This April, The Fintech Times is focusing on all things embedded finance, the integration of financial services into non-financial products and services. As the space rapidly develops, we look to highlight the latest developments, initiatives and challenges embedded finance has to offer and overcome across the globe.
Banking-as-a-Service (BaaS) describes the concept that enables non-bank platforms to access banking capabilities traditionally only offered by licensed banks. As BaaS evolves, it is helping fintech innovation reach new markets and underserved communities; which has the potential to greatly improve financial inclusion across the globe.
Continuing our BaaS focus at the beginning of April, we asked industry leaders about how they’re seeing BaaS driving financial inclusion worldwide.
Honing in on the user experience
Nike Shoge, head of growth at Starling Banking Services, explains the impact that BaaS solutions can have: “The BaaS model enables fintech innovation to grow in markets that are yet to benefit from the rise of digital banking.
“Under this model, digital players can focus on disrupting the traditional banking sector in their market by honing in on the user experience of their financial products and ‘the big idea’.
“Meanwhile, BaaS providers streamline time-to-market with their regulatory approval and expertise. It’s about giving fintechs a more accessible, customer-centric approach to scaling up, which they can do at greater speed.
“As a result, BaaS can improve access to digital banking in new markets, and communities that have historically been underserved by the traditional sector can gain access to more sophisticated financial services.”
BaaS is serving ‘all kinds of underserved niches’
Paul Staples, group head of embedded banking at Clearbank, also explains how BaaS solutions are helping firms support underserved communities: “The path to becoming a bank is not straightforward.
“If a business or charity wants to offer banking or bank-like services to people who are unbanked, or underbanked, the challenges to do so can seem insurmountable.
“BaaS and embedded banking services help to serve all kinds of niches that are underserved by larger entities, whether that’s specific industries, demographics, or simply groups that are left behind by big banks trying to be everything to everyone.
“One of our embedded banking clients, Wealthify, does this by focusing on financial literacy for young people, working with TikTok stars and giving teachers material on ‘essential money skills’. We also work with incuto, a platform for credit unions and community banks who often work with underserved communities. BaaS means these businesses can focus on what makes them unique and inclusive.”
‘A very symbiotic partnership’
Alana Levine, chief revenue officer at Fintel Connect, the partner marketing platform, network & agency built for the financial industry, explains that BaaS can drive financial inclusion in ways traditional banking techniques cannot.
“Financial inclusion starts with access – and that doesn’t always come easily through traditional banks. BaaS enables the opportunity for faster, more nimble innovation, experimentation and launch of financial products and services that create more accessibility for those underserved audiences.
“Banks cannot move at the same speed that fintechs can, so BaaS creates a very symbiotic partnership by combining the infrastructure and regulatory rigour of banks with the ability to execute on product development and efficient go-to-market of fintechs. The combination of fintech’s innovative approach and the traditional banking capabilities through BaaS is a winning formula for promoting financial inclusion.”
Driving financial inclusion
Mark Vermeersch, chief platform officer at Treasury Prime, a BaaS company connecting banks and fintechs through an API, adds: “Fintechs are pushing the envelope in banking product manufacturing, creating new financial products like BNPL and new distribution channels for banking products like embedded banking that drive broader financial inclusion.
“Increased reach is possible due to the operating leverage created by software, turning variable costs (employing more people to launch a new embedded banking business line) into fixed costs (launching a new embedded banking business line powered by software).
“BaaS both accelerates the time it takes for regulated financial institutions to build a new business line around bank-fintech partnerships and makes the ongoing maintenance and oversight of that business line more cost-effective. This enables smaller banks to partner with sophisticated fintech and embedded banking clients to distribute their banking products and services on a national, or, in some cases, global, scale.
“This scale is possible due to the specialisation of different players in the embedded banking tech stack:
- Banks: Manufacture and produce financial products
- Fintechs: Market and resell financial products (in partnership with banks)
- Banking service partners: Build software and/or services products to improve efficiencies of bank-fintech partnerships
- BaaS platforms: Technology platform orchestrating interactions between banks, fintechs, and service Partners.”
BaaS’ global impact
Milan Khrapchenko, co-founder and co-CEO of Ameetee, a B2B fintech platform, said: “BaaS facilitates more convenient and tailored financial experiences, enhancing customer engagement and satisfaction. Thanks to BaaS, it is now easier to create user-friendly mobile apps and provide convenient access to banking services or customised banking solutions for underserved groups.
“BaaS enables non-banking entities to provide financial solutions, such as payments and loans, seamlessly embedding them into their ecosystems. This approach not only expands financial services but also promotes innovation in product offerings, making financial services more accessible and relevant.”
Finally, Lisa Arthur, US director and global chief marketing officer for API management platform Sensedia, explains how BaaS is making an impact across the globe: “BaaS democratises technology and lowers the barriers for non-banking companies to enter into this space. BaaS provides innovative platforms that enable non-financial institutions to drive new opportunities to underserved small businesses and expand their reach to underserved populations.
“For instance, in Brazil, Banco Rendimento offers Rendimento Pay, a cross-border payment solution that expands reach securely for emerging technologies to new geographies.”