25th February 2024

Better business. Better community

Business Industry and Financial

Banking as a service: the key to the future of financial institutions

Banking as a service (BaaS) is a concept that is quickly gaining traction in the financial industry. It refers to the delivery of banking services through digital channels, rather than through traditional brick-and-mortar branches.

This shift towards BaaS is being driven by several factors, including the rise of fintech companies and the growing demand for digital banking services.

The Global Treasurer, in partnership with Infosys Financle, recently hosted a webinar where the importance of BaaS and its benefits were discussed.

The webinar was moderated by Rajeeb Gurung and featured expert speakers Justin Silsbury, lead product manager at Infosys Finacle, and Carl Slabicki, co-head of Global Payments, Treasury Services at BNY Mellon.

Using Uber as an example, Silsbury highlighted how companies can use these services and products to offer financial services to their own customers. This concept is known as embedded finance and it is a way for non-financial companies to offer financial services without having to build their own banking infrastructure.

“The difference between banking as a service and embedded finance is that in BaaS, financial institutions provide products and services to companies or brands and those companies offer financial services to their own customers”.

While in embedded finance, the financial services are integrated into the main product or service offerings of the company. This allows companies to offer financial services to their customers without having to build their own banking infrastructure.

BaaS benefits

One of the key benefits of BaaS is that it allows financial institutions to reach a wider customer base. By offering banking services through digital channels, banks can easily expand their reach to customers who may not live near a physical branch, said Slabicki.

Another advantage of BaaS is that it allows banks to offer a wider range of services to customers. For example, through digital channels, banks can offer investment advice, wealth management, and other financial services that may not be available through traditional branches.

BaaS also allows financial institutions to reduce costs. By offering services through digital channels, banks can reduce the need for physical branches, which can be expensive to maintain. This can help banks to increase profitability and become more competitive in the marketplace.

Security

The shift towards BaaS also presents challenges for financial institutions, however. One of the main challenges is ensuring the security and privacy of customer data. As banking services are offered through digital channels, there is a greater risk of data breaches and other cyber threats. Banks must

invest in robust security systems and implement strict data protection policies to ensure customer data is safe.

Slabicki added that security and trust from consumers was critical in the financial ecosystem.

He noted that there is a diverse array of entities providing financial services and that it is important to ensure that all of them maintain high standards for security and trust.

“All financial institutions have a vested interest in protecting not only their customers and the bank, but also the broader ecosystem and trust in the financial markets”.

BaaS: the future of banking?

BaaS is becoming increasingly critical to the future of financial institutions as banks that are able to successfully adopt this model will be well-positioned to meet the changing needs of their customers and stay competitive in the marketplace.

BaaS allows other companies to access the infrastructure and services of traditional banks to offer financial products and services to their customers. It also increases competition in the financial industry by providing more options and convenience for consumers and helps smaller companies and start-ups enter the financial market without investing in expensive infrastructure and compliance.

Additionally, it allows for more flexibility and innovation in the financial sector, as it provides a platform for fintech companies to offer new and unique financial services. The increased adoption of technology and the growing demand for digital financial services further solidify BaaS as the future of banking.

By focusing on security, innovation, and customer experience, financial institutions can position themselves for success in the digital age.

To watch the full Infosys Finacle and Global Treasurer webinar, please click here: Banking as a service: Critical to the future of financial institutions | Contentive (livestorm.co)

link