How Finance as a Service Is Shaping the Future of Financial Services

  • Ivo Gueorguiev, Co-Founder and Executive Chairman at Paynetics

  • 20.04.2021 04:30 pm
  • Finance

Finance as a Service (FaaS) is revolutionising the financial industry as we know it. As a dynamic delivery model that improves on the old manual legacy systems, FaaS helps companies better manage their working capital, quickly deliver accurate forecasts, and reduce operating costs.    

The erosion of payment processing costs, increased customer expectations for user experience, and the reduced regulatory barriers have all helped usher in this new generation of payments. 

The adoption of new financial services  

Consumers have become more willing to adopt new technologies and new financial services providers during the pandemic. For example, the number of Brits with a digital-only bank increased by 23% in 2020. Historically, getting consumers to adopt non-traditional providers has been difficult. Banks have spent years building customer relationships and delivering products, therefore they maintain strong levels of residual trust with consumers.  

However, the tide is turning as FaaS reshapes the way we think about the finance products. Convenient payment options have become a priority, with digital payments projected to hit $6.6tn in 2021, a 40% jump in two years. 

Consumers driving banking innovation   

Customers now demand the same speed and User Experience (UX) in their business dealings as they are used to receiving in their personal finances. As technologies like APIs and Open Banking enable consumers to see a range of data from different providers in one view, ease of set-up and use will become a key differentiator.  

Product variety, lower costs, and social purpose are key offerings providers are now expected to offer, meanwhile doing the impossible by providing more for less. This is why it’s essential to lower the total cost of ownership. Scaling globally will help smaller fintechs to lower their operating costs.   

Future winners and losers  

Customers, along with the merchants most attuned to consumer needs, will be the main winners in the shift to FaaS. New market entrants that have a clear sense of their purpose and value proposition will do well too. Meanwhile, larger, established firms might struggle to identify their unique offering.  

Financial service providers poised to succeed will have a willingness to innovate, digitisation as part of their DNA, and a large customer base from which to mine user-generated data for product and service development. Hence, Big Tech poses a significant threat to both the incumbent players and the emerging fintechs. Companies like Amazon, Google, and Facebook have billions of consumers, and therefore have the rich resource of data to challenge the existing big banks.  

Remaining competitive  

A huge amount of investment will be required to build smaller players’ technological backbone in order to remain competitive and so they must be willing to form alliances. 

Operational solidity is also a key building block for FaaS success; payments systems must be highly scalable, always-on, and frictionless. Those who can ensure this will benefit as the demand for such service grows exponentially.  

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