The world of embedded finance has soared at an exponential rate in 2022, and there’s no doubt that it will continue in 2023. But what makes banking as a service so attractive in our world of high technology? We’re seeing more senior members of large organisations explore banking alternatives, in industries from insurance and healthcare to crypto and traditional banks. The adoration for BaaS is in its capability to enable any business to develop and offer improved customer experience through a simple embedded solution from a BaaS provider.
Collaboration with fintech partners has been helping businesses to accelerate their strategies for a couple of years now. With growing competition, businesses are pushed to outsmart their counterparts with sophisticated offerings which appeal to their customers. We also saw numerous large-named companies and conglomerates announce the adoption of fintech solutions in 2022, which will inevitably inspire other platforms and smaller businesses to leverage the tools that are becoming widely accessible to all.
What is BaaS?
Banking as a Service technology is a fintech model which enables a contextualised customer experience for fintechs, non-banks and commerce businesses on a global scale. BaaS products are platforms which can be seamlessly integrated into any business because of its end-to-end model. BaaS providers connect third (non-bank) parties with banking systems directly through API integrations, so that companies can build upon their product offering with sophisticated, regulated infrastructures! The banking as a service model has taken the world by storm because of its ability to unblock opportunities through open banking, and has been reshaping financial services by raising the bar with tech-savvy services that mitigate the longstanding issues faced by businesses.
1. Customer engagement
Customers showed heightened digital engagement, overtaking the rates of COVID-19 and post-pandemic. Business success has become dependent on the satisfaction of customers, in an era of high competition and the evolution of retail experience being far more than a product.
Jovi commented “if you are a financial services firm, or even an incumbent bank, a reimagining of the contact centre is going to be essential in 2023. Contact centres should be changed to a digital channel for customer stickiness, sales and new products, rather than solely queries and complaints.”
2. Data and security
Customers are becoming more digitally native and intelligent, particularly with younger generations of Millennials and Gen-Z understanding the needs, wants and digital desires of a modern-day consumer. Similarly, with increasing digital awareness, there is a growing number of cybercrime cases which have prompted a rapid adjustment and enhancement of security measures across the board. Managing Director, Jovi, commented: “Digitally savvy customers are growing up with technology and expect a much more personalised experience, that also has to be underpinned with data security. The use of data in BaaS this year has proved to many that its importance lies in both security and better supervision.”
The benefit of growing use of data is the ability to support customer experience, and even learn from cybercriminal behaviour to better prepare for any outcome. Data use has amplified business preparation and enables targeted promotions and product offering to the right audience. Whether it’s for identifying potential risk, offering support, monitoring customers’ activity or protecting their spending – the use of data will only continue to show prevalence in 2023.
3. Embedded finance
Coined as a ‘disruptive’ technology, embedded finance is driving a modern e-commerce revolution to the landscape we know. Its popularity grew as it offered customers secure, fast and simple methods to make secure payments. Whilst the term is broad and covers an array of areas, it is in fact its diversity that has made it a top trend for 2022, bringing frictionless payments into global industries. With customer experience becoming the key differentiator in our competitive market, the data and personalisation capabilities from embedded finance technologies are noteworthy. Alongside the secure, fast payment methods, customers are able to benefit from payment options that suit their personal circumstances and receive a tailored product offering cultivated from the accumulated data.
Jovi noted “embedded finance brings a level of hyper personalisation to the payment experience. In 2022, the use of personalised customer experience in real time payment journeys has shifted consumer expectations of having a personal experience as an industry standard”.
Our noted 2022 trends show a radical shift from the concept of selling a product, to the creation of a dynamic experience for customers from start to completion of transaction. It comes as no surprise that we recognise 2023 as the year for really honing in on creating the most optimal hyper personalised experience for customers. How do we think that will be achieved this coming year?
