In recent years, Banking-as-a-Service (BaaS) adoption has surged, as non-financial brands have sought to offer innovative financial products directly to their customers and diversify their revenue streams, whilst banks and other financial entities and financial institutions have leveraged BaaS services to accelerate the speed to market of new banking products and services.
According to McKinsey, the total addressable market (TAM) of BaaS (Banking-as-a-Service) providers in the UK and the European Economic Area is expected to increase significantly over the next five to ten years, reaching an approximate value of between $90 billion and $105 billion by 2030.
Despite funding downturns in the fintech arena at large, BaaS services and BaaS platforms are growing, with some reports suggesting that the market is poised for mainstream adoption within the next two years.
To understand more about the course that BaaS is set to take in 2023 and beyond, we commissioned an independent body of research of over 1,000 European business decision-makers in the UK, Belgium and the Netherlands.
The research explores the wider market impact of BaaS platforms, providing compelling insights as to what is important to businesses considering implementing BaaS, future embedded finance applications, as well as the trends that are set to disrupt the financial institution and financial services sector in the coming years.
Businesses value banking licence and compliance expertise more than ever before
As embedded finance continues to gain wider adoption, including different banking products, payment processing and digital banks, BaaS (Banking-as-a-Service) providers are attracting greater regulatory scrutiny.
Our research uncovered that 64% of decision-makers believe that BaaS, along with payment processing and digital banks, will achieve mainstream adoption in the next five years, with the cost-of-living crisis acting as a catalyst, according to an additional 56%.
With this in mind, businesses are recognising that finding the right BaaS provider can make all the difference when it comes to delivering compliant financial services and BaaS solutions.
To that end, Vodeno’s survey found that having the necessary licence and compliance expertise is set to play a more prominent role in the industry, as 58% of respondents said that BaaS providers offering a licence alongside their tech solution will shape the BaaS market in the years to come.
The results of our survey indicate that businesses are calling out for greater regulatory expertise alongside the delivery of BaaS products – 28% of businesses that have already implemented BaaS products said they would like to see their provider moving to offer access to a banking licence.
Of the respondents who have not implemented BaaS services to date, 32% said they don’t know enough about BaaS and BaaS platforms, while 29% said there was a lack of understanding about the products available, and 27% cited compliance and security concerns as key barriers to adoption.
Seamless embedded finance will be key
For many brands and retailers, innovating the checkout experience is the end-goal, with digital transformation and with BaaS (Banking-as-a-Service) products seamlessly integrated into their existing ecosystems to ensure an optimal customer journey.
Our survey uncovered that nearly a quarter (24%) of respondents are calling for their BaaS provider to show a better understanding of their customer journey.
This strengthens findings from our previous research, which highlighted that businesses which implemented embedded financial products were motivated by new revenue streams (41%), growth in customer basket (40%) and enhanced customer loyalty (40%).
At present, 39% of respondents have already implemented BaaS products, with an additional 38% considering using it in the new year. When surveyed about which BaaS products were planned for implementation, FX (48%), BNPL (48%), SME lending (47%), and loyalty (46%) were amongst the most popular products that businesses were weighing up.
68% of European SMEs to implement real-time payment this year, read the research.
The way consumers view brands and banks will blur
With BaaS adoption in the retail sector steadily growing, 59% of those surveyed predicted the rise of ‘platform banking’, expecting the lines between the way consumers use eCommerce platforms enabled by BaaS and traditional banking to blur.
60% went further still, predicting a decline in traditional branch-based banking – a sentiment that adds weight to recent bank closures in the UK, as people begin to interact more with their favourite brands when handling their finances, rather than legacy financial institutions.
Looking to the future, almost two-thirds (65%) of those surveyed predict that more Big Tech firms will move to deliver financial services, and a further 59% believe that augmented and virtual reality (AR and VR) will become a large part of their immersive retail experiences, powered by BaaS.
Meaning that we could see consumers stepping into the metaverse to visit and shop at their favourite brands.
BaaS trends set to gain momentum
As new BaaS trends gain momentum, partnering with a BaaS provider that combines technology with the necessary licence is vital. At Vodeno, we can provide our clients with access to a full ECB licence, meaning that we are prepared to meet regulatory demands in the long term, while supporting our clients as they navigate the financial services landscape.
Offering a full range of BaaS (Banking-as-a-Service) products and the regulatory and compliance expertise of a European bank, we can provide assurance that the products offered are fully secure and compliant.