PYMNTS-MonitorEdge-May-2024

Banking-As-A-Service (BaaS) Making Payments Faster And ‘Smarter’

payments technology

Several narratives have emerged from this pandemic. First has been the focus on digital transformation that essentially saved the economy during lockdowns. Another related theme is the need for legacy core banking systems to upgrade in ways that don’t protract disruptions.

Looking at the plight of migrant workers and those working abroad during the COVID event, PYMNTS November 2020 Smarter Payments Tracker® powered by Nium notes that, “Legacy FIs can struggle to provide affordable remittance services that meet migrant workers’ needs, and their dependency on correspondent banking networks can drive up service costs. Research suggests that mobile-based services could provide a more budget-friendly way of delivering cross-border transfers, and numerous FIs and nonfinancial firms are eager to provide such offerings to make themselves more compelling to customers.”

In many ways, mobile banking’s rapid rise parallels that of banking-as-a-service (BaaS), which is enabling more financial institutions (FIs) to offer digital services with low implementation barriers to be competitive in what is a firmly digital-first environment at this point.

The One-Stop Digital Banking Experience

Enumerating various frictions encountered with legacy systems and the problems they pose to the streamlined expectations of users today, the Smarter Payments Tracker® observes, “Financial service providers can create one-stop platforms that integrate a variety of BaaS offerings on the back end to meet this demographic’s various needs while presenting end customers with unified user experiences. This means immigrants will get access to deposit accounts, bill payment, cross-border transfers and more all via the same app.”

Other strong points for BaaS adoption point to cost savings and new revenue streams.

“The World Bank found that consumers globally are charged an average of 6.75 percent of their transfers’ values to send remittances,” adding that “The earnings from other banking products can be enough to make reduced remittance prices affordable to the firms,” per the Tracker.

Fraud is another consideration. “The growing reliance on global digital payments calls for strong mechanisms that are immune to security threats and can handle large volumes of transactions safely without compromising delivery times,” Nilesh Pathak, Chief Technology Officer at Nium told PYMNTS.

“One way is to adopt a comprehensive, risk-based approach, [which can be] done by conducting essential checks with regulators’ lists to identify politically exposed persons (PEP) and cybercriminals as well as employing an extensive range of tracking tools that monitor suspicious behavior,” Pathak said.

Tapping Into ‘Sizeable Demand’ Via BaaS

Cross-border payments and instant funds transfers are the future of banking now, and offering these services is made easier with approaches like BaaS for its implementation ease.

Timing is right for these solutions as world economies reorganize. “Today’s consumers live in an interconnected world, and many need their banking services to reflect this reality,” per the Tracker. “The traditional FIs and nonfinancial entities that can respond to the sizable demand for international transactions and remittance services are thus likely to attract and retain customers who are no longer satisfied with payment services held back by borders.”

“Companies seeking to enhance their offerings … may find it particularly convenient to work with BaaS providers that can deliver money transfer capabilities and handle the associated regulatory compliance on their behalf. BaaS solutions are often offered via plug-and-play formats that enable FIs, FinTechs and other parties to quickly integrate the specific capabilities they need without developing them in-house or overhauling their systems.”

PYMNTS-MonitorEdge-May-2024