For challenger banks and would-be financial innovators, BaaS can significantly reduce the time to market for many offerings. That efficiency results in lower barriers to entry, because start-ups do not need to raise capital to wait out a prolonged license approval process (or build a substantial compliance team) before they start generating revenue.
“For existing banks and financial institutions without sophisticated digital-first offerings, BaaS provides a way to monetize existing infrastructure, regulatory licenses, and risk-management expertise by extending those services to customer-facing distribution partners in return for fees,” says Akhilesh Khera, a partner in PwC UK’s digital banking practice. “This allows existing banks to reach new customer segments, diversify revenue streams, and generate additional income.”
Fintech companies with expertise in infrastructure and technology can draw on BaaS to grow a banking business while dispensing with end customer–facing activity altogether. Companies such as Solaris, ClearBank, and Stripe, for example, have generated significant revenues in a short space of time by providing banking products to customer-facing banks and neobanks without seeking to market those products directly to end users.
BaaS encourages diversity in banking provision by allowing new companies to rapidly launch products while focusing on their core competencies, such as user experience or customer service. Risk management and infrastructure, meanwhile, are concentrated in regulated institutions.