A recent Aite-Novarica Group study has revealed a growing number of fintechs are losing out on millions of dollars due to product delays on behalf of BaaS (Business as a Service) providers.
The research highlights that fintechs are losing as much as $11m per year as a result of product delays, with a growing number of fintech firms opting to move towards embedded banking as an alternative.
The ClearBank commissioned Aite-Novarica Group found out that of the 20 major fintechs surveyed across Europe, 40% saw their services go down this year, with 33% losing customers.
The study notes that firms have become increasingly reliant on BaaS services to speed time to market, boost revenues, and meet compliance demands, but these providers are struggling to keep up with the demands.
The reliance on BaaS is almost unanimous within the fintech sector, as Aite-Novarica Group finds 82% of companies use a BaaS-related service which is responsible for 45% of fintech’s overall revenue stream.
As a result, 25% of fintechs say they are interested in moving from a BaaS provider in favour of an embedded banking solution to address these challenges.
Embedded banking looks to integrate banking services through a bank-licensed provider directly into the end user, opposed to the BaaS approach, which distributes banking products via a distributor which can be unlicensed.
The increasing demand for an embedded banking solution is due to BaaS’ complex compliance issues. 47% of fintechs say they experienced product delays which resulted in an average of $10.9m in missed revenue.
Regulatory intervention was also highlighted as a BaaS challenge by fintechs, with 20% of fintechs having faced regulatory intervention due to their BaaS partner.
Enrico Camerinelli, Strategic Advisor of Aite-Novarica Group, commented on the findings stating: “The next two years will see a clear separation between BaaS and embedded banking providers in the market.
“Many BaaS and Embedded Finance offerings are no longer meeting the needs of their customers. They don’t offer the precision customers are demanding, and they can make it unclear what protections are in place to keep consumer funds safe,” added John Salter, Chief Customer Officer of ClearBank.
“There must be a change to provide fintechs with the level of service they require and ensure account holders are aware of what type of safety their money is afforded. We commissioned this research to better understand the state of the BaaS and Embedded Finance market, and how it can be improved.”