Banking-as-a-service will be a $7 trillion industry by 2030, according to a report from the core technology provider Finastra.
The report, released March 28, included responses from interviews with nearly 50 senior executives and surveys of 1,600 senior executives. A majority of BaaS distributors — retailers, e-commerce firms and other consumer brands — say they plan to increase their spending on financial partnerships over the next three years, including BaaS. Lending to small and medium-sized enterprises, corporations and corporate treasury and foreign exchange services will gain the most, according to the survey. More than 70 percent of financial institutions anticipate pivoting to BaaS for small and medium enterprise lending and corporate banking.
BaaS is expected to grow 25 percent per year for the next three to five years. Nearly 85 percent of respondents said they had either already implemented BaaS or plan to over the next 12-18 months. More than eight in 10 regulated financial services providers expect the BaaS market to grow, according to the report, and three in 10 project it to do so by more than 50 percent annually for the next five years. BaaS for point of sale financing, such as ‘buy now, pay later’ and interest-bearing point of sale loans, will grow 104 percent by 2024, according to Finastra.
“Those that act fast and secure priority customer context will experience the greatest upside,” the firm stated. “Those that wait may very well be left outside looking in.”
According to venture capital firm Andreesen Horowitz, banks that have implemented BaaS have two- to three-times above-market ROE. This outsourced method of customer acquisition and customer experience addresses several challenges that banks face in the coming decade — extending beyond a geographical footprint and managing the demands of younger generations, which increasingly look to neobanks for traditional banking services.