Kshitija Kaur & Risav Chakraborty
The State of Banking-as-a-Service | FinTech Roundup 2022
2023 has been a year of roundups for us at Whitesight. We strongly feel that several events and announcements that happened in 2022 will hold the key to how the fintech sector evolves this year. With each new roundup, we're taking a closer and more granular look at the market trends and industry moves that are shaping the future of finance – from growth and innovation to transformation and beyond. This is the sixth instalment in our ongoing series, and we’re turning up the BaaS on the eventful affairs of the banking-as-a-service (BaaS) realm.
Curious about what else we've been covering in our 2022 roundups? Here’s a handy list of the comprehensive collection right here for you:
2022 FinTech M&A Roundup: Economic Climate Driving Industry Consolidation
We’ve already Bumped Up the BaaS on the many banking and financial propositions through our previous banking-as-a-service roundup. We're now dialling it up to 11 to include the latest in the world of BaaS from the latter half of 2022, giving you a speedy rundown of all the action that has surfaced in this rapidly evolving field.
BaaS is Necessary, Banking is Not
2022 seems to be the year where BaaS model got true validation. Whether it is the decisive actions of incumbent banks, payment giants, and fintech decacorns throwing their hats in the BaaS arena or digital ecosystem collaborations powering a diverse set of embedded finance use cases – BaaS seems to have truly captured the attention in every fintech conversation.
BaaS today is happening in so many different ways – from embedded bank accounts to e-wallets, business financing to personal loans, buy now, pay later plans, lines of credit and mortgages – non-banks are teaming up with banks and BaaS middleware platforms to leverage multiple facets of banking-as-a-service. We take a look into the growing popularity of these innovative arrangements:
Several incumbent banks in the UK and Europe – such as Natwest and HSBC in the UK, SEB in Sweden, BBVA in Spain, and Deutsche bank in Germany – made significant BaaS bets. BMO’s partnership with FISPAN to integrate payments, reporting, and reconciliation into BMO Online Banking, and Temenos’ expanded agreement with Mbanq to deepen business collaboration following the launch of a joint “as-a-service” credit union offering – both illustrate how diverse banking-as-a-service can be in simplifying seamless consumer journeys and creating new revenue streams.
Cross River Bank and American Express teamed up to make banking more accessible by allowing Cross River to issue credit cards for fintechs on the American Express network. The partnership showcases the versatility of the 'cards-as-a-service' model, opening the doors to a multitude of opportunities for partners and consumers alike. Enfuce, Welcome.Place, Epassi, and Visa similarly joined forces in a pilot project to provide prepaid payment cards to refugees in France, further emphasising the potential of this modern approach.
Elevating the game to the next level, Currencycloud partnered with Integrated Finance to offer forex-as-a-service, allowing Integrated Finance’s fintech customers to easily add cross-border payments and FX functionality to their platforms. Raisin also enhanced its platform by migrating to ClearBank, leveraging payments-as-a-service to provide customers with FSCS-protected accounts and access to payment rails.
BaaS Boom: Making Waves through Major Moves
The second half of 2022 has been a whirlwind of activity in the BaaS landscape, as various partnerships, product launches, and funding rounds have taken centre stage. The industry has been abuzz with exciting developments and noteworthy events that have caught the attention of many.
Strategic synergies were on the menu for BaaS and open banking players in the past year. Serving a new way to pay, JJ Foodservice partnered with Solaris and Ecospend to offer an open banking payment solution, allowing customers to pay directly from business bank accounts with real-time cost visibility. Further in the partnerships saga, Treasury Prime and Plaid came together to leverage a proprietary solution that enables Treasury Prime customers to easily link their accounts to a variety of fintechs to deliver safe, secure, and instant payments.
Rolling the BaaS through novel propositions, Galileo Financial Technologies unveiled the Galileo Direct Deposit Switch, powered by Atomic, providing fintech clients with faster access to their wages and a sleek way to redirect paychecks into the financial accounts of their choice. Griffin broke down barriers for fintechs through its open, unlimited sandbox access – available to all brands for prototype development and experimentation without financial commitment or long wait times. BaaS platform Synapse also announced a series of year-end milestones achieved in 2022, including the launch of two new platforms, becoming cash-flow positive, and completing 91 million annualised transactions. The platform now aims to deliver more robust features, such as Modular Banking, Global Credit, and Identity, Fraud and Credit Intelligence for the year ahead.
BaaS providers were observed to be holding the fort against the funding crunch, with Toqio acquiring ~$22M in a Series A investment round to become the platform of choice for creating new fintech solutions. Meanwhile, Monese announced a $35M investment by HSBC as part of a broader partnership that will focus on supporting the continued growth of Monese’s cloud-based platform-as-a-service business.
The Fork in the Road for BaaS
We stand at an inflexion point as the BaaS market is paving the way for a new dawn in financial services by reshaping the banking value chain and boosting adoption through programmatic access to financial products. There are several tailwinds for BaaS, such as the rising adoption of cloud and cloud-native back-office technologies among banks, open banking and open finance initiatives from regulation, and expectation from consumers to get instant access to contextual financial products. But the sector is also expected to have run-ins with regulators increasing scrutiny of financial product manufacturers and distributors through initiatives, including Consumer Duty in the UK and Responsible Innovation in the US.
In the current economic climate, for the BaaS phenomenon to continue powering the next set of financial innovations, banks, BaaS middleware platforms, third-party technology providers, and customer-facing fintechs and brands need to collaborate to reduce risk, adhere to regulations, and offer cutting-edge financial products. With regulators expected to provide much-needed clarity on the roles and accountabilities of the BaaS value chain participants, the sector may just get what it needs to grow exponentially and responsibly.