25% of Bankers Say Banking-as-a-Service Tech Will Boost Revenue

Businesses that neglect digital experiences risk losing business and falling behind their more innovative peers.

This, as digital banking has quickly become a default means of financial interaction.

PYMNTS research in the most recent “Embedded Finance Tracker,” a March collaboration with Galileo, found that 25% of bankers view Banking-as-a-Service (BaaS) technology solutions as a crucial opportunity to grow revenue.

But banks must choose the right business partners to grow their business and for their initiatives to succeed in establishing a competitive moat relative to competition.

A rising generation of know your customer (KYC), know your business (KYB), digital identity, and future-fit authentication tools like biometrics are becoming increasingly mission critical to traditional firms adapting to this emergent environment and finding new lanes to thrive in.

Embedded Finance Grows

Developing in-house BaaS solutions might work for large FIs with dedicated and digitally fluent staff, but most businesses will need to partner with best-fit technology providers to implement the BaaS features that meet their specific needs.

“It’s exactly the right time, right now, for embedded banking because it’s a real revenue generator for the banks and for corporates,” Treasury Prime CEO Chris Dean told PYMNTS CEO Karen Webster in an interview earlier this year.

PYMNTS research revealed that BaaS is currently a small market, with just 7% of bank executives saying they provide these services, while 4% are in the process of developing a BaaS strategy.

This means those businesses that get in early can enjoy an accelerated growth runway as the rest of the industry catches up.

Experts surveyed by PYMNTS said the BaaS sector is expanding by 26% annually, and 13% of bank executives indicate that they are considering launching BaaS offerings in the near future, while 32% are assessing how BaaS can streamline their daily operations.

One survey found that 54% of bank executives said they have faced increased competition over the past three years as the rise of embedded finance and other digital banking alternatives transform both operational realities and their opportunities.

The Drumbeat of Digital Advancement

While other internal departments might be able to keep chugging along on the back of outdated or aging infrastructure, this is not the case regarding financial applications.

It can prove challenging for organizations to know where exactly to start taking aim at the technical debt of their legacy applications, and delays can be costly when enterprise growth is on the line.

Banks must consider fees, fraud management, account verification, and KYB/KYC requirements when selecting a third-party BaaS technology partner.

Banks also must take on new functionalities, such as the use of application programming interfaces (APIs), payment gateways and a host of other technical capabilities.

Conducting a deep, introspective analysis of existing legacy functions, and how they can be modernized, can help businesses evolve. As future-fit tools and digital resources continue to transform business operations, a new generation of leaders are stepping up to leverage them.

And the benefits increasingly speak for themselves.

PYMNTS research found that 40% of B2B transactions are handled via checks, and that 81% of companies pay their enterprise counterparties with checks.

Getting the physical check, depositing that check, waiting for the funds to settle — these are hardly efficient processes, and in today’s macroclimate every second counts when it comes to working capital availability.

Separate PYMNTS research found that 80% of the businesses in the United States and United Kingdom with an international workforce experience challenges when paying or managing overseas workers.

BaaS solutions can help smooth over these common, and increasingly avoidable, operational frictions. Additionally, working with businesses on BaaS applications provides financial organizations with new, robustly actionable data streams to leverage and mine for insights.

That’s why, according to Treasury Prime’s Dean, there is such a long runway of growth ahead for nonbank companies (enterprises, software firms and the FinTechs serving them) to offer financial services to end users, spanning bank accounts, digital wallets and access to credit.

“If these legacy core providers don’t innovate fast enough, BaaS will eat their lunch,” said Mbanq founder and CEO Vlad Lounegov.