Gartner predicts mainstream BaaS adoption within two years

According to the most recent Gartner Hype Cycle for Digital Banking Transformation research, Banking-as-a-Service (Baas) for new revenue is expected to be launched by 30% of banks that have assets exceeding USD 1 billion by the end of 2024, the belief being that half will not meet targeted revenue expectations.

Jeff Casey, senior director analyst at Gartner, stated during the Gartner IT Symposium/Xpo 2022 that the banks who are looking to adopt BaaS have a focus on generating and diversifying revenue streams, as well as on extending regulatory investments (e.g., PSD2 in Europe), which had previously sunk.

BaaS is one amongst 3 other technologies that are expected to evolve substantially in the banking sector in the next couple of years, the other ones being chatbots, public cloud for banking, and social messaging payments apps.

The below illustration from Gartner’s research shows BaaS sitting at the pinnacle of the Hype Cycle, with banks and nonbanks alike aiming to initiate or increase revenue streams, be them direct or intermediated.

Gartner has predicted that BaaS adoption rates will become common within two years.

Gartner’s 4 technologies forecasted to evolve in the banking sector

BaaS

BaaS consists of a set of financial service functions used by authorised banks or other controlled entities to strengthen new business models that have been deployed by third-party banking market participants such as fintechs, neobanks, and traditional banks.

Market participants have started to become noticeably inclined towards collaborative models that enhance customer experiences through means of more detailed features, wider product range, and innovative customer experiences. Nonbank participants benefit from BaaS by having an expedited launch into the banking market, as they can leverage a regulated entity’s license, as opposed to acquiring their own permits.

Chatbots

Being one of the primary use cases of artificial intelligence (AI) in banks, chatbots are expected to impact all areas of communication between machines and humans. Despite their usage being most prevalent in customer service, IT service management, and human resources, chatbots have diversified utilities. Having their focus changed from ‘the user learns the interface’ to ‘the chatbot learns what the user wants’ affects the workplace, with ramifications being visible in onboarding, training, productivity, and efficiency.

With the refinement of the conversational AI platform market, banks have enabled the usage of upgraded tools that help built and maintain chatbots without having to resort to IT resources, making chatbot production more profitable.

Public Cloud for Banking

Public cloud adoption helps banks increase their efficiency and agility levels by having workloads moved to the cloud. Banking-specific software is delivered within the public cloud ecosystem by having a fully native integration of different degrees of cloud-based applications.

Banks can:

optimise their services by supporting changes in demand and meeting regulatory compliance;

free up resources for digital assets’ development by centralising and optimising them;

reduce fixed costs by avoiding oversized infrastructures and optimise cost structures;

and centralise applications and platforms for ease of development and testing, while simultaneously avoiding overlapping or duplications.

Social Messaging Payment Apps

Designed to rely on the interface of the messaging app they use, social messaging payment platforms can be used to register payment accounts, initiate, and monitor transactional related activity. Social messaging apps’ outlet for the delivery of payment apps is provided by the modernisation of the payment infrastructure and the ability to utilise open banking and payment APIs.

A noticeable transformation in the shopping and payment behaviour has been observed predominantly in Asia, where social messaging payment apps have been widely adopted, with products such as Kakao Pay, LINE Pay, WeChat Pay, and WhatsApp Pay demonstrating how social messaging apps provide the contextual data and interface necessary to engage with customers.