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51% of European businesses believe BaaS will replace traditional banking

Over half of European business leaders expect Banking-as-a-Service (BaaS) to make traditional banking obsolete, according to new research from Vodeno/Aion.

The report – Banking-as-a-Service 2.0: Why Embedded Finance will make its mark in 2023 – reveals that 51% believe BaaS will spell the end of traditional banking.

The survey found that having the necessary licence and compliance expertise is set to play a more prominent role in Banking-as-a-Service adoption.

Almost three in five (58%) respondents believe Banking-as-a-Service providers that offer to use its licence alongside a tech solution are the ones that will shape the BaaS market in the years to come.

At present, 39% of respondents have already implemented Banking-as-a-Service services and products, with an additional 38% considering using it in the new year.

When surveyed about which products were planned for implementation, foreign exchange (48%), buy now, pay later (48%), SME lending (47%), and loyalty schemes (46%) were among the most popular.

Of the respondents who have not implemented BaaS solutions to date, 32% said they do not know enough about it, 29% said there is a lack of understanding about the products available, and 27% cited compliance and security concerns as a key barrier to adoption.

The research underscored the importance of seamlessly embedding financial services into the customer experience, with 24% stating that they would like to see their BaaS provider showing a better understanding of their customer journey.

Innovating the checkout experience is the key desired outcome for many BaaS adopters. Previous Vodeno/Aion research highlighted businesses that implemented embedded financial products were motivated by new revenue streams (41%), growth in customer basket (40%) and enhanced customer loyalty (40%).

Business leaders offered several predictions for the growth of the BaaS market.

Most (59%) expect the lines between e-commerce platforms and traditional banking services to blur this year as a result of increased BaaS adoption.

Even more (65%) expect to see more consumers using banking services via non-financial brands enabled by BaaS, rather than traditional banking. A further 60% predict a decline in traditional branch-based banking.

Looking to the future, almost two-thirds (65%) of those surveyed about industry trends predict that more Big Tech firms will move to deliver financial services, and over half (56%) believe the cost-of-living crisis will act as a catalyst for increased adoption

Key Findings:

  • More than half (51%) believe BaaS will make traditional banking obsolete
  • 58% said BaaS providers offering a licence alongside a tech solution will shape the BaaS market in the years to come
  • 56% believe the cost-of-living crisis will be a catalyst for BaaS adoption
  • Nearly a quarter (24%) called for BaaS providers to show a better understanding of their customer journey

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