How banking as a service takes off in Latin America

Just a few years ago, Banking as a Service (BaaS) was a term rarely heard in Latin America outside of industry.

A COVID-19 pandemic later, it is now one of the fastest growing fintech segments, contributing to the digitalization of the regional economy.

Since 2019, BaaS’s case has grown stronger as the region has leapt years into digitalization. The isolation measures have had the unintended effect of advancing e-commerce and online financial services.

With this, the need for digital payments has only grown. It took banking as a service to a new level: it’s no longer a niche within the FinTech industry, but a business model with growing demand.

“Banking as a service allows any business that wants to offer financial services to its customers to do so faster and easier, without needing to expand its infrastructure or apply for a regulatory license,” said Juan Fantoni. , co-founder of BaaS. Pomelo farm.

Fintech companies that don’t want to take on the heavy lifting of starting their own bank (or don’t have their pockets deep enough to buy one) find themselves with a third option. That is, consuming on-demand banking services.

BaaS is a business-to-business model that allows neobanks and other FinTech companies to connect directly to a banking infrastructure provider through APIs. This way, they can add bank offers to it.

Precious shortcut

This can be a valuable shortcut for businesses that are not specialized in banking.

“Launching a fintech solution in the region is really complex,” Fantoni said. “With BaaS, fintechs can develop financial products easily and quickly while focusing on their core proposition and user experience. “

It can also be a temporary measure for fintechs wishing to acquire a license or develop their bank.

“Today, a basic package including onboarding users, digital accounts and maps can take at least 12 to 18 months. And you can’t even differentiate yourself in the market, ”Fantoni said.

In reality, banking as a service works as a plug-and-play feature that allows any business to quickly integrate a financial product. But the industry is still in its infancy and he says much of the current offering is “incomplete” and in some cases “obsolete”.

According to Julian Colombo, founder of tech company N5, the opportunity for Baas doesn’t stop with the fintech industry. “There is huge potential for banking as a service in Latin America. “

Potential customers can range from fintech companies to delivery apps, online stores or even gas stations and universities.

“Everyone wants to sell a credit card today or offer banking products,” Colombo said. “This is why banking as a service will continue to explode in terms of demand. Ultimately, any type of business with clients will be able to serve financial products. ”

Benefit from the old infrastructure

There are two main types of BaaS providers: BaaS financial technology companies or banks.

“The bank as a service allows different players in the digital ecosystem to offer banking products tailored to the customer, where and when they need it”, noted the Spanish bank BBVA, which has invested in a German supplier Baas solarisBank earlier in 2018, noted in an article.

It can also be a way for banks to leverage their existing infrastructure.

In a market analysis sponsored by Mastercard, Lindsay Lehr wrote that “the industry is migrating to ‘banking as a service’: financial services at consumers’ fingertips at the click of a button, anytime, anywhere. “