An Industry Insider on Community Banks’ Potential to Prosper With BaaS

With a growing number of companies interested in providing embedded finance experiences to end users, an industry insider explains why this creates an opportunity for community banks.

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Although banks of all sizes can benefit from offering Banking-as-a-Service (BaaS), community banks, in particular, have a lot to gain from doing so. In an interview with PYMNTS, Jeff Nowicki, vice president of banking at Treasury Prime, explained that BaaS presents a great opportunity for community banks to expand their reach and keep up with digital innovation.

This is because BaaS allows these smaller institutions to broaden their revenue streams without having to invest the time and money needed to create new digital frontend and onboarding initiatives from scratch.

Nowicki said that BaaS also represents an efficient way for smaller financial institutions (FIs) to bring in more clients and deposits because it helps connect these FIs to enterprises with engaged user bases, obviating the need for FIs to do all the outreach themselves. In addition, once these end users are plugged into the community bank’s infrastructure, FIs will gain visibility into users’ behavior, which can be leveraged to better design products and address user needs.

Given the size of this opportunity and an increasingly digital world, BaaS is quickly becoming a necessity for smaller, community banks going forward, Nowicki said.

As 2023 unfolds, BaaS will continue to grow. Nowicki said he believes that much of this growth will stem from enterprises leveraging BaaS to create and provide checking accounts and business accounts in a variety of nonfinancial channels, from consumer-facing interactions to back-office systems.

He added that this year will also bring regulatory clarity in the space.

For example, regulators will want to establish clear oversight over data sharing and the types of financial services engendered by BaaS and embedded finance.

Community banks, then, should make the most of the opportunity. One promising way to do this, Nowicki explained, is for community banks to collaborate on their BaaS efforts by pursuing a model of connecting multiple institutions together to handle deposits, lending products and other financial offerings.

“[This model] offers a flawless integration … and so a community bank should not be worried that a top-15 bank is coming in to ‘eat their lunch,’” he said. “There’s opportunities on the table in which everyone can participate.”