The Future of Banking-as-a-Service

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The COVID-19 pandemic has accelerated the digital transformation journey, with a growing number of non-financial digital brands adopting Banking-as-a-Service (BaaS).

At the same time, banks now have a significant opportunity to acquire new customers and expand their range of services for existing clients. According to a recent Equinix report, BaaS is increasingly viewed as a way to complement banks’ core offerings.

It provides a simpler and more cost-effective route to launch new products and enter new markets. With the embedded finance industry projected to reach $7.2 billion by 2030, early adopters are well positioned to gain a competitive edge by tapping into fresh revenue streams.

The coronavirus effect

The pandemic forced companies to adapt quickly and adopt new ways of working. Many shifted online as physical operations shut down and customers turned to digital channels for transactions and engagement.

While vaccines have helped societies return to pre-COVID routines, the long-term shift toward digital has become a permanent feature of everyday life, especially as e-commerce gained broader consumer acceptance.

For banks, this period proved particularly challenging. Lockdowns reduced branch visits and accelerated the move to online banking, all while the industry faced rapid technological disruption to traditional business models.

Previously, non-financial brands faced significant barriers when trying to offer banking-style services. The rise of Banking-as-a-Service (BaaS) has lowered these barriers, enabling new players to deliver a wider range of financial products more easily.

BaaS: A simpler path forward

BaaS leverages APIs and the secure, regulated infrastructure of licensed banks, removing much of the time and cost previously associated with building financial services from scratch.

Digital non-financial brands that thrived during the pandemic-driven shift to online commerce are now looking to integrate financial services into their offerings. This has led to increased competition from challenger banks and digital-only players, with more entrants expected in the years ahead.

Traditional banks are also recognizing the opportunities BaaS offers for bringing new products to market and accessing new geographies.

Three-quarters of respondents to the Equinix BaaS Survey said they are now more likely to use BaaS as a route to market for new products. An overwhelming 88.9% view it as an effective alternative to building solutions in-house.

Since the pandemic began, banks have become more inclined to partner with third-party providers to launch new services, with many increasing their IT budgets accordingly.

Banks increasingly see BaaS as a way to complement their core offerings, and in some cases it is becoming equally important. Partnerships allow them to reach new customers and markets while focusing on their core strengths.

This approach helps banks avoid the heavy costs of building and maintaining new infrastructure themselves. Significant investment continues to flow into the BaaS sector to meet the growing needs of the embedded finance industry.

Notable recent funding rounds underscore investor confidence: London-based BaaS provider Railsbank raised $37 million in November, while European platform SolarisBank secured €60 million in June.

With substantial capital entering the space, more traditional banks are now offering BaaS services using their existing banking licenses, enabling them to deliver more comprehensive solutions than many specialized providers.

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Traditional banks seek new revenue streams

As a result, many banks are turning to BaaS to offset pressure on traditional revenue sources. Notable players entering the market include BBVA, which has become a key participant, and Goldman Sachs, which is using BaaS to diversify beyond its traditional trading and investment banking activities.

With the pandemic having accelerated digital adoption, BaaS is expected to play an even greater role for both consumers and businesses as new services continue to launch online.

Banks and brands that embrace BaaS early are likely to gain a meaningful advantage over competitors who delay their entry.

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