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Banking as a Service Trends to Watch Out for in 2023

Banking as a Service Trends to Watch Out for in 2023

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In recent years, banks have adopted various innovations in order to offer better services to their clients. This has led to the introduction of various inventions, such as digital banking. All you need to do is look around you, and you’ll be bombarded with signs that banks have started dropping their previous mindsets of traditional banking and are trying to reimagine banking.

The introduction of banking as a service has resulted in banks being more efficient in their day-to-day operations and also improving convenience for clients. Below are some of the trends being witnessed in 2023.

1. FinTech’s and Banks are Relying on Each Other More Than Ever Before

Illustration of a mobile and credit card banking services connection

Banks have remained the foundation of the global financial system. The financial system has a firm hold on charters, which has helped them dictate the terms of their contracts with fintech firms.

For example, banks have the power to terminate their relationships with fintech businesses if they deem their partnership unprofitable or too risky. And remember, they are the same people who hold the deposits needed to influence regulators.

These are examples of things that you shouldn’t expect to change anytime soon. On the other hand, some larger fintech companies have begun to come into their own, but they do have some limits.
Such companies provide value to the banks they have partnered with by facilitating new account openings. In the process, they get to leverage the contracts they have signed while taking care not to misrepresent themselves during negotiations.

💹Takeaway: Banks still have the upper hand in their relationships with fintech firms, but larger fintech companies are starting to come into their own.

2. Open Banking Is Set to Dominate the Future

According to data provided by Statista, the number of global open banking customers will continue to grow at an average rate of 50% between 2020 and 2024. Of these, the highest number of consumers will come from the European market.

Looking at how open data benefits the Banking as a Service platform and their consumers, it’s not hard to see why this trend will only become even more popular moving forward. FinTech’s can understand consumer behaviour by granting third parties’ access to consumer financial data.

These types of Banking as a Service trends will allow them to know what consumers need, what they want, and how they behave. In turn, these businesses can enhance the customer experience and enjoy better customer engagement and retention rates.

According to PWC, Open Banking will enhance or enable the following retail customer propositions:
• Tailored customer offerings influenced by transaction history
• Account aggregation to offer a single view of accounts held in different banks
• Better access to credit facilities for customers with thin files
• Launch of financial management tools that employ data analytics to identify customer spending patterns

3. Creation of New Contact Channels by Banking as a Service Platforms

Illustration of the silhouette of a man surrounded by 6 different communication channels banks used to provide custumer support.

Creating new contact channels, e.g., video banking, has become a recurrent topic in the banking as a Service sector. These channels make it easier for the BaaS operators to attract and hook clients to their service offerings.

Banking as a Service providers must meet their customers in existing digital channels and keep up with their behavioural changes. It’s a trend that has enabled them to observe how customers bank and interact with their products.

Furthermore, this year has seen the growth of remote access channels, many of which have recorded an increase in strength, though their efficiency lags behind that of traditional branches.

Their turning point may come with the combination of remote and stationary branches. Such a blend will allow financial institutions the opportunity to offer offline-like experiences to clients who prefer visiting a traditional branch.

4. Neo-Banks or Digital-Only Banks as Emerging Banking as a Service Trends

Neo-banks or digital-only banks create retail banking experiences from the ground up and primarily exist in the digital world. These solutions from Banking as a Service platforms provide diverse services, such as trading in cryptocurrencies, P2P transfers, and global payments.

These providers have had to keep up with emerging Banking as a Service trends as their customers continue to expect more from them each day. Those that are unable to keep up have found themselves losing business to their competition.

Looking at these trends, you’ll notice that these platforms are thriving because they are offering something that traditional banks don’t have on offer. Consumers, however, need to exercise caution as their convenience and affordability come with increased exposure to cybercrime.

5. Capital Has Continued to Flow in 2023

Of all the Banking as a Service trends recorded this year, this last one is perhaps the most surprising. 2022 proved to be a good year for startup fundraising rounds which led many people to believe that 2023 would be lukewarm and would record lower figures.

But contrary to popular belief, the investments made in the fintech sector in the last two years have helped enhance the growth of this sector and that of Banking as a Service companies. And this is happening at a time when consumers have less money, and the economy has shown signs of lagging.

The reality is that this sector has turned out to be an excellent bet for investors. Although it noticed a remarkable improvement in 2022, it also saw some operators exit the market. As the year progresses, the sector will likely see the entry and exit of different operators.

Conclusion of the Banking as a Service Trends of 2023

Banking as a service sector continues to evolve at a rapid pace. These five trends mentioned above are helping to enhance this evolution and will likely continue to define this sector for the next several months.

It’s important to note that the pace of change is fast, so BaaS companies can’t afford to lag. The only way to ensure that they remain competitive is to work with innovative partners to assist them in implementing these Banking as a Service trends.

Jesus Guzman

M&G Speed Marketing LTD. CEO

Jesus Guzman is the CEO and founder of M&G Speed Marketing LTD, a digital marketing agency focused on rapidly growing businesses through strategies like SEO, PPC, social media, email campaigns, and website optimization. With an MBA and over 11 years of experience, Guzman combines his marketing expertise with web design skills to create captivating online experiences. His journey as an in-house SEO expert has given him insights into effective online marketing. Guzman is passionate about helping businesses achieve impressive growth through his honed skills. He has proud case studies to share and is eager to connect to take your business to the next level.