Consumers and businesses increasingly seek seamless, digital-first experiences, and banking as a service (BaaS) has emerged as a powerful tool to meet this demand. Companies use BaaS to integrate financial services and products into platforms and experiences that are not traditionally financial. This practice is known as embedded finance.
Unsurprisingly, embedded finance’s popularity leads to significant revenue streams for providers. For instance, Bain & Company found that embedded transactions generated nearly $22 billion in revenue for platform providers and other embedded finance enablers in 2021. Banks are increasingly aware of this revenue opportunity and are looking to capitalize. Nearly 25% view BaaS as an opportunity to create new revenue streams.
The “Digital-First Banking Tracker®” examines consumers’ growing demand for embedded finance and how this is a significant revenue opportunity for banks providing BaaS, directly or in partnership with FinTechs.
A recent study from technology and strategy consulting firm Levvel found that many FinTechs report issues with their BaaS providers’ platform integration, data integrity and ability to scale. As a result, 63% of FinTechs are considering switching BaaS providers.
Another report surveyed 2,000 senior executives from nonfinancial and financial services firms, exploring the impact of embedded finance’s rapid rise. One thing is clear, though: The impact is likely to be considerable for both. Eighty-three percent of financial services executives believe embedded finance will majorly or moderately impact business operations within a year. Eighty-four percent of nonfinancial services executives believe the same.
For more on these and other stories, visit the Tracker’s News and Trends section.
Although banks of all sizes can benefit from offering BaaS, community banks have much to gain.
To get the Insider POV, we spoke with Jeff Nowicki, vice president of banking at Treasury Prime. Nowicki explains how BaaS presents an excellent opportunity for community banks, in particular, to expand their reach and keep up with this digital transformation.
Partnerships between traditional banks, FinTechs and other nonfinancial entities have become key in adopting embedded finance. Banks often do not have the technological capabilities necessary to enable embedded experiences on their own. In addition, many large banks rely on inflexible legacy infrastructure that does not support BaaS. However, upgrading this technology can be costly.
Explore how partnerships allow banks to leverage FinTech knowledge in successfully implementing BaaS in the Tracker’s PYMNTS Intelligence.
The “Digital-First Banking Tracker®,” a collaboration with NCR, examines how consumers’ growing demand for embedded finance offers a significant revenue opportunity for banks providing BaaS, either directly or in partnership with FinTechs.
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