Banking-as-a-Service is finally having its moment—and shows no signs of slowing down. The market is expected to be worth almost $75B by 2030, ballooning more than 16% per year. BaaS is transforming SaaS companies into fintechs, letting tech platforms extend loans and other banking products to their existing client bases. 

What explains the BaaS zeitgeist in this current moment, and what role do product developments play in this evolution?

The API golden age

The cornerstone to BaaS’s ascendance is that of APIs. Without these modern backend integrations, it would be virtually impossible for banks to export (or white-label) their services to select partners. While APIs do pose risks, proliferating the number of gateways through which bad actors can attempt to compromise banks’ and clients’ security, they represent a significant step forward in data-collection and -sharing practices, especially when compared with web-scraping tools. 

Other tech developments also explain BaaS’s current market fit. Infrastructure-as-a-Service is a necessary component of BaaS solutions, as is the growing cohort of vendors and fintechs that complement these banking services.

Empowering non-banks—but not too much

At the same time that BaaS enables the rapid spread of banking services and products through non-banks, its growth also presents a potential risk to incumbent banks. When modern financial services are provided outside the physical and digital walls of banks, those very banks have to contend with the potential for existing clients to move their money elsewhere—including to non-banking institutions that are powered by competitor banks. 

As a defensive move, banks are expanding their platform-banking solutions. That is, they’re partnering with fintechs to offer solutions that make in-house financial services more comprehensive than those offered by BaaS clients. Integrating wealthtech services, for instance, or financial-planning platforms. This lets banks export their core products to companies with established customer loyalty without compromising the core integrity of the bank’s brand and market stature. 

What’s next for BaaS?

BaaS is no longer a use-case-specific solution (e.g. extending a loan to a B2B platform’s clients) but an entire ecosystem. We can look to ancillary fintechs, like Blend, which offers digital mortgage solutions to financial institutions, for signs of where this landscape writ large is headed.

As Joe Lonsdale, Managing Partner at 8VC and Co-Founder of Palantir, explains in an update on Blend, the fintech is looking to stay a mile deep in its domain while expanding the number of inches wide its services go. That is, deepening “support for the home buying process, launching adjacent services including title insurance, homeowners insurance, and realty.” In addition, Blend has “built a comprehensive next-generation consumer banking suite, from deposit accounts, home equity, and auto loans to credit cards, personal loans, and specialty vehicle loans.”

We should expect BaaS providers to mimic this product-development strategy, moving into ancillary services and integrating B2B, B2B2C, and B2C mindsets. And in turn, clients should expect faster and more comprehensive services that meet—if not anticipate—their financial needs.