One in five FinTechs are losing $11m each year in product delays due to banking-as-a-service (BaaS) providers, a report from ClearBank claims.
The “Confusion, cost, and compliance: The bifurcation of BaaS and Embedded Banking” report found that FinTechs are increasingly reliant on their BaaS providers to speed time to market, boost revenues, and meet compliance demands.
Despite this, when FinTechs scale and seek more complex services, their BaaS providers struggle to keep pace. As a result, they lose revenue, rising costs and potentially intervention from the regulator, ClearBank claimed.
Some of the findings of the report are that 82% of FinTechs use BaaS, BaaS-services represent, on average, 45% of a FinTech’s overall revenue stream, and accelerating time to market and adding services (60%) are the primary drivers of BaaS adoption.
Over the coming years, 56% of FinTechs want to offer investment capabilities with their BaaS providers. Similarly, 50% are exploring crypto services and 38% are seeking wealth management tools.
ClearBank chief customer officer John Salter said, “Many BaaS and Embedded Finance offerings are no longer meeting the needs of their customers. They don’t offer the precision customers are demanding, and they can make it unclear what protections are in place to keep consumer funds safe.
“There must be a change to provide FinTechs with the level of service they require and ensure account holders are aware what type of safety their money is afforded.”
The study was completed by Aite-Novarica Group and commissioned by ClearBank. Aite-Novarica interviews 20 major FinTechs in the UK and Europe. These firms had at least 50 employees and average annual revenues of $25m.
The report also claims that people are moving away from BaaS and toward embedded banking. It claimed that 25% of FinTechs said they will be using an embedded banking provider in the future.
Aite-Novarica Group strategic advisor Enrico Camerinelli added, “The term BaaS is loosely defined, and often confused with another fast-growing term: Embedded Banking.
“Why does this matter? As FinTechs look to deliver customer facing benefits and reduce their regulatory burden there is a clear difference between the two. Embedded Banking not only allows FinTechs to embed licensed services directly into the user experience, it also embeds the mechanisms that automatically control regulatory compliance – rather than shift this responsibility onto the fintech as is the case with many BaaS providers.
“The next two years will see a clear separation between BaaS and Embedded Banking providers as the market bifurcates.”
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