Banking as a Service: Why does every company want to become a fintech?
If you’ve purchased online recently, you likely have experience with BaaS, the technological evolution of fintech that is now utilized by every type of company. Learn why most companies are ‘going fintech’, the benefits, and the role of BaaS in this process.
If you’ve purchased online recently, you likely have experience with BaaS, the technological evolution of fintech that is now utilized by every type of company. Baas stands for Banking-as-a-Service, the next step in evolving Software-as-a-Service platforms.
No matter what industry you are in, BaaS represents a chance to increase the lifetime value of your customers and improve your business’s cash flow and credit profile. If you’re looking for ways to improve your engagement with customers, streamline your revenue and payments, or provide more convenient purchasing options, now is the time to look at BaaS options.
Read to better understand why companies are “going fintechs” to increase revenue and provide a more convenient and smoother buying process for its customers. Contact us today to schedule a consultation and learn more about our financial services’ solutions.
Why is every company becoming a financial service provider?
If it seems like every company is becoming a financial service provider, that’s because many of them are.
A recent survey by Finastra* found that 85% of businesses already use some form of BaaS or intend to in the next 12- 18 months. The study also found that the BaaS market is currently a $7 trillion industry and will grow 70% per year over the next three years.
*Finastra is one of the largest fintech and BaaS providers in the world. They provide technical platforms and solutions to more than 8,600 financial institutions in 130 countries.
Why are companies in every industry turning to BaaS? BaaS allows businesses to streamline and improve their customer-facing and back-end financial operations. A company can use BaaS to:
• Accept multiple forms of online payment. Extend financing at point-of-sale.
• Process payments quickly without delays from third-party financial institutions. Issue debit cards or credit cards.
• Offer subscription-model payments to regulate cash flow. Participate in digital wallet payment methods.
• Obtain quick financing and business credit cards. And much more.
BaaS streamlines the entire revenue and payment process. Rather than going through outside financial institutions for regular transactions, the company can use one integrated fintech platform to provide payment options to customers and facilitate their financial operations.
Banking as a Service: A quick explanation
BaaS is the next evolution in Software-as-a-Service (SaaS) technology that allows non-banking companies to offer services and to integrate traditional banking services, like lending, payments, cards, deposits, and more, into their products. These types of transactions are facilitated by the fintech company providing the BaaS platform. Many of these providers are fintech companies, but more and more traditional banks are moving into the BaaS space.
How it works: The fintech or bank creates an API that can be integrated into websites, apps, and other digital platforms. The customer pays a fee to access the API and then integrates the API to achieve their desired functionality.
What are the benefits of BaaS?
There are many benefits to a company using BaaS, but they all revolve around one central idea – integrating banking and financial function directly into a business rather than through a third-party bank. Keep in mind there is still a bank involved. The underlying BaaS provider is the bank. However, the functionality is seamlessly integrated into the company. Below are a few ways this can benefit companies and customers.
Increased customer lifetime value
Increased customer lifetime value. A recent study showed that SaaS platforms that offer payment capabilities and BaaS functions increase customer lifetime value by 2 to 5 times. BaaS gives your customers multiple ways to pay for your product or service. You could implement a subscription model that increases sales and regulates cash flow. You could offer financing that makes your higher-priced products more accessible. The convenience of purchasing could make customers more likely to purchase again from you.
Reduced revenue delays and churn
If you’ve used a third-party merchant service, you’re familiar with the delays of online payments. The merchant processes the payment, and then you may see the cash hit your account in two to three days. Depending on your sales volume and industry, this delay can cause real issues. With most BaaS platforms, revenue hits your account immediately. You can access capital to reinvest in your business, fund operations, or even obtain credit.
Creating new revenue sources
Integrating fintech or BaaS into your business can also create new revenue streams. For instance, you could earn revenue for every loan approved through your fintech partner if you offer to finance. If you offer a proprietary debit card, you could earn fees based on using that card. There may be payment processing fees that now go to you instead of to an outside party. The forms of possible revenue depend greatly on your industry and type of business, but opportunities are available.
Improve overall customer satisfaction
Convenience and service can mean everything when it comes to attracting and retaining customers. When you utilize BaaS, you seamlessly offer a wide range of payment options as part of your buying experience—no need to submit loan applications to third-party banks or click on other websites. Whether your customer wants to finance their purchase, use a card, or even use a digital wallet, they can do so easily and quickly through your digital platform or in-person point of sale. That makes the process simple and convenient, making them more likely to purchase from you in the future.
Simplified credit & cash-flow management
BaaS can also benefit your company from a cash flow and financial management perspective. First, it can regulate revenue, making cash flow more predictable and consistent. Many fintech companies are linked to a lending platform as well. This can streamline borrowing because your revenue and cash flow are consolidated into one place. The lender can simply look at your cash flow to make a decision. This eliminates filling out lengthy applications at multiple institutions to get a lending decision. Whether you need a loan, a line of credit, or a business credit card, it can be simplified through BaaS.
Integrating BaaS into your company can bring benefits to your customers as well, including:
As discussed, one of the biggest benefits of BaaS is that it simplifies the checkout process. Customers can use credit or debit cards, digital wallets, or even apply for financing, all with just a few clicks. The easier it is for the customer to buy from you, the more likely they are to return for future purchases.
Financing is one of the biggest benefits of BaaS. Before, if you wanted to offer to finance, your customer probably had to fill out an application with an outside lender and then wait for their approval, which could take days. That made financing infeasible for many types of purchases.
BaaS changes the financing process. Fintech companies can process applications quickly, so customers get an answer in minutes. Best of all, the entire process happens in your store, in-person, or online. There’s no need to involve applications from outside parties. With a few questions, your customers obtain financing, and you earn a sale.
Rewards & loyalty programs
With BaaS, you can offer traditional banking services like issuing debit cards. This could be a great way to offer your customers rewards and strengthen their loyalty. They can use the card at your business, but also other businesses. When they use the card, they earn rewards at your business. You may even earn fees off their purchases.
Depending on your industry, offering banking services to your customers or employees may even make sense. Many companies employing contractors, such as Uber, Lyft, and Doordash, offer a banking solution to their workers. The contractors’ earnings go straight into a bank account with an attached debit card. The worker gets instant access to their earnings, and the company may earn fees using the debit card. It’s a win-win for both employer and the contractor.
Choose your financial service provider wisely
Contact us today at MJV to learn more about how BaaS can benefit your company and your customers. We provide BaaS solutions to businesses in a wide range of industries. From payment options to digital wallets to credit scoring and lending, we can help you take advantage of all the features BaaS offers.
It’s important to choose your fintech provider carefully. Review all the fees involved, and read the fine print. Also, make sure the provider has experience working with companies in your industry. That will make them better equipped to recommend the best ways for you to take advantage of BaaS.
Let’s schedule a time to connect and discuss your needs. With over 25 years of experience, we can help you find the right solution for your goals and budget. Reach out to us!
For more information, download our our guide on How To Prepare Your Company To Offer Financial Services, and unravel the opportunities behind these buzzwords.