How BaaS is driving innovation in the digital payments space

Nanda Kumar is CEO and Founder of SunTec Business Solutions – the Kerala-based pricing and invoicing company that creates value for businesses through its cloud-based products. Kumar has been a technology evangelist in the software space for nearly three decades and specializes in customer-centric software platforms and solutions, particularly for pricing and invoicing in transaction-intensive verticals. . We caught up with him to discuss the banking-as-a-service revolution and how new innovations are transforming the transactional space.

What is the current positioning of BaaS in the market?

Traditional banks are realizing the need for additional revenue opportunities beyond interest rates. Moreover, today customers are willing to turn to other providers in search of a better experience and offers. Given the wealth of data and customer trust that banks hold, they are in the best position to build their own BaaS platforms.

In fact, in a survey we recently conducted in conjunction with American Banker, 97% of respondents said they were building a partner ecosystem for digital banking where new products are the #1 goal. more frequent. The survey further suggests that while payment processing and customer fees are the most common revenue strategies today, bundling and monetizing customer spend data are on the rise.

Non-banking businesses will require traditional financial institutions to provide them with infrastructure, regulatory support as well as the use of APIs. Financial institutions, on the other hand, can generate new revenue streams by leveraging BaaS.

What new developments are happening in this space?

Neobanks and fintech companies provide a seamless digital banking experience. However, they need a bank to offer cards, loans, money transfers and other banking services. Fintech companies also have limited experience with compliance processes. A BaaS model therefore becomes critical in a highly regulated and competitive market. Banks have responded by allowing fintech companies and neobanks to have the resources and infrastructure of a bank to expand their offerings while lowering operating costs.

How does BaaS fit into new plans and developments for Central Bank digital currencies and decentralized finance?

Facebook’s announcement of the introduction of a global cryptocurrency has mounted pressure on central bankers, while China’s move towards central bank digital currencies (CBDCs) has sparked renewed interest. attention among leading economics legislators. CBDCs may not be the very next chapter in digital payments just yet, but they are likely to become one of the next chapters.

When people use non-bank money transfer services, their money is the responsibility of that private company and is not insured. If that business becomes insolvent, consumers and merchants can lose their balances. With the CBDC made transparent to consumers, these issues will be resolved. Many global banks are jumping on the CBDC bandwagon for payments, settlements, pricing, billing, and revenue management.

As for decentralized finance (DeFi), it will allow parties to exchange traditional financial products in a P2P manner, replacing intermediaries like financial institutions. Banks need to carefully assess the potential of DeFi to assess the opportunities.

What major trend is shaping the BaaS space?

BaaS is becoming the solution to the banking services needs of fintechs and neobanks. It offers an opportunity for banks in place to broaden the scope of their offers, while being the guardian of the customer’s interests. Banks can increase their reach with offerings that go beyond banking products, improving their engagement with customers. This means that customers have access to more products and services that are personalized and meet their needs.

What does the future of BaaS look like to you?

As more fintech companies seek banking partners to provide banking services, there is a significant opportunity for banks to offer BaaS and develop new relationships with fintech companies, creating new revenue streams. for themselves. However, exposing banking services via APIs increases the risk of cyberattacks and security breaches if not carefully managed. Technical and operational constraints, such as legacy infrastructure, can delay implementations and require costly manual processes to overcome limitations. Additionally, banks should continue their efforts to add new fintech partners to the portfolio. Banks can further align their business models and reduce risk by partnering with an experienced provider that offers a secure digital layer that can seamlessly integrate with multiple systems and offer end-to-end connection of corporate data .

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