Consumer Demand Driving Banking-as-a-Service Innovation

Interest in banking as a service (BaaS) has grown as businesses and financial institutions (FIs) are pressed to provide the swifter, more interconnected experiences their customers now expect. BaaS solutions allow nonfinancial entities to incorporate payment and banking tools into their own platforms, offering exceptional convenience to users and boosting their engagement and loyalty.

In The Banking-As-A-Service Opportunity Report, PYMNTS examines the steps banks and BaaS providers can take to create the smooth, connected experiences now in high demand among their customers.

In-depth Interviews With Key Industry Players

Recent events elevated the voice of the consumer in payments for the first time, pressing merchants in the U.S. to adopt new payment alternatives and keep pace with Europe and Asia, Meg Nakamura, co-founder and CEO of leading-edge card issuance platform Apto Payments, tells PYMNTS. As a result, providing consumers with a smooth and frictionless payments experience has become table stakes for business success in an eCommerce-focused world.

Businesses across a multitude of verticals were forced to reconsider the way they conduct previously routine payments in the wake of the pandemic. Consequently, businesses making the jump to eCommerce for sales and business-to-business (B2B) payments must find ways to stand apart in an increasingly crowded field, making seamless, instant payment features a must, offers Roy Ng, co-founder and CEO of BaaS and embedded banking provider Bond.

Contactless payments and other digital payment alternatives gained great popularity during the pandemic, enabling in-store and online retailers to stay in business and heightening the demand for faster and faster forms of payment. Embedded finance plays an important role here, bringing a variety of benefits to businesses, particularly non-financial companies, according to Keith Vander Leest, director of payments at embedded financial solution provider Cross River Bank.

Banking and shopping are more digital than ever, as customers have normalized going online for their needs in lieu of visiting brick-and-mortar establishments. Part of this shift has come from customers’ evolving payment needs, and digital transactions have now become an expectation. Businesses are scrambling to meet customers’ specific payment demands, which are as diverse as they are numerous, Scot Lenoir, chairman of Evolve Bank & Trust, tells PYMNTS.

Around the BaaS Space

As businesses and banks become increasingly familiar with BaaS solutions and other connected banking tools, this also means that the embedded finance world is poised to grow. One recent report predicted an expansion of the U.S. embedded finance market at compound annual growth rate (CAGR) of 24%, from $67.6 billion in 2022 to $212.9 billion in 2029. This growth comes as U.S. businesses also report a greater need to offer real-time payments, driven in part by consumers’ changing payment expectations.

As connected banking experiences and technologies become increasingly commonplace, lawmakers in several global markets are taking a closer look at BaaS and open banking applications. Andrew Self, senior policy manager for the United Kingdom’s Payment System Regulator (PSR), recently said the body’s current priorities were to examine the role of Big Data as well as payments data as open banking continues to expand.

For more on these and other news stories, check out the Report’s News & Trends section.

Deep Dive: Capturing the BaaS Opportunity to Engage Digital-First Customers

Fulfilling clients’ new expectations for seamless banking services is crucial for customer engagement and retention. And so, implementing swift payment solutions has become a top priority for FIs, with 77% of banks saying that enabling faster and smoother adoption of new payment methods is their top requirement of a payment partner. This development, in turn, is driving a growing interest in BaaS solutions, which use technologies such as APIs to connect different platforms and easily integrate financial products from third-party providers,

About the Report

The “Banking-As-A-Service Opportunity Report,” a PYMNTS and i2c Inc. collaboration, examines the steps banks and BaaS providers can take to create the smooth, connected experiences now in high demand among their customers.