The term Banking-as-a-Service (BaaS) is often used in the financial sector. As a service, it enables other non-banking organizations to offer core banking services to their customers, usually via Fintech and Non-Fintech organizations. The BaaS technology is gaining momentum among banks and non-banks desiring to establish or improve direct and intermediated new revenue systems. According to the Gartner Hype Cycle for Digital Banking Transformation, Baas will hit mainstream adoption within two years.
Continuous tech advancements push bank and non-bank competitor activity, influencing market demand for products and services. Gartner forecasts that 30% of banks with greater than $1 billion in assets will start offering BaaS for new revenue by 2024, but half will fail to achieve the set target expectation.
Banking industry CIOs should focus on how vital technological innovations shape their industry and prioritize their technology investment plans accordingly.
Gartner says BaaS is one of four technologies with the potential for transformation in the banking sector and are likely to grow within the next couple of years. The other technologies include chatbots, a public cloud for banking, and social messaging payment apps.
1- Banking-as-a-Service (BaaS)
BaaS can be a discrete or broad set of financial service functions exposed by chartered banks or regulated entities to power new business models deployed by other banking market participants, fintech, neo-banks, traditional banks, and other third parties.
Market players are increasingly drawn to collaborative models that enable enhanced customer experiences, such as richer features, a broader set of products, and innovative customer experiences. In addition, nonbank participants benefit from a quick onramp to the banking market by leveraging a regulated entity’s license instead of pursuing their charter.
Chatbots represent one of the primary use cases of artificial intelligence (AI) in banks and will impact all areas of communication between machines and humans. While mainly applied to customer service, IT service management, or human resources, chatbot uses are incredibly diverse. The change from “the user learns the interface” to “the chatbot learns what the user wants” has implications for onboarding, training, productivity, and efficiency inside the workplace.
The sophistication of the enterprise conversational AI platform market has led to enhanced tooling for banks to build and maintain chatbots using non-IT resources. Operationalization in the business units outside of IT is making chatbot production a more productive activity.
3- Public Cloud for Banking
Public cloud adoption is becoming highly transformational to the banking industry since banks can achieve greater efficiency and agility by moving workloads to the cloud. Public cloud for banking delivers banking-specific software within a public cloud ecosystem by integrating those applications with different degrees, from cloud-based to fully native.
Banks achieve agility by rapidly scaling up and down to support changes in demand and meet regulatory compliance by delivering on temporary demands. Resources are freed up for developing digital assets by centralizing and optimizing them; fixed costs are reduced by avoiding oversized infrastructures, and cost structures are optimized. Banks can also consolidate applications and platforms that ease development and testing, avoiding overlapping or duplications.
4- Social Messaging Payment Apps
Social messaging payment apps rely on instant messaging platforms to originate payment transactions. The messaging app interface is used to register payment accounts and to initiate and monitor related transactional activity. The modernization of payment infrastructure and the ability to use open banking and payment APIs, provided new entry avenues for social messaging apps to deliver payments service.
The adoption of social messaging apps has transformed shopping and payment behavior, notably in Asia. Kakao Pay, LINE Pay, WeChat Pay, and WhatsApp Pay demonstrate how social messaging apps provide contextual data and interfaces to engage with customers.