By Yuvraj Moudgil, Director, Business Strategy, Global Services, Fiserv
Incumbent banks are reassessing their value chains and increasingly turning to fintech partnerships as a strategic move to expand their ecosystems and maintain competitiveness. In today’s fast-evolving digital economy, banking services are pivotal in enhancing the customer journey, serving as essential enablers across various stages of the value chain. This shift underscores the necessity for banks to amplify their digital presence by embracing collaboration. As momentum around open banking builds, it is fostering a more interconnected and dynamic financial landscape. To capitalize on this trend, a substantial number of banks have recently invested in Open Application Programming Interfaces (APIs), which are crucial for sparking innovation. This technological investment lays the groundwork for Banking-as-a-Service (BaaS), an innovative approach that combines the agility of fintechs with the reliability of traditional banking to improve customer experiences and accelerate service delivery.
BaaS provides a platform for fintechs to act as a bridge, enabling third-party entities to communicate with financial institutions. With rising competition in the B2C sector, the B2B fintech sector is attracting investor attention and is poised for significant growth in the BaaS market. Fintechs are designing tailored financing solutions to address specific pain points in B2B banking and payments. The mobile-first strategy, coupled with digital transformation, has surged recently. Fintechs focus on helping businesses integrate payments, insurance, and investment solutions — which allows businesses to drive better outcomes for customers by embedding financial services in products.
BaaS serves as an effective channel for fintechs to expand globally without heavy infrastructure investment by partnering with local banks. Local partnerships give fintech companies access to crucial expertise and knowledge, establishing trust and credibility in new markets. With BaaS, SME-focused financial solutions are emerging as another area of interest for B2B fintechs. They provide a range of customized services for SMEs, from streamlined payment processing to complex automated payroll, account management , and treasury management tools, enabling the integration of comprehensive financial services.
Although BaaS is gaining traction, the technology is still evolving. As the fintech landscape advances rapidly, BaaS providers must keep pace—fintechs have reported missing out on opportunities due to product delays. Choosing the right BaaS provider is critical for fintechs’ long-term success, as a relevant banking partner today may not suit a fintech’s future growth ambitions. Scalability to accommodate changing fintech sector requirements is a primary factor when partnering with a BaaS provider.
BaaS will continue to be a driving force in delivering tailored and seamless financial solutions to enterprises and SMEs. Advances in artificial intelligence, open banking, and blockchain will play pivotal roles in fostering innovations in the BaaS space. While retail banking currently dominates BaaS offerings, SME and corporate banking solutions are expected to become key application areas soon. However, fintechs must stay abreast of changes in regulatory requirements and data privacy laws to maintain trust and confidence. Cross-border partnerships with banks introduce additional complexity, as each jurisdiction has its compliance requirements. Partnerships between small banks and fintechs have faced regulatory challenges due to compliance and fraud risks, which can create delivery and implementation issues and disrupt the customer journey.
As we look to the future, the integration of BaaS will undoubtedly continue to reshape the financial landscape. Banks and fintechs must embrace this technology and proactively address its challenges, including regulatory compliance and scalability. By doing so, they can secure a competitive advantage, innovate continuously, and deliver value to their customers more effectively. The journey of digital transformation is complex, but those who navigate it wisely will emerge as leaders in the new era of banking.