BaaS will grow to play a huge role in embedded finance, says Unlimit

by Anjana Haines

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Jovi Overo, Managing Director of BaaS at Unlimit, shares his views on how BaaS will grow over the next five years and what service providers should be implementing today to reap the benefits.

Intrinsic motivation

Overo is very passionate about BaaS because of his own experience growing up, motivating him to develop tools and technologies to help companies offer products and services to the underserved segments of society.

“I grew up in a single-parent household. I was raised with six of my siblings by my mother, and I saw how hard it was for her to have access to the same financial tools that other people had,” he tells The Payments Association’s Editorial Director Anjana Haines during an interview.

Seeing his mum as an underbanked individual who had limited financial literacy drove him into the fintech space.

“I always felt that if I could make a change and work in an industry or in an environment that could help bridge that gap of the unbanked and the under-banked and the marginalised to help those individuals, I would do that. Banking-as-a-Service, for me, is one of those ways that I can help out.”

The future of BaaS

BaaS is expected to grow by more than 16% by 2030 according to some analysts. Anjana Haines and Jovi Overo discuss the future of this growing area.

Anjana Haines (AH): Where do you think this 16% growth will be coming from?

Jovi Overo: We can assume that there will be a compounded annual growth rate of around 16% and I can see BaaS as a market undergoing a huge and tremendous shift.

The growth will be pronounced in regions with strong tech ecosystems such as in the Asia Pacific region, given its high mobile and internet penetration, as well as America, again given the high adoption of cloud services. Specifically, if you look at emerging economies, and especially those with underbanked and unbanked populations, Mexico and Brazil also have high mobile internet penetration.

Those areas will see growth in BaaS providers and will really develop and grow in giving access to eligible services.

AH: Do you think we’ll see more BaaS providers in those areas as a result and then we may see it come through to the more developed nations later?

JO: I do see that. If you look at Europe in particular, some may say that the market is saturated with BaaS providers. In some sense that’s accurate, but there is a demand and market for it. Hence, BaaS providers are increasing in a number of innovations and functions, features and functionalities to the market.

But, yes, specifically if you look at the emerging economies in Mexico and Brazil, and LatAm in particular, we will see high growth in that region.

AH: Do you think there’s more supply than demand at the moment in terms of providers versus consumers?

JO: Yes, I guess. However, there is still demand for those services. I receive calls many times a day from prospects who inquire, ‘so what’s the difference between your solution and X competitor solution’, and I’m always very transparent and direct with my clients or potential clients.

I say there really isn’t that much difference between providers; it’s more of a question of what the client is looking to deliver. It comes down to (a) how quickly you can get to market; and (b) how specific and customised is the best provider going to offer the solution to you.

So yes, there is a huge supply of BaaS providers out there, but only because the demand is being met.

AH: How does BaaS help create a more financial inclusive ecosystem?

JO: BaaS has the potential to democratise access to financial services, specifically for the unbanked and underbanked.

I mentioned earlier that if you look at Mexico and Brazil, and certain areas in Asia Pacific with high mobile and internet penetration, these are the channels by which the unbanked and underbanked have ease of access to. So, if we can have the best provider that can enable fintechs to offer customised, agile, and accessible solutions, it’s going to create a much more inclusive ecosystem.

So, the ability, for example, to initiate transactions, to make payments, manage finances or from a smartphone is going to help financial inclusion. That’s why I believe BaaS can help create a more inclusive ecosystem.

AH: Some say there is reluctance from banks to partner with fintechs. Although things are improving, do you see BaaS as being one of the keys to more collaboration between banks and fintechs in the future?

JO: It depends on the lens through which you view it. What do I mean by that? If you look at Unlimit as an example, we have an EMI and we are a payment institution and we are happy and willing and proactively looking to partner with fintechs.

Do we have a banking license? No. Are we a bank? No. But can we provision banking services and solutions? Yes.

You’ll find that for BaaS providers that are not categorised as banks, there is an appetite and willingness to partner with fintechs because that essentially is our bread and butter.

For banks that have a banking licence, there may be reluctance there but, as you mentioned, it’s undoubtedly going to be a catalyst for collaboration between banks and fintechs.

Banks do have the regulatory expertise and experience and infrastructure, but fintechs – and Unlimit sits on both sides here in terms of being a payment institution and a fintech – have the agility, innovative spirit, and the customer-centric approach. These partnerships can bring about hybrid models that can leverage the strength for both.

Speaking from experience as I’ve been working for a fintech company, we are extremely agile and extremely customer centric. What sets one BaaS provider apart from another is how they approach their clients, business model and customers.

If you can create a more set and specific approach, that is one area that you will win against other BaaS providers. But then also, it’s one of the reasons why banks should partner with BaaS providers because they do offer that customer-centric and agile approach.

AH: About these relationships, what kind of challenges do the parties have to navigate? For example, who owns the customer relationship in that agreement?

JO: Navigating the nuances of any BaaS relationship is a bit like playing 3D chess. It’s complex, but it’s manageable with clear strategies.

Regarding customer relationships, whilst the BaaS provider doesn’t offer the infrastructure, the fintechs will leverage this service, and they are likely going to be the ones that are going to interact with the customers.

However, the communication needs to be streamlined to ensure that the customers have a single point of contact. You have regulations like GDPR, that dictate the data ownership lies with the customer for both parties. The banks and the fintechs should also have access to relevant data but needs to ensure its privacy and security.

In terms of primary contact, for example, generally fintechs will have primary contact as they provide the end services. Also, if you look at marketing services or cross marketing, in my experience working at Unlimit, this should be determined by a partnership agreement, keeping in mind that you want to avoid confusing the customer or infringing on any privacy.

As a BaaS provider, when you issue the cards, for example, to the fintech provider and end customers, you have an obligation to put on the back of the card who the issuer is. Sometimes the customer can be quite confused, if they haven’t read in detail the terms of conditions, as to who to contact but you need to

Is it the issuer of the card or is it the front-facing fintech? You want to avoid that confusion.

Also, if you look at the AML and KYC, most BaaS providers will normally undertake this and will do so in strict compliance with existing regulations to protect the customers.

AH: On the sharing of a regulated infrastructure, how does this work in practice with third parties? Is it a problem or does it work well?

JO: It can, and it should work well. Sharing a regulated infrastructure does naturally come with some risk.

The industry as a whole has taken significant strides to strengthen security measures and compliance controls. There are multiple providers out there that utilise AI and machine learning for fraud detection and AML. But, we are always dynamic and have to be because as the threat landscape evolves, the safeguards must also evolve.

AH: How do you see BaaS evolving beyond 2030? Do you expect to see significant growth in embedded financial services, for example, built on BaaS?

JO: I’m a BaaS maximalist – I’m a big believer in BaaS helping society for the better.

That’s why I think post-2030, BaaS is going to play a huge role in the embedded finance industry.

Right now, everything pretty much is embedded finance, everything from retail to transportation. We’re going to have integrated financial services in all aspects of our life.

I don’t think it’s going to be a trend, but an imminent reality. So, I’m absolutely bullish about BaaS evolving past 2030.

Banking as a service should not just be a tool to make people richer. At the risk of sounding political, it shouldn’t be just for the applicants, but it should be utilised for those who are underserved and unbanked. BaaS is a great opportunity to provide innovative solutions to help this segment.

This is what I will continue to do, and I will continue to raise its profile and talk about it.

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