Banking-as-a-service set to hit mainstream: Gartner

Banking-as-a-service (BaaS) will reach the mainstream within two years, with 30% of banks with greater than $1 billion in assets expected to launch such a service for new revenue by the end of 2024, Gartner has predicted.

But the research firm also predicts that half of these initiatives will not meet targeted revenue expectations.

Gartner defines BaaS as a discrete or broad set of financial service functions exposed by chartered banks or regulated entities to power new business models. They can be deployed by fintechs, neobanks, traditional banks and other third parties.

The company has named BaaS as one of four technologies with the potential for high levels of transformation in the banking sector and set to mature within the next few years. The other technologies are chatbots, public cloud adoption for banking and social messaging payment apps.

According to Gartner, BaaS adoption is being shaped by the ability of market participants to engage in collaborative models that enable enhanced customer experiences.

Speaking at the Gartner IT Symposium/Xpo 2022 on the Gold Coast this week, Gartner senior director analyst Jeff Casey said banks exploring BaaS “typically have ambitions to generate and diversify revenue streams, or to a lesser degree, aspire to extend previously sunk regulatory investments, such as PSD2 in Europe, into revenue-generating machines”.

With regards to chatbots, Gartner said the growing sophistication of the enterprise conversational AI platform market has attracted interest from banks looking to build and maintain chatbots using non-IT resources.

The public cloud for banking meanwhile delivers banking-specific software within a public cloud ecosystem, allowing banks to free up resources for the development of digital assets while reducing fixed costs.

Finally, Gartner noted that social messaging payment apps have transformed both shopping and payment behaviour, particularly in Asia. The success of Kakao Pay, LINE Pay, WeChat Pay and WhatsApp Pay all demonstrate the market potential of the service offering, the research firm said.

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