• Kim Van Esbroeck, Country Head for Aion Bank Belgium & Chief Revenue Officer at Vodeno/Aion


• 14.04.2023 03:45 pm
#baas

Businesses today are constantly facing the challenge to innovate and adapt to evolving consumer needs. Technology continues to revolutionise the way businesses interact with their customers, leading many brands to turn to Banking-as-a-Service (BaaS)-enabled embedded finance solutions to create a better customer journey and maintain a competitive edge. The opportunity for BaaS adopters is clear: a frictionless experience can increase conversion and repeat visits and also drive better brand loyalty.

According to a survey commissioned by Vodeno/Aion, 41% of businesses are motivated by increased revenue when launching an embedded finance offering, alongside the ability to launch new products and business models; other advantages include improved customer engagement and conversion rates, more repeat visits and larger shopping baskets.

With embedded finance showing true uplift to businesses, choosing the right BaaS provider is critical. As table stakes, all BaaS providers should offer a cost-effective, API-based solution, but the best players also combine this with products based on the right licence and regulatory & compliance expertise. Businesses must do their homework to ensure they choose the right partner to bring their ideas to life. 

In this article, we examine the essential factors that make up a winning BaaS proposition, and what brands should consider when selecting a BaaS provider to make sure their embedded finance products are a success.

What businesses want from BaaS providers

When weighing up different BaaS providers, brands must balance a tranche of different concerns, including compliance and security (27%) to a lack of understanding about the products at their disposal (29%).

When surveyed about their priorities when selecting a provider, rapid implementation and a swift time to market came out on top according to Vodeno’s research, ensuring that brands can stay ahead of the competition and see an early return on investment.

For a further 31% of BaaS adopters, cost-effective services were key, with this proportion of respondents stating that they would like to see their provider moving to provide more cost-effective services, while 20% of businesses not using BaaS cited cost as a key barrier to implementation. 

The value of customer experience 

A smooth customer experience (CX) is imperative to the success of any business and is a key factor for many decision-makers when selecting a BaaS provider. According to recent research commissioned by Vodeno/Aion, 28% of businesses cited the need for their BaaS provider to better understand their customer journey in order to create a truly frictionless experience.

In creating this seamless journey, brands stand to gain from new revenue streams (41%), growth in customer basket (40%) and enhanced customer loyalty (40%), according to the research.

In order for embedded finance to improve the customer experience, brands must truly understand their customers’ challenges and points of friction. 

METRO AG, a German multinational wholesale company in the hotels, restaurants and catering (HoReCa) industry, understood that cash flow was a key challenge faced by their customers, where businesses are required to pay upfront for goods, with repayment for services made later. With this in mind, METRO Financial Services introduced a decoupled debit card, a METRO-branded card, that seamlessly connects to the user’s bank account of choice to pay for transactions, removing the need to open a new account or top-up funds. Importantly, the card offers flexible payment methods - Buy Now, Pay Later - with the added benefit of up to 1% cashback. 

Bringing the right solution to market means that brands must choose a provider with the capabilities required to achieve their goals. For METRO, this meant access to a European Central Bank (ECB) banking licence, and the regulatory and compliance expertise from a fully regulated bank, combined with API-based, cloud-native technology. METRO could not find the technical expertise from traditional banks and chose a BaaS partner that combined products based on a full banking licence with the right technical capabilities.  

The role of banking licences

The types of products that a BaaS provider can offer is determined by its licence. For example, some have an Electronic Money Institution (EMI) licence – with this licence, BaaS providers can enable their partners to embed payment services into their ecosystems, such as transferring funds between accounts, settling purchases and issuing electronic money.

On the other hand, a full ECB banking licence allows providers to offer a full scope of financial products, providing their customers with more choice.

Based on Vodeno/Aion’s recent survey, 28% of BaaS adopters would like to see their BaaS provider offer products based on a full banking licence, and more than half (58%) of respondents believe that BaaS providers with access to a full range of banking products based on a banking licence alongside a tech offering would be the ones to shape the BaaS market in years to come. 

BaaS and beyond

While the BaaS opportunity may be clear, choosing a provider that can seamlessly integrate products and bring them to market quickly, cost-effectively and compliantly can be challenging. Ultimately, the winning BaaS proposition is one that provides businesses with the full scope of banking products based on the right licence and compliance expertise. With the right BaaS partner, brands can offer a truly first-class CX that helps to differentiate themselves amongst competitors.