What does 2023 have in store for Banking as a Service?

Over the past few years, Banking-as-a-Service (or BaaS for short) has really picked up steam in the financial services arena. 

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Enabling banks, non-bank financial firms and retailers to deliver new and novel financial products to their customers, means that today an increasing number of businesses are leveraging the BaaS opportunity to boost their revenue potential and make their offering more versatile. 

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From newer staggered payment options like Buy Now Pay Later (BNPL) to more commonplace financial products like debit cards and loans, BaaS is equipping established banks with the APIs needed to modernise their offering. Retailers are getting a slice of the action too, with BaaS providing a strong customer retention and brand-building strategy.

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It goes without saying that interest in the BaaS market is booming right now, with a prediction that it will reach a market value of $11.34 billion by 2030. But what does the near future have in store? With this in mind, our experts talk about the year ahead and the trends that they think will be dominating the BaaS market in 2023. 

1. Open Banking will be bigger and better

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Millions of people already use Open Banking technology as a secure way to move, manage and make more of their money – in fact, as of January 2022, more than 5 million said that they used these services to take care of their finances.

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New research stands up to suggest that Open Banking will continue its ascent in 2023. According to figures from the UK Government, 60% of the UK population will be using Open Banking payments by September 2023. Beyond this, we think that more brands will come up with innovative ways to improve how people are managing their personal finances in the current climate, where there is a clear demand for inventive products that support consumers as the cost-of-living rises.

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2. Embedded finance is heating up

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Consumer behaviour has changed radically over recent years thanks to the rise of eCommerce and online marketplaces, where customers have more choice than ever. To stand out in this overcrowded environment, retailers are experiencing a high demand for integrated financial services that can recoup customer loyalty.

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Embedded finance products like BNPL and digital wallets mean that retailers can do everything for their customers – they can even be their bank. The end-result of this is that businesses can unlock new revenue streams and increase customer stickiness. 

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In the near future, we predict that embedded finance will continue to gain momentum –  with recent modelling suggesting that the market potential of embedded finance will exceed $7 trillion over the next 10 years, this means that it could be worth double the combined value of the world’s top 30 banks today. 

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Up until now, embedded finance has homed in on consumers in the retail environment, but we expect to see interest building in the B2B commerce arena in 2023, with more startups and SMEs looking to carve out a niche in the market – think merchant financing for SMEs and BNPL for businesses.

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3. Payments will finally step into the 21^st century 

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Another key area that BaaS advancements are likely to touch in 2023 is the world of cross border payments, which for years have proved challenging for businesses. Particularly SMEs and smaller organisations, transactions that arrive in their destination accounts quickly and with full transparency about the fees and processes involved have been few and far between. This can cause substantial problems when it comes to cash flow and ultimately, their survival.

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In reality, initiatives like the UK’s Faster Payment System mean that real-time payments are already a possibility for organisations who can afford the extra costs associated with the service, but this is not yet the norm.

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In 2023, however, it looks like these common problems will be a thing of the past. New research shows that 26% of mid-size organisations plan to start using real-time payments in 2023. As uptake increases amongst businesses, we think that instant transactions become cheaper, evolving from a costly convenience to a business essential. With the help of Banking as a Service, businesses may be able to circumvent some of the extra costs associated with these transactions, lessening their dependence on legacy banks to deliver this service.

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As new BaaS developments begin to take shape, businesses and retailers should be aware of how new technologies and APIs can help to set them up for success.

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To cater to all your BaaS needs, we’ve partnered up with Chetwood Financial to deliver one of the most thorough end-to-end solutions on the market, using Chetwood’s fully regulated banking licence and balance sheet and our cutting-edge APIs.

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Our flexible, modular Banking as a Service solution means you can pick and choose the parts that are right for your business, and build innovative, personalised financial products in no time as new trends develop.

To learn more about how the Yobota core banking platform can overhaul your offering and unlock new opportunities for growth, get in touch with a member of the team today.