BaaS on the rise

A new study projects a substantial rise in global revenue generated by Banking-as-a-Service(BaaS) platforms.

The report, from Juniper Research, anticipates a 158% growth in revenue stemming from account/card issuing and transaction fees, catapulting figures from $36.4 billion in the current year to an estimated $94 billion by 2028.

This surge is primarily attributed to the widespread deployment of APIs (Application Programming Interfaces) across e-commerce and freelance platforms. These APIs facilitate the seamless integration of innovative financial tools, thereby unlocking additional revenue streams for BaaS providers.

The BaaS business model revolves around licensed banks delivering digital banking services, seamlessly integrating with the offerings of non-banking entities through APIs.

Amidst this optimistic forecast, challenges loom on the regulatory front, particularly concerning the escalating cost of compliance for BaaS providers. Issues surrounding KYC (Know Your Customer) processes are expanding the scope of compliance programs, potentially impeding the success of smaller fintech firms from non-traditional backgrounds in the BaaS sphere. In light of these challenges, experts urge BaaS providers to optimise revenue streams by integrating their solutions with digital platforms, including e-commerce and travel companies.

What’s more, BaaS platforms are spearheading financial inclusion initiatives, catering to the unique needs of gig workers and freelancers. These platforms offer specialised banking products such as short-term loans and income-smoothing solutions tailored to individuals with irregular income streams. Unlike traditional banking routes, BaaS platforms enable workers to access loans directly from the platform or gain early access to accrued wages.

Daniel Bedford, the research author, underscored the pivotal role of BaaS in driving financial inclusion, emphasising its ability to cater to specific industries or demographics overlooked by traditional banking institutions. Bedford said: “Financial inclusion is propelled by accessibility, and BaaS serves as a catalyst for addressing the needs of niche markets, fostering growth opportunities.”