Banking-as-a-Service (BaaS) is an offering enabled by digital technology that allows third-party financial technology platforms to integrate with traditional banks to offer end-to-end banking and financial management services to consumers.
By allowing their technologies to be integrated with other digital platforms, banks also stand to benefit from expanded value proposition, lower costs and improved customer service.
With the increasing number of fintech businesses and new digital banking models developing to enable inclusion of the unbanked population, BaaS is regarded as a go-to solution for delivering customer-centric banking solutions digitally.
Evolution of BaaS
Large financial institutions and banks invested in financial technology for achieving process efficiency. Paradigm shift in competitive landscape of financial services has made it inevitable for banks to stay relevant by serving rising customer expectations and conforming to changing regulations regarding security and fraud.
This scenario is likely to drive financial institutions and banks to further embrace BaaS, leading to a growth in the number of BaaS technology providers. Growth in BaaS is seen to become a win-win scheme for banking and financial institutions, fintech companies and consumers.
Adopting and offering BaaS also pushes legacy banking system towards compulsory upgradation, thus wiping out the technology gaps in the banking system and their stark disadvantages.
Banks are also taking on a service-oriented approach and are becoming open to considerable re-engineering of their traditional backend processes, which is resulting in greater bank and fintech partnerships and synergies.
Typical BaaS Values
Availability – The BaaS model offers continuous availability of services and the introduction of many new solutions utilizing Big Data and applications built on artificial intelligence in a user-friendly format to end users.
Flexibility and Scalability – Traditional onsite solutions are typically time consuming while cloud-based BaaS models are designed for quick modification and can be set up and employed much faster to provide flexible services.
The effort for installing, configuring and upgrading solutions is significantly lower as cloud infrastructures are operated centrally. Cloud infrastructures are built for development and scalability, in both technical and economic terms. Users are charged on a pay-per-user basis, relieving banks from the need to engage resources while also making services cost-effective for customers.
Efficiency and Risk Reduction – Cost reduction and efficiency are the major advantages for cloud-based BaaS models. Complying with new regulations or incorporating additional digital innovations are less expensive than onsite models. Cloud-based service infrastructure allows easy replication and effectively alleviates operating risks from lack of technical capability.
Beyond Digital Banking -BaaS as Mainstream
Essentially, the BaaS segment will notice mainstream adoption as customers look for the best from banks and financial service providers. BaaS players will appear to have begun functioning more like fintech players and fintechs will begin to build the same banking abilities in a more agile manner.
Instances of simple concepts offering digital payment services by fintech players to banks are on the rise which besides offering multiple payment options like QR, UPI, Point of Sale, Payment Gateway services, also offer business automation services to do away with mundane tasks with automated bank entries, payments, inventory & recon for unmatched efficiency & valuable insights to bank customers.
The partnerships between financial institutes, fintechs and technology firms are important, and financial institutes can leverage this niche capability of tech companies to provide advanced and more innovative services to their customers. In summary, increased partnerships between all stakeholders is expected to accelerate the adoption of the BaaS model in India.