How BaaS is broadening the boundaries of banking

At the heart of the digitisation of financial services is the idea of access. From platforms and ecosystems to automation and analytics, digital innovations are transforming banking to be more accessible to businesses of all sizes. One of the most important breakthroughs in this effort has been the development of Banking-as-a-Service offerings. By enabling the integration of banking functionality into a business’s existing platforms, banks such as HSBC are opening up a new world of opportunities for organisations to add value to their customers. Drawing from insights shared during the recent Money 20/20 event in Thailand, let’s discuss the latest trends as well as what’s next for BaaS in Asia.

In many ways BaaS has turned the tables in terms of how businesses think about banking. The ability to embed banking functionality into the platforms these businesses and their customers use every day is significant. As a result, the business-bank relationship is becoming less siloed, more integrated, and therefore more valuable. Yet, there is further work to be done to ensure BaaS offerings are practical options for as many businesses as possible.

Starting with the end user

What do today’s customers want from their banking partners? They want a frictionless and intuitive user experience, where banking services are seamlessly integrated into their workflows. Personalised recommendations and insights as well as real-time access to data for decision-making are also priorities that need to addressed.

How are banks such as HSBC responding in the context of their BaaS offerings? There are two major areas of innovation:

Open APIs are the first. These allows third-party developers to access banking data and services, as well as fintechs and other businesses to incorporate banking functionality into their services – a huge value add when it comes to information reporting, simplifying payments, and more.

Although the BaaS market is still somewhat nascent, there is growing momentum around these capabilities – especially in Asia where smartphone penetration is comparatively high, lending to a mobile-first API-based banking approach.

Collaboration is the second. Because multiple parties are involved in the successful rollout of embedded banking solutions, it’s important that everyone remains aligned and focused on delivering a positive experience for end users. Building trust, clearly communicating about needs and goals and thinking collectively about the outcome of the collaboration are all necessary to ensure a smooth implementation.

Conquering the challenges

BaaS is here to stay because the shift in how consumers and businesses want and expect to access banking products has fundamentally changed. And while the global BaaS market value is expected to grow some 5x from USD4bn in 2022 to USD22.6bn in 2032,¹ there are distinct challenges that need to be overcome in this process.

For one, similar to other financial service sectors, BaaS providers are operating in a fragmented regulatory environment with varying frameworks and requirements depending on where a business is located. This is particularly pronounced in Asia with its wide diversity of markets.

For this reason, working with regulators to establish global standards is also an important step towards making the market for BaaS solutions more secure, as well as providing a stable environment for innovation and the development of new products.

Another challenge is in the mind. While there is much excitement around BaaS, legacy thinking can hinder the adoption of a new business model built around a scalable BaaS technology solution. For our part at HSBC, we’ve launched several partnerships across the tech, fintech and e-commerce industries that reflect the value and promise of BaaS.

BaaS can also be a big help for SMEs who continue to find payment, trade and other transaction banking solutions hard to reach by integrating them into the platforms they use day-to-day.

Expanding the BaaS ecosystem

To accelerate the momentum around BaaS, strategic collaborations need to remain the priority. This could take the form of partnerships between banks and businesses, where BaaS services are made directly available on front-end user platforms. To do this sustainably, banks would need to focus on developing the right digital stack of solutions for meeting the needs of a given business.

Collaboration could also mean providing lending support for innovative companies to grow. For example, HSBC recently announced a USD1bn ASEAN Growth Fund, offering strategic debt financing to help platform businesses in the region achieve economies of scale, expand their portfolios and position themselves to capture the opportunities flowing from Southeast Asia’s burgeoning digital economy.

Looking ahead, BaaS service providers will differentiate by reliability, expertise and trust. Whether it’s in the solutions they develop or the ability to adhere to diverse regulatory requirements, businesses will benefit from a BaaS banking partner that is as globally connected as they are technologically competent.