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Banking-as-a-Service gaining momentum in APAC

Digital banking is becoming a dominant challenger to traditional banks today. As such, most banks are now considering offering Banking-as-a-Service (BaaS) solutions to non-banks that can be used to target more customers. The main reason for doing this is because traditional banks are realizing that they need to move out of the box and consider new opportunities or face losing out to digital banks.

For Bosky Subramanian, Regional Head of Banking-as-a-Service, APAC at Finastra, the need for speed, convenience, and ease has never been greater in today’s digital age. He pointed out that if banks are to stay relevant, they must step up their digitalization game. The recent pandemic is a good example that highlighted the need for strong digital offerings and streamlined operations.

Fortunately, many banks have recognized the importance of enhancing their digital capabilities and accelerating their digital transformation. Many are looking at re-assessing their services and operating models, and are exploring how they can deliver a more streamlined digital experience both internally and externally.

According to Finastra’s Banking as a Service: Outlook 2022 | Paving the way for Embedded Finance report, the Asia Pacific’s (APAC) appetite for BaaS services exceeds that of Europe, the Middle East, Africa, (EMEA) and the Americas. What’s more interesting is that across APAC, 88% of senior executives in a number of sectors (including banking, healthcare, retail, and technology) said they are already implementing BaaS solutions or are planning to, compared with 80% in EMEA and 87% in the Americas.

The study also revealed that over 46% of APAC distributors, which are made up of the consumer brands that supply embedded financial products to consumers at the point of need, currently offer, or plan to offer, credit cards to their customers using BaaS, with other popular offerings including savings accounts (41%) and payment cards (38%)

In fact, Distributors are now spending between US$ 10 to US$ 50 million per year on financial products and service partnerships across APAC. A high level of this spending is expected to be sustained throughout 2022.

Globally, more than 80% of regulated financial services providers expect the overall BaaS market to grow. Of these, 30% expect it to grow by more than 50% per year over the next five years.

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With banking-as-a-service representing a $7 trillion opportunity, distributors, including retailers, e-commerce firms, and other consumer brands, are migrating towards BaaS solutions and expect overall growth to exceed 70% per year over the next three years globally. At the same time, 60-70% of distributors want to increase their spending on financial partnerships (including BaaS).

Subramaniam explained that the COVID-19 pandemic has recalibrated businesses across sectors in Southeast Asia and the financial industry is not immune. Hence, the industry has been forced to adapt to new market realities and build new strategies, such as the acceleration of ecosystems – tech/platform players/financial institutions all working together (Grab and Gojek offering wealth management products, for example).

“Based on our engagement with distributors (brands) and banks in emerging markets, we are witnessing high levels of receptivity when it comes to BaaS from several sectors such as B2C marketplaces, retail, large restaurant chains, and delivery businesses. At the same time, we have also observed a lot of interest from fintech and payment service providers in this space as well.

Banking-as-a-Service has a lot of potential in developing nations like Indonesia, Malaysia, and the Philippines. Over the next few years, we would expect banks and insurers to intensify their search for new partnerships and create innovative business models in a bid to curate an integrated and value-added experience for their users,” explained Subramaniam.

One bank that is working with consumer brands across the APAC region is Standard Chartered. Standard Chartered nexus is already working with companies in Indonesia like Bukalapak and Sociolla to embed financial services in their ecosystem.

“We provide brands our expertise, banking licenses, and a modern tech stack to offer partners’ customers’ personalized financial products – enabling lucrative new revenue streams and a ‘stickier’ ecosystem experience,” said Kelvin Tan, Global Lead, Standard Chartered nexus.

At the same time, as digital banks have the agility and ability to scale quickly is key, Finastra collaborates very closely with digital banks by supporting them with the right kind of technology, enabling them to curate a customer-centric experience, regardless of the growth stage of the digital bank is at.

“For example, we worked with TONIK, the first licensed digital-only bank in Southeast Asia, in 2020 to implement our solution, Fusion Essence – a cloud-based banking system to power its end-to-end-core banking capabilities in the Philippines. By doing so, TONIK benefits from ease and speed of deployment but also has the ability to create new and innovative services via a flexible and open API ecosystem,” commented Subramaniam.

The reality is though, Banking-as-a-Service is an incredibly exciting opportunity for the entire financial services ecosystem. Financial institutions can reach a greater number of customers at a significantly lower cost, while distributor brands can open up new lines of revenue and build deeper relationships with their customers.

As Angus Ross, Chief Revenue Officer, Banking-as-a-Service at Finastra puts it, “it’s clear from our research that consumers (retail or corporate) are changing where they source financial services and shifting to non-bank channels. This trend will only accelerate as integrating regulated products into the customer journey becomes as simple as creating a social media account.”