The ambitious Fintech-as-a-Service comes of age
Fintech-as-a-Service (FaaS) is rapidly taking over the global financial market, moving from a hot trend to a must-have technology. By 2028, the global FaaS market is predicted to reach US$681.6 billion, with a CAGR of 17%. As the world’s banking and payment services become more accessible, many fintech companies and traditional banks are turning to FaaS technologies to improve their offerings to scale and compete. Below, we review the definition of Fintech-as-a-Service, recount the factors responsible for its swift rise, predict the areas in which fintech apps will be affected, and offer solutions for fintech apps needing to monitor the effectiveness of such changes to their roadmaps.
What is Fintech-as-a-Service?
Fintech-as-a-Service is a fintech API (application programming interface) that allows companies—even non-financial companies—to embed financial capabilities into their existing products, services, and applications.
For example, vacation rental company Airbnb partners with PayPal so that its users have access to more payment options online and in-app. PayPal is thus providing FaaS technology to Airbnb through a single integration.
FaaS solutions include:
- Payment acceptance
- White-label e-wallet platforms
- Financial management
- Personal loans and peer-to-peer (P2P) lending
- Card issuing
- Compliance: Identity verification and anti-money laundering screening
With a single integration, businesses can provide customers with multiple payment options, ensure compliance and provide enhanced security.
The four main drivers of FaaS expansion
In addition to the continued increase in global smartphone penetration, several factors are prompting FaaS’s ascension in the marketplace.
1. Demand for integrated capabilities
Paralleling the growing state of super apps, consumers have higher demands for their apps, desiring simple, holistic experiences within a single app. Exiting an app to obtain a service in another app is now considered a disruption to the user experience. More non-fintech apps are looking to incorporate financial services through FaaS to ensure users stay in the app longer. In a recent partnership, voice communication app Viber announced it will integrate the financial technology of the fintech Rapyd. The integration will allow in-app payment transactions within the Viber app.
2. Expansion of payment methods
As of 2022, payments account for the largest share of the FaaS market revenue by type at 40%, thanks to companies investing in mobile-based payment methods and AI technology instead of traditional banking. In Southeast Asia, India, and South America, the younger generation has rejected credit or debit card ownership in favor of using mobile apps for payments. As more consumers demand integrated payment options, companies are listening. In fact, recent estimates state that 40% of large enterprises use FaaS platforms for real-time payments to meet demand.
Within payments, we anticipate significant growth in the subcategories Buy Now, Pay Later (BNPL), and cross-border payments. While BNPL has been a growing preferred payment method for some time, with the likes of Klarna enabling it as a FaaS for apps, cross-border payments is a relatively new rising star in the fintech ecosystem.
By 2026, the transaction value of cross-border payments and global remittances is forecast to reach US$39.9 trillion, and fintech companies are clamoring to take part. Take, for instance, Chipper Cash, a fintech mobile app that offers cross-border money transfer services across Africa, the U.K., and the U.S. As we’ll discuss below, even governments are keen to see how the fintech industry can further expand cross-border payments to make the transfer of funds more secure and more equitable.
3. Adoption of advanced technologies
Global adoption of advanced technologies such as AI, blockchain, open banking, voice bot, predictive analysis, cloud and big data analytics, and digital payments is projected to stimulate growth in the FaaS industry. These advancements elevate finance management, where companies and individuals can save, invest, borrow and transfer funds virtually.
Belvo, an open finance API platform in Latin America, allows fintech apps and financial institutions to access and interpret financial data from their users to make more inclusive, user-oriented products.
Fast-tracking paperwork via predictive analysis is another powerful use case. Much of a customer’s time at a traditional bank is typically spent on paperwork. Banks can partner with a FaaS platform to tap into predictive analysis, which will gather and analyze a customer’s data across various industries to provide a prescriptive solution. Credit scores and loan approvals can quickly be determined, optimizing the process for the bank.
4. Investment in the fintech industry
Investors and governments worldwide are rushing to further invest in the fintech industry, largely due to the significant development in the advanced technologies mentioned above. According to research performed by Deloitte, companies headquartered across five countries accounted for 76.2% of the total funding in H1 2022: The U.S., The U.K, India, Brazil, and France.
An exemplar of the private sector, API developer Railsbank, raised USD$70 million in July 2021 at a single fundraising event with the aim of developing the company’s Fintech-as-a-Service platform. The company’s CEO and Co-Founder said, “Our mission is to reinvent, unbundle and democratize access to the complex, opaque, and byzantine 70-year-old credit card market, which is worth $4 trillion in the U.S. alone.”
In 2021, the U.K. government reported that at least GBP£1 billion of the taxes had been paid to the government across over 500,000 individual payments once it utilized an open banking “pay by bank account” option via fintech company Ecospend to collect tax payments.
On an international scale, the BIS Innovation Hub’s Singapore Centre is developing Nexus, a Green Fintech model for connecting multiple national payment systems enabling fast and affordable cross-border payments, providing high-quality environment, social and governance (ESG) data. Nexus’s prototype is currently testing connecting payment systems in Singapore, Malaysia, and the Euro area.
All apps should pay attention to FaaS
In conclusion, greater functionality and services will be expected of fintech apps. However, the growing demand for FaaS is relevant to apps across all verticals as consumer preference for seamless, integrated in-app payment and financial services skyrockets. If your app’s product roadmap does not include implementing FaaS technology, be assured your competitor does.
Fret not, though. We also have easy wins your team can tackle this quarter: First, dive into our recent blog, Fintech apps continue to grow despite challenges in 2022, covering fintech’s growth this year to see how your app is performing regarding installs, sessions, and retention rates. Alternatively, check out Why you should prioritize inclusivity in your fintech app’s UX.
As you test and implement new features in your roadmap, monitoring attribution, analytics, and measurement is crucial to determining what’s working and what isn't. As the leading mobile analytics platform, Adjust helps over 100,000 businesses scale and track growth. Our Mobile Attribution solution will help you identify your best users and channels. With our analytics solution, Datascape, you can get a unified view of all your marketing data in one place, and CTV AdVision can help you prove ROI on your CTV Campaigns. If you’d like a personalized demo for your fintech app, request one now.
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