Understanding the BaaS Model and Its Impact
Banking-as-a-Service (BaaS) is a technological product that allows non-bank businesses to embed financial services into their products. The convenience of APIs and white label products brings reliability, speed and simplicity; ultimately fostering a seamless payment experience.
And so, with rising access to the internet and mobile phones, along with growing independent businesses and the consequential strain on traditional banking structures, BaaS has grown at an exceptional rate. Application programming interfaces (APIs) can be quickly integrated into any business to begin using their licences to leverage their regulatory frameworks and resources. BaaS providers are notorious for their white label products, which give any non-bank or fintech company leverage of brandable cards that hold a retailer’s branding, whilst the product is manufactured by the BaaS provider. The benefit aligns with other fintech products, bringing reliability, speed and simplicity.
What is the current state of financial inclusivity?
When looking at financial inclusion, there are three main areas: access, quality and usage of financial services. And when considering the inclusivity of finance, there are several factors in the payment chain which need to be taken into account; from the beneficiary, institutions, businesses and even the global environment.
Usage: what the purpose of the service is and how often it is used
Access: what form of access is available, whether through digital wallets, credit, loans or bank accounts
Quality: the transparency, convenience and cost of services.
With the presence of Banking-as-a-Service products, there has been a spike in financial inclusivity because end users and businesses are provided with a multitude of options to pay, store funds and access credit. Now that the use of financial services is not limited solely to a provision from traditional banks, there is greater access to resources and services which holds greater impact alongside the growing accessibility of internet and mobile phone penetration.
Globally there are around 1.4 billion adults who remain unbanked and the biggest reason the unbanked give for choosing not to have bank accounts is financial. Unbanked individuals and households have struggled to meet the minimum requirements to hold a bank account, including minimum payments and account fees. Due to limited access to secure methods to store and manage finances, individuals have turned to alternative means to manage their money through fintech products and services, including prepaid cards, online payment services, neo-banks and alternative currencies.
Studies have shown that the percentage of unbanked households varies significantly by income level and race/ethnicity; with 11.3% of all black households being unbanked and 9.3% of Hispanic households, whilst unbanked white households sit at 2.1%. Additionally, there are socio-political factors such as government ruling and general societal trust issues which have deterred communities away from managing their funds through banks and have stashed cash at home. Another reason numerous households and individuals remain unbanked is because they are deterred by bank fees. Nearly 30% of unbanked consumers stated that they steer clear of a bank account due to frustration around paying to hold funds in a bank.
Whatever the reason, the impact of financial inclusivity has been shown to lead to inequality, economic stagnation, and poverty. Growing conversations around the lack of access and inclusion; and the visible segregation globally resulted in the drive from fintech companies to use technology to create products and services which are accessible through a number of channels, such as mobile apps, online platforms, in-store, etc. Additionally, fintech offerings, such as BaaS, have made quick and meaningful strides to offer financial services whilst bypassing the limitations and constraints of traditional banks.
BaaS Moulding Financial Access
BaaS models provide flexible solutions at a lower cost that are scalable to the growth of businesses and global ecosystems. Loaded with an offering that exceeds a traditional bank, the Banking-as-a-Service model goes beyond the present and prepares businesses for future growth that is relevant to end-users who manage money in multiple ways.
Whilst BaaS does not service the end-user directly, it brings the provision of ever-developing technologies to BaaS clients who are then able to reach new regions and open opportunities to untapped markets. This trickle effect will support financial access as a long-term solution that is a catalyst for driving change through a highly flexible, cost-efficient and continually developing technology.
Jovi Overo’s Insights
An Accenture report predicts that the global embedded finance market is expected to reach $7 trillion by 2030. The data indicates the potential of Banking-as-a-Service in our increasingly digital world; but what are the tangible ways that BaaS is driving financial inclusion?
Digital accessibility:
In tandem with the rising presence of the internet and mobile penetration, the presence of modern technology from BaaS products optimises the growth of financial inclusion. This can be extended to under-served communities in remote areas or developing countries. Powerful API-based technologies can improve interoperability, as seen through the simplification of operational processes through BaaS’ lean and flexible technology which drives business streamlining, enhanced data security, remove internal product silos and offer an optimised experience for customers.
Customer-centric innovation:
Fintech products have transformed customer experience through innovation, data analysis, faster communication and connectivity. Partnering with a BaaS provider enables companies to customise their offerings to the unique needs of their customers, as opposed to a one-size-fits-all approach of a banking solution.
Cost efficiency:
Banking-as-a-Service offers a comprehensive solution in a single integration, which reduces the need for entry fees and minimises overhead costs associated with traditional banking. Instead, through cloud-based platforms, businesses are able to deliver services to their customers without the cost of a physical infrastructure, which in turn reduces the costs passed on to customers.
Financial literacy:
Veering away from the traditional, linear banking processes, consumers of our digital world are given access to numerous financial options and services; opening them up to opportunities of exposure which develop financial literacy. In turn, we will continue to see a growing understanding of the digital and financial world, and modern BaaS clients can provide end users easy-to-understand educational resources through interactive financial management tools which encourages individual financial control and furthers financial inclusion.
Integration:
Financial inclusion is not only by creating and offering new products but also enhancing the financial and non-financial services which already exist. By doing so, the use of technology is simplifying processes and creating inclusivity in our current demographics and structures. This opposes the complex approach of reconstructing a new financial world of new processes and technologies which require new learnings that would overwhelm many. Instead, the seamless integration of Banking-as-a-Service products into both traditional banks and non-financial services, such as e-commerce sites or social media platforms, drives a more inclusive ecosystem.
With e-commerce and m-commerce rapidly gaining popularity; the e-commerce industry is set to reach $6.3 trillion globally by the end of 2023 and m-commerce is projected to exceed $510 billion by the end of 2023. A BaaS integration offers a greater sense of financial inclusion as it opens up numerous channels and connects merchants with end users who are able to partake in regular online activities without the limitations of a traditional bank account.
In this fruitful era of our digital revolution, we are seeing fintech products spurring the use and adoption of financial literacy tools, but as younger generations of Gen Z and millennials grow into working age, we will see the shortening of the distance between the world of finance and young users. We are already seeing the gap close, and with the removal of intermediaries along with the influence of ethically driven, digital brands – we can expect the financial inclusion gap to close. The shift will take place on a global scale, with fintechs settling across the world to offer borderless technologies that offer easy-to-use, interactive and intuitive technologies to players of all levels and capabilities.
Ready to leapfrog legacy technologies and unlock new opportunities in untapped markets? At Unlimit BaaS, we’re passionate about empowering businesses with efficient, innovative, and inclusive financial solutions. Get in touch today to explore how we can supercharge your growth here.
