digital Banking Report, and host of the Banking Transformed podcast
More than ever, non-bank companies are providing embedded financial solutions such as deposit accounts, payments products and lending tools to increase customer engagement and provide additional revenue opportunities. Often, these services are supported by banking as a service (BaaS) offerings from traditional banks and credit unions, enabling virtually any company to become both a customer and a fintech competitor. In fact, according to a new Finastra research study, almost 85% of respondents are already implementing or planning to implement BaaS over the next 12-18 months.
While many banks and credit unions are justifiably concerned that becoming a ‘distributor’ of banking services could negatively impact their current client relationships, the potential for low-margin, high-volume partnerships can’t be completely ignored. But, the ability to become a distributor requires a cost structure that many traditional financial institutions still are failing to deliver. This requires an inside-out digital banking transformation.
According to Finastra, “BaaS is expected to reach a value of $7 trillion by 2030. Those that act fast and secure priority customer context will experience the greatest upside. Those that wait may very well be left outside looking in.”
The research finds that a successful playbook must include the following:
Read More: The Future of ‘Banking as a Service’
When done right, branding can be powerful– just like this makeover for FirstState Bank. How do your branches stack up?
Read More about A Transformation You Won’t Want To Miss
If you’re taking more than 3 minutes to open a retail deposit account, you’re losing customers to the challenger banks and money-center banks — and those customers aren’t coming back.
Read More about Webinar: How to Open Deposit Accounts in Under 3 Minutes
The expansion of digital technology, and the increased focus on streamlining the operational underpinnings of products and services, has enabled the growth of the global banking-as-a-service market. The pandemic also had a positive impact on the future of BaaS, as consumers sought easier and contextual ways to complete transactions without changing applications or platforms. The origin of these financial engagements were less important than the value delivered in time savings.
As fintech organizations, big tech firms, retailers, and other non-financial organizations want to provide banking solutions to their customer bases, they require traditional financial institutions to provide the infrastructure, regulatory support and even funding. Utilization of APIs and the potential of data modernization is furthering the expansion of financial services providers.
Finally, the importance of new ways to generate revenues beyond fees and interest rate spreads is forcing traditional financial institutions to pursue scalable options such as BaaS. The outcome of these trends is that consumers are increasingly using alternative providers of financial services, trusting non-banks more than ever in the past.
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 compared current BaaS penetration of multiple banking products with their expected growth over the next three years. As can be seen, there was more current value with retail offerings. The future will see expansion in the corporate and small business areas as well.
BaaS opportunities in Banking
Some of the largest areas of growth include:
BaaS opportunities over next three years
— Brett King, Bestselling author of the Rise of Technosocialism, founder of Moven, and radio host
Read More: How BaaS Turns Traditional Banks Into Digital Deposit & Loan Machines
Traditional banks and credit unions that have progressed with their digital transformation efforts will be best positioned to create their own BaaS platforms. Not only will they be a forerunner in the open banking ecosystem, but will also be able to generate new streams of revenue by monetizing their platforms. Finastra research found several significant opportunities across solution sets and business models.
Monetization of BaaS Implementation
According to Finastra, “Providers will want to focus on offering a specialized solution, white labeling front‑to-back solutions, and securing access to a marketplace. And, in BaaS, competition will help establish markets and increase benefits for all as providers believe that a marketplace model will help boost revenue.”
To gain value, providers should focus on sector-specific products and services, enhancing data and analytics to enable better risk decisions, and specialized digital solutions.
The Future of Banking as a Service and Trends in Embedded Finance - The Financial BrandJim Marous is Co-Publisher of The Financial Brand, host of the Banking Transformed podcast, and Owner/CEO of the Digital Banking Report, a subscription-based publication providing deep insights into the digitization of banking with over 200 reports in the library. You can follow Jim on Twitter and LinkedIn.
This article was originally published on March 29, 2022. All content © 2022 by The Financial Brand and may not be reproduced by any means without permission.
Join our Fintech Forum Community to get access to key industry leaders and have first look access to credit union solutions and fintech offerings.
Read More about CMFG Ventures Fintech Forum – Building the CU & Fintech Ecosystem
Make it easier for members to accomplish their financial wellness goals with a just-right, digital-first mix of digital and non-digital solutions.
Read More about Digital First Doesn’t Mean Digital Only
Learn how consumer insights and intent signals can transform your marketing campaigns. Download the eBook.
Read More about Know How to Use the Power of Consumer Intent
Register now to learn more about how you can use first-party data to drive value through increased marketing ROI.
Read More about Webinar: Unlock Client Data to Drive Marketing ROI


Leave a Reply

Your email address will not be published. Required fields are marked *