Banking as a Service (BaaS) is revolutionizing the financial technology landscape, providing a gateway for businesses without their payment infrastructure to leverage the capabilities of licensed banks or financial institutions. This innovative solution facilitates seamless integration of banking and payment services into various platforms, significantly reducing time-to-market.

According to Proficient Market Insights, the Banking as a Service (BaaS) Market is poised to reach $11,276.32 billion by 2031, reflecting a robust CAGR of 13.13%, indicating substantial global growth until 2031.

What is the difference between BaaS and Embedded Finance/Embedded Payments?

Distinguishing between BaaS and Embedded Finance/Embedded Payments, the former involves banks offering their infrastructure to licensed financial service companies, while the latter integrates financial services into diverse platforms, allowing licensed financial institutions to share their infrastructure with other entities.

Challenges Confronting Fintech Enterprises

Fintech enterprises face challenges arising from global instability, heightened regulatory requirements, increased expenses, and the need for substantial budgets. Regulatory transformations, particularly in the European Economic Area (EEA) and the United Kingdom (UK), have made obtaining Payment Institution or E-Money Institution licenses more challenging, with stringent criteria and enhanced oversight measures.

However, acquiring a specific license is just one aspect of establishing an operational company. Fintech enterprises also demand robust IT systems and diverse technological partnerships. Developing in-house software and constructing payment infrastructure can be a time-intensive endeavor, often spanning more than a year and incurring costs of approximately €1 million. Given the swift pace of development in the fintech sector, it’s apparent that one year is an excessively lengthy timeframe for launching a fintech project.

Ready-to-market Banking as a Service solutions effectively tackle these challenges. For instance, employing ready core banking software that integrates with various embedded finance or BaaS providers can significantly save time and expedite the time-to-market for companies aspiring to offer digital banking services. Rather than dedicating over a year to software development and establishing a partner network, fintech companies can launch their businesses within a couple of months. Additionally, by collaborating with the right embedded finance or BaaS provider, fintech companies can leverage the “license-as-a-service” model and become agents of EEA/UK-licensed institutions, such as PSD or EMD agents, without the need for their own license. Since obtaining a license in the EEA/UK can take approximately 1.5 years and cost at least half a million euros, including initial capital and other associated expenses, becoming an agent presents a lucrative option for expediting the establishment of fintech businesses.

The future direction of Banking as a Service is Embedded Finance

The future trajectory of Banking as a Service (BaaS) holds promise as it evolves towards Embedded Finance. This transition marks an exciting phase, with BaaS gaining increasing prominence not only in traditional banking but across various industries. Embedded Finance takes this integration to the next level by seamlessly incorporating financial services into diverse non-financial platforms and applications. In 2022, the global embedded finance market saw a revenue of $54 billion, and Future Market Insights projects it to soar to $248 billion within the next decade.

This innovative approach pledges to redefine how customers engage with financial services, offering personalized and convenient solutions tailored to their specific needs on their preferred platforms. With the ongoing growth of BaaS and the rise of Embedded Finance, we anticipate the emergence of a thriving ecosystem of interconnected financial services, fostering greater accessibility, innovation, and convenience for both consumers and businesses.

From both the consumer and provider perspectives, embedded finance signifies a significant market trend. On one hand, it facilitates the integration of payment services into various applications, elevating the overall customer experience. On the other hand, it opens valuable opportunities for non-licensed institutions or those lacking a developed payment infrastructure to collaborate with licensed payment or e-money institutions boasting robust payment systems. Furthermore, licensed payment and e-money institutions with established infrastructure can tap into additional revenue streams by sharing their resources with other companies.

Establishing trustworthy partnerships is crucial for the seamless operation of any fintech venture. By incorporating a core banking system like Macrobank with pre-built integrations, you not only streamline your operations and time-to-market but also ensure reliable partners for the success of your business.