The Rise of Banking as a Service
An Oliver Wyman Report
Banking-as-a-service, or BaaS, is a great opportunity for existing banks, insurers, and wealth managers to reach a greater number of customers at a lower cost by teaming up with non-financial businesses. But if they do not react in a rapid, strategic manner, BaaS could also pose a threat, as it opens up the financial services market to new challengers. Incumbent banks and other financial institutions need to make strategic decisions about how to enter this growing business – what products to offer and which partners to work with.
BaaS is enabled by the seamless integration of financial services and products into other kinds of customer activities, typically on non-financial digital platforms. Consumers increasingly use these platforms to access services such as e-commerce, travel, retail, health, and telecom. The financial service could be someone taking out a small loan when they pay for a holiday on a travel site; or the instant calculation and sale of micro-insurance for newly purchased jewelry.
We believe that BaaS will bring together digital technology platforms and finance to change the shape of economies and most sectors for years to come. BaaS is a clear opportunity for financial institutions to capture new revenue growth at a low cost. Also, a BaaS business is scalable and agile, making it particularly suitable for entering new markets and then expanding. For distributors, it is an opportunity to open new revenue lines at attractive margins and gain a much deeper understanding of consumer behavior through financial data.