Financial news

Banking-as-a-service (BaaS) and BaaS-powered business models across the UK and Europe may be experiencing a quick evolution – as BaaS gains a foothold in a number of countries across Europe, including in Lithuania, Sweden, Finland, Spain, and France. SaaS fintech platform provider Toqio explores how opportunities for banking-as-a-service (BaaS) in Europe could lead to a revolutionary shift in the financial service industry in a new report.

According to ‘The State of Banking-as-a-Service in the UK & Europe‘ report released by WhiteSight, changes have already taken place and are gaining momentum, indicating a rapid evolution of BaaS and BaaS-powered business models.

Regulation changes leading to the rise of BaaS providers have rapidly altered the financial landscape throughout the last decade. The market has seen a surge of challenger banks and embedded finance providers seeking to bring about positive change to the financial service sector – the global BaaS platform market is poised to expand at 15.7 per cent CAGR between 2021 and 2031.

The report covers the likes of the role incumbent banks play in betting on BaaS to become a key driver of growth and innovation, the expansion of use cases, heightened regulatory scrutiny, sector consolidation, and ecosystem collaboration.

The study highlights a substantial rise of BaaS across Europe. The UK and Germany continue to be the largest markets for BaaS platforms, representing around 60 per cent of the market share. However, the research also shows BaaS gaining a foothold in several other European countries, including Lithuania, Sweden, Finland, Spain, and France.

While a few major players currently dominate the European BaaS market in terms of market share, incumbent banks are expanding their market presence by forging partnerships with technology providers to offer new propositions.

Enabling early-stage innovation

Eduardo Martinez Garcia, CEO and co-founder of Toqio, commented: “One of the main use cases for BaaS has always been to enable early-stage innovation. Yet, it seems that with fewer early-stage businesses set to participate in the market over the next 12-24 months, new use cases need to be identified to drive growth. As more mature businesses, specifically those outside of financial services, look to take advantage of BaaS, we expect this to drive a shift in player make-up.”

The report explains how BaaS unlocks two significant market opportunities in the financial industry: embedded finance and fintechs. The first pertains to the growing integration of embedding financial services into the customer journeys of non-financial companies with large customer bases, such as those in the retail and e-commerce industries. The second centres on niche-focussed fintechs emerging that offer targeted financial products for specific customer segments through technology and business model innovations.

Sanjeev Kumar, founder and CEO at WhiteSight, said: “Banking-as-a-Service (BaaS) has experienced remarkable growth, transitioning from a budding idea fueling niche fintech ventures to a driving force empowering major brands in offering financial services.

“WhiteSight’s commitment to providing well-researched insights, combined with our collaboration with ecosystem enabler Toqio, allows us to thoroughly assess the shifts in BaaS business models driven by recent regulatory hurdles, industry consolidation, and increased participation of incumbent banks. We trust that this report will provide a comprehensive understanding of the industry’s trajectory, helping stakeholders navigate the evolving landscape and capitalize on emerging opportunities.”