According to the banking-as-a-service (BaaS) platform industry analysis by Future Market Insights (FMI), the demand registered in the market will increase at a healthy CAGR of 15.7% from 2021-2031.
The report also forecasts that the market will surpass a valuation of ~US$ 2.8 Bn by the end of 2021. As per FMI, rapid technological advancements and presence of application programming interface (APIs) have created prospects for banking-as-a-service (BaaS) platforms. These technologies have become essential in improving economic competitiveness, thereby propelling the market growth.
Over the past few years, BaaS has emerged as a new and innovative way for banks and third parties to collaborate in order to provide customers with digital-only banking products and services and enhanced customer experiences. BaaS has caused a shift in the way that banks and third parties work together and has huge advantages for both the incumbent players and those starting out in the financial services industry.
Increased competition has led to increased innovation in the banking space which in turn has led to improved digital experiences for customers. Customers have greater choice than ever before when it comes to what financial products and services they use.
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Key Takeaways: Banking-as-a-Service (BaaS) Platform Market
- By solution, the banking as a service platform segment is anticipated to account for the leading share in the global demand for banking-as-a-service (BaaS) platform during the forecast period. However, the banking as a service APIs segment is estimated to grow at a robust CAGR of 17.1% through 2031.
- By enterprise size, the integration of BaaS platform in small & mid-sized organizations is anticipated to increase at a CAGR of 16.6% between 2021 & 2031, while large organizations are currently dominating the market share.
- The adoption of banking-as-a-service (BaaS) platform by fintech corporations is expected to rise at maximum pace. As per FMI, demand in this segment will increase by a CAGR of 18.2% between 2021 and 2031.
- Europe is expected to lead the market followed by North America in 2021. South Asia & Pacific is anticipated to emerge as the fastest growing region between 2021 & 2031.
- The market in Japan is expected to progress at a CAGR of 17.9% through 2031.
- In the U.K., sales are expected to increase at a CAGR of close to 16% over the next ten years.
“Fintechs and digital banks have been encroaching on incumbent institutions in the banking game and disrupting traditional business models — but by moving into the BaaS space. Tech-savvy legacy banks can turn this looming threat into an opportunity” says FMI analyst.
COVID-19 Impact Analysis on Banking-as-a-Service (BaaS) Platform Market
The outbreak of COVID-19 has led to more usage of banking components because remote working and social distancing have helped digital banking gain a huge customer base. COVID-19 has been a defining moment for digital transformation, as financial institutions that invested strategically & financially in the digitalization process over the past decade, have been better prepared to navigate these shifts and respond to the crisis.
The market has witnessed a significant growth previously, but due to the unexpected COVID-19 outbreak, the market will witness additional growth in 2020, owing to the rising demand for seamless banking transactions. This growth will be majorly driven by changing customer behavior, increasing focus of the people from visiting bank branches to online access of bank services.
Hence, implementation of banking-as-a-service (BaaS) platform would be highly valuable during the COVID-19 period due to several factors such as rising use of electronic transactions amid pandemic crises, and to enable stress-free banking activities.
According to a 2020 World Bank survey, the fintech market has continued to help expand access to financial services during the COVID-19 pandemic—particularly in emerging markets—with strong growth in all types of digital financial services except lending. On an average, Fintech firms reported around 11% growth in volume of digital payment transactions, in H1,2020 as compared to H1,2019. Fintech innovations are helping reduce the cost of providing services, making it possible to reach more people, and reducing the need for face-to-face interactions, essential for keeping up economic activity during the pandemic.
Thus, the demand for banking-as-a-service (BaaS) platform is estimated to grow around 11.6% to 13.8% Y-o-Y from 2019 to 2021.
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Rapid Shift towards Embedded Finance
More and more nonbank companies are offering financial services, such as bank accounts or wallets, payments, and lending. Today, companies of all types and levels of maturity—including retailers, telcos, big techs and software companies, car manufacturers, insurance providers, and logistics firms—are considering and preparing to launch embedded financial services to serve business and consumer segments.
To meet the rising demand for embedded finance, financial institutions are increasingly offering banking as a service (BaaS)—bundled offerings, often white-labeled or cobranded services that nonbanks can use to serve their customers. With the acceleration of digitization, including automation and APIs, banks can scale BaaS faster, putting embedded finance within reach for more companies considering it. This is further estimated to fuel up the banking-as-a-service (BaaS) platform market growth prospects in the near future.
Banking-as-a-Service (BaaS) Platform Outlook by Category
- Banking as a Service Platform
- Banking as a Service APIs
- Payment Processing Services
- Digital Banking Services
- KYC Services
- Customer Support Services
By Enterprise Size:
- Small & Mid-sized Organizations
- Large Organizations
By End User:
- FinTech Corporations
- Investment Firms
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- North America
- Latin America
- East Asia
- South Asia & Pacific
- Middle East and Africa (MEA)