What’s next for BaaS: Navigating regulatory challenges with customer-centric strategies

James Simcox is chief product officer and managing director (international) at Equals Money, a payments provider that allows businesses to offer their own digital payment and card services.

In an era where fintech innovation is accelerating, regulatory scrutiny is intensifying, particularly around banking-as-a-service (BaaS) models. For fintech companies, building and maintaining customer trust under these conditions is paramount. Key strategies to achieve this include robust compliance, strong partnerships with banks, safeguarding customer data, and prioritising customer-first service approaches, all under the framework of BaaS.

Ensuring compliance and responsibility
It is crucial to work with a responsible and compliant BaaS provider, especially when dealing with complex financial products. BaaS has sometimes garnered a bad reputation in the regulatory space as some view it as "license renting," which often lacks control. However, proper BaaS providers ensure comprehensive compliance, customer onboarding, and regulatory adherence, ensuring everything is done correctly and ethically.

Fintechs should recognize their position to act as a crucial intermediary for businesses. They are big enough to build relationships with and be sold to by banks, with the capacity to work with a range of businesses and fully understand their needs. Businesses benefit from one connection point to a fintech, with personalized service and accessible technology, that links them to a complex network of banking relationships and services.

Integration is a perfect example of how fintechs can work with banks to provide solutions for businesses. Integration with banks can be complex and require a lot of legwork from the business side. Fintech businesses do this complex integration with banks so that businesses don’t have to. Banks aren’t lagging behind fintechs in the payments space. However, searching for a solution from a bank limits the kind of service an SME will receive. Fintechs are best suited to integrate with banks and then offer a solution to those businesses.

The strategic role of BaaS
Despite recent pressures, BaaS offers significant advantages for various businesses by bypassing licensing and legal obstacles. Many fintech startups mistakenly attempt to obtain their own licenses, underestimating the complexity and time required to build the necessary understanding and tools for compliance. Through open banking and APIs, businesses can embed BaaS solutions seamlessly, integrating banking functionalities into their existing products. This integration fosters a symbiotic relationship where banks leverage fintech innovations and businesses enhance their offerings, benefiting both parties financially and operationally.

Moreover, BaaS accelerates go-to-market timelines. Businesses can rapidly implement cross-border, multicurrency banking services without lengthy development periods, enhancing their core propositions and customer retention by providing comprehensive solutions in one place. In the past, the cost of providing such services was prohibitive due to high fees and setup costs, and regulatory requirements slowing down the process. However, innovative payments providers have now managed these challenges, allowing smaller companies access to compliant APIs.

The demand for digital, on-demand services is skyrocketing. Expanding into BaaS aligns with these growing expectations, offering services that are readily accessible at customers' fingertips. Integrating banking products directly into their services enhances user experience and meets the rising demand for convenience.

Businesses benefit from a white-labelled product tailored to their branding, allowing them to expand their core offerings. This approach ensures that a fintech’s customers can offer enhanced services to their users, creating a win-win scenario. White-label platforms provide a versatile solution that can be utilized as a front-end service or through an API, or a combination of both. This flexibility is gaining popularity because it allows businesses to leverage a turnkey solution to quickly enter the market while retaining the ability to build and customize their own products on top of it.

Looking to the future
Businesses aiming to enhance their financial operations while offering superior services can look to fintechs for tailored, comprehensive solutions. Open banking and BaaS will continue to grow, offering more personalized financial services. This trend supports innovation in the financial sector, leading to more tailored banking solutions, improved customer experiences, and enhanced financial management tools for both consumers and businesses.

Through diligent compliance, strong bank partnerships, data protection, and customer-centric service, fintechs can build and maintain the trust necessary to thrive amid regulatory scrutiny. By putting the customer first and navigating the complex regulatory landscape with care, fintechs can continue to innovate and lead in the evolving financial services industry.