Insights

Banking as a Service – BaaS

May 5, 2022

The rise and development of Banking as a Service (or BaaS) can be illustrated by the changes in motor racing. When Juan Fangio was winning Formula 1 world titles in the mid-1950s, each team was essentially a car manufacturer which made the engines for its own racing cars. Mercedes built its own vehicles and engines; Ferrari did the same. These days, partnerships and third parties are more common, so while Mercedes and Ferrari still build their own engines, they also supply them to other Formula 1 teams.

Financial services can be considered as going through similar changes through BaaS. Existing banks, wealth managers and insurers are able to team up with non-financial businesses and create opportunities for finding more clients.

BaaS is where licensed banks integrate their digital banking services directly into the products of other non-bank businesses – ‘embedded finance’. So, a non-bank business can offer its clients digital banking services such as mobile bank accounts, loans, debit cards and payment services, without needing to obtain a banking licence of its own.

Embedded finance demand is building fast pushing both financial and non-financial players together to serve their digitally, discerning clients more effectively with seamless solutions. The pandemic and significant shift in client behaviour have accelerated the growth of embedded financial solutions. Unexpected lockdowns forced the global economy to operate differently, so the need for a digital, accessible world became more urgent.

With significant market appetite and foundations for payment solutions already established, the pandemic laid fertile ground for embedded finance to become entrenched in the everyday lives of clients. Brands around the world are now scrambling to strategise, develop and implement their journey toward delivering more effective payment offerings to their clients.

Digital transformation is key, as new technologies are allowing digital banks and other third parties to connect with banks’ systems via an Application Programming Interface, known as an API and in doing so reshape the worldwide financial services landscape. This so-called democratisation of data creates greater transparency, improves client experience and puts data in the hands of the end client..

The BaaS model itself begins with a FinTech company such as EWG, a digital bank, and another third-party provider with the provider paying a fee to access the BaaS platform.

The financial institution opens its APIs to the provider, granting access to systems and information necessary to build new banking products or offer white label banking or co-branded services. These have evolved and now a variety of distributors are embedding deposits, lending and payment products directly within their own offerings. The future of BaaS lies in further tailored propositions – companies are starting to develop increasingly sophisticated schemes crossing product lines in order to meet unmet money management needs.

In the fast-moving world of financial services, a business that stands still means it is going backwards. Recognising the pace of change, EWG recently launched a new technology venture – EWG Labs – to support the development of its range of products and applications. The new business will drive all in-house innovation and development in relation to the EWG Client App, the API and client site integrations.

Behind all of this sits a team of exceptionally talented people, together with a collaborative approach with clients, so we take time to understand them, forge strong relationships and bring real value. As a business, an ambitious and exciting technology development roadmap lies ahead for EWG, focussed on the end-user and client experience in a hyper-growth sector which will enable our clients to grow even faster and drive an exciting future for the company.

Countries around the world recognise the value BaaS brings to their economies and have started to introduce ‘open banking’ regulations. This indicates that the financial services industry is moving towards a time where shared infrastructure and data are more common and further reflect client’ expectations.

In the UK and Crown Dependencies alone, the new revenue potential generated through BaaS and open banking is tremendous. Insider Intelligence estimates the industry is growing at a compound rate of 25% per year and will reach £1.9 billion by 2024.

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