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BaaS is driving discussions about how FIs can play in more spaces than ever before, touch new industries, become part of a bigger financial ecosystem, and reach new customers. But not everyone in the industry is on the same page.
Navigating the BaaS Market
BaaS represents a $7 trillion opportunity that presents enormous potential to drive real revenue for FIs. There’s just one problem. A universal understanding of how BaaS fits into FIs’ strategic agendas is still a work in progress.
New research from Galileo and American Banker that surveyed bank and credit union leaders with deep knowledge of their FIs’ new business areas or customer engagement initiatives explores where gaps exist about BaaS’ potential. The research highlights why some are prioritizing BaaS investments, and why others remain hesitant.
The survey indicates that 43% were familiar with a commonly accepted definition of BaaS, but nearly a third (32%) of respondents had no knowledge of BaaS. This industry gap shows where limitations exist for those who haven’t uncovered how embracing BaaS can uncover promising growth strategies.
The BaaS priority gap: What’s pushing some FIs forward as others hold back?
Standing still isn’t an option for FIs. Forward-thinking FIs know there’s value in BaaS, but not everyone can draw the line between modern technology integration and ROI.
65% of FIs surveyed consider BaaS a priority on some level, while 35% say it’s a low or holds no priority. Among those who are prioritizing BaaS, remaining competitive in the market was cited by 77% of those institutions prioritizing BaaS, but others say they have more pressing strategic priorities.
Revenue opportunity represents a stark difference between these two mindsets: 63% of those not prioritizing BaaS don’t see it as a big enough revenue opportunity, while half of those prioritizing BaaS are doing so to open new revenue streams. And for those who are already in market – it’s working: among institutions that have already put BaaS into practice, 60% have opened new revenue streams and remained competitive.
Proven strategies to help FIs bet on BaaS.
There’s a primary reason BaaS is getting so much attention today. FIs who are thinking digital-first have embraced BaaS’ potential and are seeing it pay off. There are four proven strategies that can help FIs turn toward BaaS in a way that delivers, which we explore in depth in our BaaS playbook.
Understand your customer—be data-driven: FIs have a unique advantage. They have the opportunity to turn the massive quantities of data they create or consume into valuable, actionable insights to deliver tailored financial products and services to customers at the point of need. Modern digital banking technology empowers FIs to act on those findings.
Evaluate your digital readiness: Even organizations without a strong tech foundation can embrace digital. To start, take an honest look at your current capabilities and processes and determine how to move forward - always keeping your customers in mind.
Adopt advanced technology: 70% of the FIs in the American Banker study say that adopting “smart” AI technology to improve customer experiences is a top three priority in 2023. Elevating customer experience and boosting engagement are vital to delivering a successful BaaS strategy.
Evaluate your risk appetite: Enabling BaaS means doing so in a compliant, secure, flexible, and sustainable way that minimizes disruption to a FI’s business, can co-exist with current operations and doesn’t put FIs out of compliance.
BaaS remains at the center of digital banking innovation discussions today because it helps FIs maintain a competitive position in the market, while creating new distribution channels to connect with new customers. But keeping up with today’s digital transformation conversations requires FIs to evaluate their own capabilities and ensure they have a partner that aligns with their strategic priorities.
Not sure where to get started? Let us help you get there. Download our BaaS playbook to learn from FI leaders who have successfully embraced BaaS.
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