Top tips for businesses considering Banking-as-a-Service

Banking-as-a-Service (BaaS) is not only transforming financial services; it’s transforming virtually every sector. BaaS powers embedded finance, allowing non-financial businesses to integrate financial products and services directly into their customer journeys. Businesses adopting BaaS are able to offer contextual financial solutions in the places where their customers need them most.

Between 2022 and 2032, experts forecast that the global BaaS market value will grow more than five-fold, rising from $4 billion to $22.6 billion. So, what’s driving this growth?

The value of BaaS is clear: a better customer experience, increased conversion and improved loyalty. But, the path to BaaS adoption requires a considered approach and is not as straightforward as the ‘as-a-service’ moniker suggests. Here are three top tips for any business considering BaaS solutions.

  1. Solve customer needs.

What are the friction points within your customer journey? What challenges do your customers face and how could embedded finance solve them? These are the types of insights any business considering BaaS needs to understand before entering into their BaaS journey.

Buy now, pay later (BNPL) is one of the best-established use cases for BaaS-powered embedded finance for this very reason. There has been widespread adoption of BNPL by retailers and brands in recent years, as they understand that deferred and split payments give customers payment choices,  as well as the ability to purchase more aspirational products.

A recent study of European consumers underscored the popularity of BNPL, with respondents revealing that when BNPL was not available at checkout, 56% of Millennial and Gen-Z shoppers would either abandon their purchase (28%) or downgrade to a cheaper item (28%).

  1. Regulation and compliance are pivotal.

From BNPL and payments to accounts and lending, BaaS involves highly regulated financial products. So, it’s impossible to have a successful BaaS adoption without careful consideration of regulation and compliance.

Adopters must choose their BaaS provider wisely, as there can be stark differences between different providers. Some providers offer Electronic Money Institutions (EMI) licences – this means they are limited to offering payment solutions. Other providers have access to full banking licenses, allowing them to offer a complete range of solutions, including the ability to hold deposits, offer savings accounts and enable lending solutions.

Depending on which products are desired, businesses must pick a BaaS provider that not only has the right license to enable the solution, but can also offer the regulatory and compliance expertise to make sure all business processing operations are fully compliant. Businesses require a partner that can fully handle compliance and anti-fraud requirements – as projects scale, this expertise only becomes more important.

  1. Scalability is paramount.

Businesses cannot adopt BaaS with a mindset of ‘build it and they will come’. Careful planning must go into the Go-to-Market strategy for any BaaS solution. This involves a clear plan to market the product launch, keeping in mind that financial solutions require more communication compared to standard products – customers must both trust the product and understand its value.

Secondly, how does a business select which embedded finance solutions to deploy? Here, businesses will often dip their toe in the water, starting with embedded payment solutions – this is a sound strategy, allowing the business to see the value BaaS can deliver and build a well-functioning relationship with the BaaS provider.

The right BaaS provider can help businesses identify which additional products will offer value and where in the customer journey to apply them, building on the initial deployment to achieve commercial goals.

Strategize, implement, scale.

According to Bain Capital, embedded finance accounted for 5% of all financial transactions in 2021, and this figure will grow to 10% – or $7 trillion of transactions – by 2026. Businesses are right to consider how they can capitalize on this trend, which is redefining financial services and reshaping brand propositions.

Unquestionably, finding the right BaaS provider holds the key.

These tips serve as a guide to help businesses considering BaaS choose the best providers for their journey. The key takeaway: look for providers that are able to offer a full end-to-end service – technology, banking license and regulatory and compliance expertise – to help strategize, implement and scale your BaaS solutions.

  • Jean-Jacques Le Bon

    Jean Jacques Le Bon is Chief Strategy and Product Officer for Vodeno. Vodeno’s blockchain-based, cloud-native platform combines with financial products based on Aion Bank’s ECB licence to offer embedded banking services to European companies. Together, Aion/Vodeno are uniquely positioned to offer comprehensive embedded financial services for banks, lenders and merchants across multiple sectors. Vodeno and Aion Bank are separate companies and backed by global private equity firm Warburg Pincus, as well as additional investors NatWest Group and EBRD (European Bank for Reconstruction and Development).