Spotlight on Banking as a Service: Future of B2B Finance
Banking as a service, or BaaS, has skyrocketed in popularity and, in recent years, received a lot of media attention. The demand for this service continues to grow and industry forecast sales expect to surpass the US$ 12.2 Bn mark by the end of 2031.
Conversations around banking as a service typically focus on B2C interactions and behaviours, but its impact is equally as impressive on a B2B basis. Let’s redirect the spotlight and shine the light upon the B2B market by exploring the future of banking as a service in this field.
What is banking as a service or BaaS?
Banking as a service, or BaaS, is an end-to-end model which uses APIs to facilitate the connection between third parties and digital banks. Simply put, BaaS is a model that licensed banks provide to non-financial entities through integrated and embedded banking services.
Thanks to the BaaS model, companies from an array of sectors benefit from financial products, such as white-label banking services, without the need for licensing or regulation. This helps non-financial companies improve their user experience and boost profits, as they begin to offer customers personalised and integrated banking services.
You may still be wondering, what is banking as a service? How can it be used? In less technical jargon, BaaS is an umbrella term used to encompass many types of embedded finance services. This can range from services like business invoice finance to money transfers and lending, as well as card payments and processing.
History of B2B finance
Unlike many other industries, the banking sector has remained relatively unchanged over the last decades. Despite the longevity of the industry, the lack of competition between large financial institutions stifled any sense of innovation.
Only recently have we begun to see a transformation towards digitalisation and innovation in this important layer of our global infrastructure. Fintech companies have broken through traditional barriers in financial services by innovatively creating user-friendly and marketable products.
Terminology such as ‘value added’ or ‘user experience’ was practically obsolete in the banking language. Now, there’s a greater emphasis on providing clients and suppliers with alternative yet accessible forms of financing.
Let’s take business invoice finance as an example. Previously, financing services, such as loans or overdrafts, were primarily available through traditional banking institutions. Only large businesses with high credit ratings and extensive trading records were able to secure financing, making it incredibly difficult for start-ups or SMEs to plug sizable cash flow gaps.
Banking as a service has made the process of securing finance more accessible, personalised, and customer-centric. Fintech companies aren’t interested in becoming financial entities, they want to deliver a seamless service as well as embedded financial solutions.
BaaS in Action
Suppliers, buyers, and customers alike all yearn for integrated and effortless experiences. There’s now a greater emphasis on working smarter, not harder. Companies of all sizes, and across all sectors, are constantly searching for new ways to generate income. BaaS provides a perfect solution for non-financial or non-technological companies that want to test the waters in innovative yet profitable streams of revenue.
BaaS and blockchain
Blockchain technology has disrupted global markets with its ability to address hefty international payment issues. Large volume orders and cross-border payments are a challenging aspect of B2B finance. Blockchain technology can help address a major pain point that B2B finance faces by facilitating the transfer of money quickly, efficiently, and securely.
For companies that have limited technology backgrounds, investing thousands of pounds into development and hardware is simply not worth the risk. Banking as a service allows B2B companies to test the technology without the risk of establishing an in-house blockchain platform.
BaaS and the demand for flexibility and convenience
The rapid shift towards eCommerce and a greater demand for digital payments, which was further catalysed by the pandemic, is regularly discussed on a B2C basis, however, this same pattern of behaviour is mirrored within the B2B sector. Businesses use APIs to tailor their services to clients and consumers with speed, flexibility, and convenience.
Moreover, the monetary exchanges that form part of the BaaS model also provide insightful data that can be used to streamline procedures and increase efficiency. BaaS can help businesses of all sizes manage both their financial data and B2B payments through the use of APIs, cloud-based technologies, and artificial intelligence. These innovative financial products provide their clients with greater control and transparency as well as improved user experiences.
BaaS and mission-specific solutions
Banking as a service can address an array of needs. It can help firms with their digital invoicing systems or speed up pay-out processes with business invoice finance solutions. B2B companies can make use of mission-specific BaaS models and provide greater value to their customers.
The banking as a service model provides non-financial companies with the ability to roll out their own banking services. If you need to offer your clients financing or instant pay-outs, you can do so without having to go through all the strict regulations and requirements that traditional banking requires. For example, suppliers can help small businesses purchase their products through business invoice finance solutions and real estate companies can help their clients finance their mortgages.
It’s difficult to decipher how exactly BaaS will evolve in terms of B2B finance, but the future looks promising. The door has been left slightly ajar and we’re beginning to see a glimpse of how financial technology can help businesses, both small and large, expand their services and increase their value to clients.