Banking as a Service is a rising financial technology model that you may not have heard of, but has probably impacted your life in some way. In today’s digital age, people expect everything to be available at their fingertips, including banking.
As a result, there is a growing demand for personalized and innovative financial tools. To meet this demand, companies outside the traditional financial sector are turning to new technology, known as Banking as a Service (BaaS), to offer improved options to their customers.
Because of the ease and convenience of tailored financial tools, demand continues to grow. For example in the United States, 86% of US institutions agree that BaaS and embedded finance are already demanded by customers, and 46% of them have already improved or deployed BaaS in the past year.
What is Banking as a Service (BaaS)?
In simple terms, BaaS allows companies, including non-financial companies, to offer banking products or services. Using BaaS, businesses can offer debit cards, credit cards, digital banking, deposit accounts, and fintech apps, as well as more advanced services such as embedded lending, payments, and insurances.
BaaS has been used globally across a wide range of industries including e-commerce, health, travel, retail, telecom, insurance, the financial industry, and more. Each industry benefits from implementing their own financial tools, and have used these in many ways, from loyalty programs and apps to digital wallets and platforms.
Additionally, BaaS speeds up a brand’s time to market with ready-to-use banking infrastructure, licences, and compliance frameworks. Businesses looking to integrate banking services into their systems can use BaaS platforms and APIs to eliminate the need for extensive development, and BaaS providers handle other requirements such as regulatory compliance. As a result, businesses can focus on their core competencies while rapidly launching innovative financial solutions.
As Jeff Adamson, Co-founder and Head of Partnerships at Neo Financial states, “we are seeing the early stages of every brand incorporating financial technology into their customer experience and leveraging their brand power.” As adoption increases, he says that “this idea has the potential to transform the finance, retail and technology landscape of Canada” given the value it brings to consumers and businesses alike.
Why would businesses offer financial products and services?
The most successful brands are already reshaping the industry by embedding financial services into their products and services. These products keep customers within their ecosystem, boost brand loyalty, and provide a seamless payment experience.
BaaS helps brands keep customers in their own ecosystem by giving customers access to banking products on their branded app or website. In turn, this creates more value for customers, giving them access to financial products and services directly offered by businesses they already have a relationship with.
For businesses, BaaS helps them better understand customer behaviour and preferences, which enables them to tailor products and services to meet their customer’s needs. An example of this is the way retailers use BaaS to enhance their loyalty value proposition. By embedding financial services into their loyalty programs, retailers can create personalized promotions based on spending data. Many retailers use BaaS to complete the customer journey while offering products that make sense for their customers.
After debuting the Apple Card in 2019, Apple recently unveiled Apple Card Savings, a high-interest savings account that complements the card. Customers enjoy a range of benefits, including the convenience of no minimum deposits, no minimum balance requirements, and a hassle-free set up process integrated into the Apple Wallet.
As a brand that has established trust and loyalty with users through their impressive product range, Apple is well positioned to drive high adoption of financial products. Savings and payments are a natural value-add for customers in their purchasing journey, and Apple leverages its BaaS strategy to seamlessly integrate these features into its broader product ecosystem.
Apple’s commitment to bettering financial wellness through features like high-interest savings adds more value, while better targeting customers. With Apple Card Savings, customers can do their banking with a brand they trust, while staying in that brand’s ecosystem. In its first four days, this added value was so successful that it drew nearly $1 billion in deposits, proving demand for polished, branded consumer apps over ones delivered by a financial provider.
These products contribute to Apple’s success by increasing adoption rates and customer engagement, diversifying their revenue streams, strengthening brand positioning, improving customer retention, and giving them an overall competitive advantage. This expansion into financial services not only drives growth and revenue diversification, but also fosters more long-term customer relationships and reinforces Apple’s brand image in the market.
The challenges of BaaS in Canada
In the United States, the overall Banking as a Service market is expected to grow from ~$2.5Bn in 2020 to ~$12.2Bn in 2031. However, in Canada, the concentration of banking, legacy
technology, and strict regulation have made it difficult for new players to enter the market and offer new financial products and services. Lack of competition in monopolies like this have led to lack of innovation, and ultimately lack of choice for Canadians.
Traditionally, dominant banks in Canada have required businesses to only interact with legacy technology. This has made it difficult for brands to offer financial services and products without becoming a bank themselves. Brands that wanted to offer financing to customers, provide payment services, or add financial tools to their portfolio had to endure a process that could take 3-5 years and tens of millions of dollars. Because of this, only a few retailers in Canada have been able to execute this.
In response to these challenges, Neo Financial presents its groundbreaking solution: Banking as a Service¹ (BaaS). This innovative technology empowers businesses to seamlessly integrate financial services into their customer journey, overcoming the limitations of existing approaches and legacy technology.
Neo’s BaaS technology provides businesses with greater control, reducing their reliance on third-party providers. By leveraging this technology, businesses can optimize their operations, avoiding the exorbitant costs associated with developing and maintaining their own financial infrastructure.
By leveraging Neo’s technology, businesses can create a more engaging, personalized and convenient financial experience for their customers, while increasing their margins and better understanding their customers. With BaaS, the possibilities for innovation in the financial industry are endless.
To learn more about Neo’s Banking as a Service¹, click here.
¹Neo Financial offers its Banking as a Service platform through its partnerships with licensed banks, including: ATB Financial, Concentra Bank, and Equitable Bank.