Why is BaaS so hot right now?

The first episode of our brand-new video series, Decoding: Banking as a Service, is live! If you missed it, catch up here. Here’s a rundown of the episode if you prefer reading to watching 📖

Why is BaaS so hot right now? 🌶️

It seems that pretty much every bank in the world is recognising that the future is digital. Countless things have changed in the last few years - from customer expectations to advancing technologies - and these have triggered the shake up of financial services.

This is why Banking as a Service (BaaS) is all the rage in 2020. It’s an enabler; it’s the building blocks banks provide to brands, allowing them to complement their existing services and meet customers’ needs.

Fundamentally, people want the brands they know and love to start providing the financial services they need. And the shift towards becoming truly digital has only been accelerated by this change in customer attitudes and behaviours.

Banking is necessary. Banks are not.

Solaris Bank’s Dr. Jörg Howein borrows an apt quote from Bill Gates

How did we get here? 🛣️

Several major things have changed in recent years, and these have given rise to a greater need for BaaS:

Technology + Lack of trust = A shift in customer expectations

Ultimately, advancements in tech have caused customer expectations to shift. Before ‘digital’ was an option, people were happy to wait a week for the simplest of tasks to be carried out, whether that was banking a cheque or doing their dry cleaning. Now, they expect it to be done instantly - because they can.

Take visiting a restaurant, for example. Every meal ends with a maths problem when you have to pay the bill. It’s unnecessarily burdensome, so if you can find a way to change that and reduce the hassle for customers, people are going to buy into that. Speed and convenience are key requirements in today’s fast-paced world, and tech has made this possible for companies to meet these needs.

Once you have a new toy, it’s very hard to go back and play with the old toy.

Omri Dahan, Marqeta

When it comes to trust, the meaning of the word has changed. When the financial crisis of 2008 hit, this triggered a lot of mistrust in traditional banking services. People turned to alternatives, and interest in major brands and tech companies slowly began to gain momentum. While you used to walk past a bank and consider it trustworthy due to the huge marble columns at its entrance and the fancy furniture inside, that’s no longer the case.

Of course, we can’t ignore the impact COVID has had on the adoption of BaaS. People no longer want to visit bank branches or handle cash, partly because of the new restrictions we’ve all been forced to comply with. These rules have certainly made people more open-minded to digital services they might not have previously been familiar with.

What are the benefits? ✨

For many businesses, the global pandemic has brought an added urgency to find new revenue streams. But aside from this, one of the key reasons a brand might want to adopt BaaS is to boost customer loyalty.

Pretty much every business is looking for a way to gain and ensure long-term consumer loyalty. Gaming company Razer, for example, has garnered such brand loyalty among its users that some people are even getting tattoos of its logo. And while the Apple Card might not be Apple’s biggest revenue stream, it does wonders for customer loyalty by keeping users in the Apple Wallet.

For brands, embedding finance within their offerings is a great way to increase the use cases and ‘stickiness’ of their products. This explains the rise of the so-called ‘super app’, like Uber and Grab, which have successfully integrated financial services at the point of customer need.

Banking as a Service has virtually eliminated the barrier to market.

Melissa Stringer, 11:FS

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