How the banking-as-a-service industry works and BaaS market outlook for 2021

• Banking-as-a-Service (BaaS) platforms provide more financial transparency options by letting banks open up their APIs for third parties to develop new services.
• Techy-savvy legacy banks can fend off the encroaching threat of fintechs by moving into the BaaS space to share their data and infrastructure.
• In addition to BaaS coverage, Insider Intelligence publishes thousands of research reports, charts, and forecasts on the Banking industry. You can learn more about becoming a client here.

Across industries, digital transformation is democratizing data to enable greater transparency and better cusomter experiences. New technologies are opening up legacy systems to emerging startups and third parties and, in some cases, putting data directly in the hands of consumers.

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In financial services, Banking-as-a-Service (BaaS) platforms have surfaced as a key component of open banking, in which firms provide more financial transparency options for account holders by opening their application programming interfaces (APIs) for third parties to develop new services.

Fintechs and digital banks have been encroaching on incumbent institutions in the banking game and disrupting traditional business models — but by moving into the BaaS space, tech-savvy legacy banks can turn this looming threat into an opportunity.

What is banking-as-a-service?

BaaS is an end-to-end model that allows digital banks and other third parties to connect with banks’ systems directly via APIs so they can build banking offerings on top of the providers’ regulated infrastructure, as well as unlock the open banking opportunity reshaping the global financial services landscape.

Techy-savvy legacy firms can fend off the encroaching threat of fintechs by moving into the BaaS space to share their data and infrastructure. In a matter of years, access to this level of information will become table stakes for digitally native customers — so banks that begin now will be ahead of the curve, and likely rewarded with high demand.

How does banking-as-a-service work?

The BaaS model begins with a fintech, digital bank, or other third-party provider (TPP) paying a fee to access the BaaS platform. The financial institution opens its APIs to the TPP, thereby granting access to the systems and information necessary to build new banking products or offer white label banking services. 

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In addition to getting ahead in open banking, legacy institutions that launch their own BaaS platforms are also opening up new revenue streams. The two main monetization strategies for BaaS include charging clients a monthly fee for access to the BaaS platform or charging a la carte for each service used.

Top banking-as-a-service firms

Here are the top BaaS platform providers broken out into purely BaaS-focused fintech players and retail banks that have launched their own BaaS platforms:

Pure BaaS providers:

• solarisBank
• Bankable
• Treezor
• 11:FS Foundry
• Cambr
• ClearBank

BaaS providers with B2C operations:

• Starling Bank
• Fidor Bank
• BBVA

Banking-as-a-service industry outlook

A number of countries have already begun introducing open banking regulations, indicating that the financial services industry is moving toward an era where shared data and infrastructure will become consumers’ new expectations.

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Tech-savvy legacy banks that create their own BaaS platforms now will not only get ahead of the open banking opportunity before their competitors, but also unlock a new stream of revenue by monetizing their platforms. 

In the UK, the new revenue potential generated through open banking-enabled small- and medium-sized business and retail customer propositions was £500 million ($700 million) in 2018, per PwC — and Insider Intelligence expects that to grow at a 25% compound annual growth rate to reach £1.9 billion ($2 billion) by 2024.

Beyond adding a new revenue stream, developing a BaaS solution also allows legacy banks to establish relationships and forge partnerships with emerging fintechs — thereby keeping themselves ahead of the trends that will inevitably follow once BaaS and open banking become mainstream.

Interested in more related Banking research?

In addition to BaaS, Insider Intelligence publishes a wealth of research reports, charts, forecasts, and analysis of the Banking industry. You can learn more about accessing all of this content here. 

And here are some related Banking reports that might interest you:

1. The Rise of Banking-as-a-Service, which looks at the benefits banks stand to gain by offering BaaS platforms, discusses already successful players in the industry, and recommends strategies for moving into BaaS.
2. The Global Neobanks Report, which explores how the neobank market has grown rapidly, and what’s in store as the industry pivots from hyper-growth to sustainability. 
3. AI in Banking, which identifies the most meaningful AI applications across banks’ front and middle offices, as well as the winning AI strategies used by financial institutions so far.