Well, firstly we must remember that one of the main influential factors for 2023 will be the continued global economic fragility which has followed us into the new year, from rising inflation, supply chain issues, political unrest and tighter policy confinements. Despite this, the uptake of BaaS will continue, particularly among capitalised banks and large organisations which strive to be well prepared for potential stormy seasons. So with the help of our Managing Director, Jovi Overo, we’ve collated some of our top trends which we expect to see help businesses prevail in the coming year.
1. Banks relying more on BaaS innovations
Evolution happens quickly in our digital world, but it’s much harder to see rapid change in incumbent institutions which have engrained methodologies which have become outdated. And so, the importance of a banking as a service model which can be integrated into virtually any product is fundamental to modernising banks and credit unions, whilst not further straining the fragility of our current economy.
Research form the Q2 sponsored: 2023 Retail Banking Trends and Priorities conveyed that 60% of financial institutions are already collaborating with fintechs and third-party solution providers to meet the digital banking needs of customers. 2023 will continue to see the legacy culture as a barrier for the demanded changes from customers, but with poignant changes to futureproofing financial institutions who aspire to be future-ready. BaaS products are a steadfast solution to streamline operations, hence their growing favouritism, with the added personalisation of customisable services for businesses, and automations which produce bespoke product offerings to customers.
Jovi: “Customer engagement post covid has been far more digitally driven than what many businesses were prepared for previously. Now banks are rapidly striving to compete with nonbank institutions to be able to provide their customers with customised services through the benefits of technologies such as AI and automation”.
2. Rising number of API-driven collaborations
In our world of increasing focus on digital transformation, simplified customer journeys, growing data needs and product and payment capabilities, APIs are the answer. Businesses and banks are seeing the benefits of API collaborations because of their financial benefits, heightened security, analytic capabilities and expandable services. The acceptance of APIs in banking first begun to see movement in the 2010s, thanks to the improvement in regulations to satisfy demand. According to more recent reports in 2022, there are now over 1,578 open banking platforms which have an available API product (representing an 8% annual growth from 2021).
Back or front-end API integrations is a popular innovation service that will allow customers to manage their financial accounts from one place, and give them a complete sense of control. There is already a rising use of AI-powered analytics tools which are intertwined into API solutions, which will continue to be prevalent in driving customer insights on behaviour to pre-empt client needs.
Jovi: “Customer behaviour and insight is pivotal to business functionality and AI-powered analytics will allow large institutions to better understand their clients’ needs. Customers no longer want to see generic promotions and sales, but rather feel that they are being given a unique experience that calls to them directly, which will in turn be more effective for all involved parties”.
Virtually most people with a form of smart device are now accustomed to the use of biometric verification to enter devices, make purchases, and beyond. In 2022, we saw the progression of biometric use to improve banking opportunities for those who are visually impaired to protect their financial interests. Biometric payments will continue to tackle financial exclusion in the coming year, making personal identity the new keypad code to access data.
Additionally, biometrics will be used as a replacement for the traditional payment solutions of bank cards, offering heightened security and tightening on financial access with thanks to authentication such as two factor authentication. More commonly we had seen the use of fingerprint and face, but we will begin to see voice confirmation and the use of iris recognition to confirm data. Research has shown that global contactless biometrics technology market will reach a phenomenal $18.6 billion by 2026. There’s no doubt that the mainstream adoption will take time, especially with some fearing over safety of their biometric prints from cyber-attacks, however the update both instore, as well as through mobile payments continues to see traction for its sheer convenience.
Jovi: “We’ve seen the replacement of traditional authentication with biometric data, which is now progressing with voice authentication and beyond. The benefit of this is monumental as it brings a level of inclusivity to all within our society and offers users the security reassurances that are needed, particularly with the rising numbers of cybercrime attempts”.
Overall, the growth and development of technologies that we will see leading trends across the open banking space will be moulded around customer needs. The future of adoption in innovation hinges on the availability of solutions and willingness of fiat providers to change with growing customer demands in a competitive digitally driven market.