Banking-as-a-Service (BaaS) has emerged as a disruptive force in the FinTech industry, enabling non-banking companies means and opportunity to offer traditional banking services to their customers without the need for regulatory compliance, infrastructure, or licensing. BaaS has recently gained significant attention, subsequently becoming established as a popular viable option to brick-and-mortar banking conventions, its future primed for expansion and transformation.
The key drivers of the future of BaaS
One of the primary drivers of the future of BaaS is the increasing demand for digital, digitized, and digitalized financial services. They drive the growth of FinTechs, and their need to expand upon their offerings. BaaS enables FinTechs to leverage the experience, expertise, and infrastructure of the traditional bank, to offer a broader range of financial products and services, which leads to more competition in the financial services industry.
The increased growth of Open Banking is also another cogency driving BaaS. Open Banking allows customers to securely share their financial data with third-party providers, personalizing financial products and services. In this, BaaS is critical as it enables FinTech companies to securely access banking information and infrastructure.
The Growth of Application Programming Interfaces (APIs)
The growth of Application Programming Interfaces (APIs) also drives the future of BaaS, as they seamlessly facilitate the integration of banking and FinTech systems, enabling non-banking companies to leverage banking data and infrastructure in real-time, allowing banks to partner with FinTech companies to develop and deliver innovative financial products and services.
Challenges Facing the Future of BaaS
Despite the significant potential of BaaS, there are several concerns that must be overcome to realize its full potential. A major challenge facing BaaS is the need for regulatory compliance. This poses a significant barrier as BaaS requires FinTech companies to comply with the exact regulatory requirements of traditional banks, which are complex and costly to implement, particularly for smaller [FinTech] start-ups.
Another challenge that BaaS needs to consider is the need for robust [cyber]security measures. To operate seamlessly and successfully BaaS requires security, specifically the secure sharing of financial data between banks and FinTech companies. If [cyber] security this is not addressed and considered [cyber] criminals and hackers have opportunity to exploit these digital vulnerabilities. In the banking [and FinTech] community, in particular, data security is critical to maintaining customer trust and preventing financial fraud.
Consumer trust impacts [all] facets of life, whether in business or not. The BaaS model faces the issue of trust as a pst of its concept is based on sharing personalized, sensitive information. Customers are understandable cautious about data-sharing with third-party providers, particularly those that are not traditional [banks]. Building and maintaining customer trust is critical to the success of any company, notwithstanding those using the BaaS model. FinTech companies must demonstrate commitment to data security, regulatory compliance, and transparency.
Future Opportunities for BaaS
Despite the challenges facing BaaS in the foreseeable future, several opportunities still exist for both FinTech and their traditional [banking] contemporaries.
One of the main opportunities that BaaS has is that of financial inclusion. BaaS enables FinTech companies to offer financial services to the underserved, the underbanked, the unbanked. These populations may be obvious, particularly in developing countries where traditional banks may not have a physical presence, or criteria to bank is unattainable. However, many people in Western society have similar issues, and are a prime opportunity for BaaS to reach them, as BaaS allows traditional banks to expand their reach and proffer financial services to them, and an emerging customer base beyond the disenfranchised, the millennial.
BaaS is poised for innovation. By partnering with FinTechs, traditional banks can leverage their infrastructure and expertise to deliver and develop advanced, innovative financial products and services that address and meet [their] customers changing needs. FinTechs can also use BaaS to offer personalized products, customized to their customers specific wants and needs.
Implementing BaaS offers the potential for cost saving. By outsourcing certain functions to FinTech companies, traditional banks can reduce costs and streamline [their] operations. Their innovations and leverage additionally offer financial products and services at a lower cost than they would be able to do on their own.
BaaS … moving forward
Banking-as-a-Service is an innovative model that has disrupted and can transform the competitive FinTech and banking and financial industries. While BaaS faces many challenges, it also offers many opportunities for them collectively, in partnership and collaboration.
BaaS and Youtaps future
Youtap’s BaaS solution is a product enabling new banks and businesses banking services to their customers through API access to core banking functions. As a FinTech, Youtap continues to advance and develop its software products, with proactive and innovative solutions.
Youtap enables businesses customization and personalization, with white label solutions, integration with other financial services, advanced security measures, regulatory compliance, scalability, real time data analytics and support for multiple currencies and languages. Youtap is aware of the issues BaaS has and continues to create solutions moving forward.
As the demand for digital and virtual financial services continues to exponentially grow in innovation and with advanced development, it can be expected that there will be an increased demand for BaaS in the marketplace in the coming years. By working together, FinTechs and traditional banks can create a better banking future for all concerned.