Banking-as-a-Service (or BaaS) is a business model that involves integrating licensed banks’ digital banking services into the offerings of third-party non-bank enterprises. This allows a non-bank to provide virtual banking services to its consumers, such as mobile bank accounts, debit cards, loans, and payment services, without having to obtain its own banking license. For instance, let’s imagine you’re the owner of an online ticketing site. Of course, you would want to boost revenue and client retention. So, here’s what you do: Offer personalized cards to customers, loyalty points for every purchase, and one-click financing for forthcoming shows. Naturally, these activities will enhance revenue and consumer satisfaction in a direct manner. Furthermore, to build client loyalty, you can evaluate consumer purchasing habits and provide them with customized offers.
Isn’t it simple enough? Well, that’s not the case! Offering customers financial services comes with a lot of stipulations. In fact, in order to provide banking services such as depositing and lending assets, you must obtain a banking license or other associated permits. For example, if you want to issue pre-paid cards, you’ll need a PPI (pre-paid instrument license) and an NBFC (non-bank financial corporation) license for offering loans for forthcoming shows. Licenses are tremendously difficult to obtain, particularly for businesses that do not pursue banking operations or collaborate with banks. Non-banks (like the ticketing platform in our example above) can interact with banks via Banking-as-a-Service (BaaS). They will be able to provide digital banking services to their consumers as a result of this. All of this without the burden of obtaining a bank license.
On this note, let’s further explore How are baas platforms helping businesses in increasing their valuation?
For the financial sector, the BaaS model has proved groundbreaking. In reality, it propels both banks and non-banks to new heights. In both scenarios, the consumer, of course, comes out on top. Let’s have a look at how this works.
Increased revenue: BaaS enables banks to share data with third-party financial institutions via APIs. BaaS provide new revenue sources for banks as open banking becomes the norm. In terms of innovation and speed, fintech and IT companies are ahead of the pack. Banks, on the other hand, have the trust of their customers and a vast amount of funding capacity at their disposal. Both parties can discover new revenue streams by working together.
Cost-cutting initiative: BaaS can help banks not only make revenue but also save money. Banks are not required to invest in technological advancement. As a result, they may benefit from third-party partnerships because they already have ready-made solutions. In reality, this can assist banks in making additional investments and forecasts of profitability.
Improved customer trust: Along with having enormous resources, banks also have the trust of customers. The majority of clients believe that banks will take care of their financial security in the long run. Businesses may use that trust to grow their customer base by collaborating with banks. Furthermore, when firms interface with banks, they gain access to a wealth of client data. Long periods of usage have yielded this awareness. As a result, it may assist consumers in developing new and tailored services to address unique concerns. Banks and non-banks alike stand to benefit greatly from using the BaaS model.
Enhanced customer insights: When a bank partners with a third party, it gains new customers. Not only that, but they also learn about customer preferences. For example, their purchasing habits and financial needs. Banks may now utilize this additional information to generate tailored offers for their customers. After all, customers are more likely to respond to personalized offers. They can also use a more targeted multi-channel marketing approach. This may assist them in reducing their reliance on above-the-line spending.
THE BOTTOM LINE
The pandemic outbreak along with rapid innovation has pushed technology to the forefront of all the businesses wanting to expand and walk towards the path of success. The banking and finance sector has recently adopted BaaS, and the advantages have been so significant that the technology is now thought to be capable of bringing about a revolution and changing the industry for the better. It’s possible that BaaS is a land grab. If this is the case, banks must adopt a BaaS strategy right now, based on a realistic assessment of their cost structure and transformation route. They should also understand the implications on their operations of a major increase in client demand for integrated banking experiences.
The above article is authored by Sachin Gaikwad, Founder & CEO, Buildd.
