Best Practices For Companies Thinking About Banking-as-a-Service

Banking-as-a-Service, or BaaS, is revolutionizing almost every industry, not just financial services. Embedded finance is made possible by BaaS, which enables non-financial companies to incorporate financial services and products into their customer experiences. Companies that use BaaS are able to provide their clients with relevant financial solutions when and where they are most needed.

Experts predict that the value of the worldwide BaaS market would increase by more than five times, from $4 billion to $22.6 billion, between 2022 and 2032. What then is the cause of this growth?

It is evident how valuable BaaS is: enhanced customer satisfaction, higher conversion rates, and greater loyalty. But contrary to what the term “as-a-service” implies, adopting BaaS involves careful thought and is not as simple as it seems. These three recommendations are for every company thinking about using BaaS solutions.

Meet The Needs of The Client

Which moments in your client journey provide the most friction? What problems do your clients have, and how may embedded finance help? These are the kinds of insights that any company thinking about using BaaS should be aware of before starting their BaaS journey.

For this reason, one of the most well-established use cases for BaaS-powered embedded finance is buy now, pay later (BNPL). Retailers and companies have been using BNPL widely in recent years because they know that split and postponed payments provide customers more payment options and enable them to buy more aspirational things.

The popularity of BNPL was highlighted by a recent research of customers in Europe, where participants revealed that 56% of Millennial and Gen-Z shoppers would either abandon their purchase (28%) or downgrade to a cheaper item (28%).

Compliance and Regulation Are Essential

BNPL, payments, accounts, lending, and other highly regulated financial goods are all part of BaaS. Therefore, a BaaS adoption cannot be effective without giving regulatory and compliance significant thought.

Adopters need to be careful when selecting their BaaS provider because there can be significant variations amongst them. Certain providers are restricted to providing payment solutions because they hold Electronic Money Institutions (EMI) licences. With full banking licenses at their disposal, other providers can provide a full suite of services, including deposit holding, savings account offerings, and loan alternatives.

Businesses must choose a BaaS provider based on the goods they want that not only has the appropriate license to allow the solution but also has the regulatory and compliance know-how to guarantee that all business processing operations are completely compliant. Companies need a partner who can manage compliance and anti-fraud standards completely; the larger a project gets, the more crucial this knowledge becomes.

Scalability is Critical

Companies cannot implement BaaS with the belief that “build it and they will come.” Any BaaS solution’s Go-to-Market strategy needs to be carefully thought out. This calls for a well-thought-out marketing strategy for the product launch, bearing in mind that, in contrast to normal products, financial solutions necessitate greater communication because they demand clients to have faith in the product and recognize its worth.

Second, what criteria does a company use to decide which embedded finance solutions to implement? Here, companies will frequently take a tentative approach, beginning with embedded payment solutions. This is a wise move, as it enables the company to recognize the benefits that BaaS can offer and establish a productive working relationship with the BaaS provider.

Building on the first deployment to meet business objectives, the correct BaaS provider may assist companies in determining which additional products will add value and where to apply them in the customer experience.

Develop, Put Into Action, and Scale

By 2026, embedded finance will have accounted for $7 trillion in transactions, or 5% of all financial transactions, according to Bain Capital. It is appropriate for businesses to think about how they might profit from this trend, which is changing the way financial services are defined and brand propositions are developed.

Choosing the correct BaaS supplier is undoubtedly crucial.

These pointers provide as a roadmap to assist companies thinking about BaaS in selecting the most suitable suppliers for their needs. The main lesson is to search for suppliers who can assist you with planning, implementing, and growing your BaaS solutions by providing a complete end-to-end service that includes technology, banking licenses, and regulatory and compliance knowledge.