Global Banking-as-a-Service (BaaS) Market Size By Type (Cloud-based, API-based), By Enterprise Size (Large Enterprises, Small & Medium Enterprises (SMEs)), By End-user (Banks, Fintech Corporations), By Geographic Scope And Forecast

Banking As-A-Service (BaaS) Market Size And Forecast

Banking-as-a-Service (BaaS) Market size was valued at USD 847.1 Billion in 2024 and is projected to reach USD 6835.77 Billion by 2031, growing at a CAGR of 32.9% from 2024 to 2031.

Banking-as-a-Service (BaaS) is a business model that allows non-banking companies to provide banking goods and services using application programming interfaces (APIs) without requiring a banking license.

This model enables businesses, such as retailers or fintech firms, to incorporate financial services like payment processing, loans, and digital banking directly into their platforms, thereby increasing user involvement and expediting the consumer journey.

Global Banking-as-a-Service (BaaS) Market Dynamics

The key market dynamics that are shaping the banking-as-a-service (BaaS) market include:

Key Market Drivers

Increasing Adoption of Digital Banking: The rapid shift towards digital banking is a major driver of the BaaS market. According to Verified Market Research, the global number of digital banking users is predicted to increase to 4 billion by 2024, up from 2.7 billion in 2021. This represents a 44 percent increase in just three years. The increased need for convenient, 24/7 accessible banking services is prompting financial institutions and non-banking organizations to use BaaS systems to improve their digital offerings.

Rising Fintech Investments: The spike in fintech investments is accelerating the growth of the BaaS market. Global fintech funding increased to $91.5 billion in 2021, nearly double the previous year's record of $47.2 billion. This significant rise in funding enables more companies to integrate financial services into their goods via BaaS solutions, driving market expansion and innovation.

Growing Demand for Embedded Finance: The growing popularity of embedded finance is a major driver in the BaaS market. According to a report by Lightyear Capital, the embedded finance market in the United States is expected to rise from $22.5 billion in 2020 to $230 billion by 2025, a whopping 922% increase. This rapid development is being driven by non-financial enterprises incorporating financial services into their products, opening up new potential for BaaS providers to power these embedded finance solutions.

Key Challenges:

High-Risk Exposure for BaaS Service Providers: BaaS providers handle sensitive financial information, making them attractive targets for cyberattacks. The increasing frequency and sophistication of these assaults result in serious security breaches, causing financial losses and reputational damage. This significant risk exposure discourages potential clients from implementing BaaS solutions, as businesses prioritize the security of their financial transactions and customer data over the benefits of integrating new services.

High Cost of Adoption: Businesses, particularly small and medium-sized organizations with limited financial resources, face significant costs when implementing BaaS systems. The initial expenditure necessary for technology infrastructure, integration, and compliance presents a considerable hurdle. Furthermore, continuous costs for maintenance and updates put a burden on budgets, making it difficult for businesses to justify the switch to a BaaS model despite the potential benefits.

Key Trends:

Embedded Finance and Embedded Banking: BaaS is facilitating the emergence of embedded finance, which involves smoothly integrating financial services into non-financial platforms. This enables businesses to provide financial products such as accounts, loans, and payments directly to their clients, hence improving the user experience. As consumer demand for embedded banking rises, particularly among millennials and Generation Z, BaaS usage will increase.

Collaboration Between Banks and Fintechs: Traditional banks are working with fintech companies to exploit BaaS systems and APIs. This relationship enables banks to upgrade their infrastructure, quickly launch digital offerings, and reach new consumer segments. Fintechs, on the other hand, can obtain regulated banking services without having to construct their infrastructure. These strategic relationships are altering the financial services sector and propelling the BaaS market forward.

Regulatory Changes and Open Banking: Evolving rules, like as PSD2 in Europe and similar initiatives in other countries, require banks to open up their systems using APIs. This open banking platform is a critical enabler for BaaS since it allows third-party providers to access consumer data and create new services. As more nations implement open banking legislation, the BaaS market will continue to grow, with Asia-Pacific likely to be the fastest expanding.

Global Banking-as-a-Service (BaaS) Market Regional Analysis

Here is a more detailed regional analysis of the banking-as-a-service (BaaS) market:

Europe:

According to Verified Market Research, Europe is estimated to dominate the banking-as-a-service (BaaS) market over the forecast period. Europe's forward-thinking legislative structure, particularly the updated Payment Services Directive (PSD2), is a major driver of the regional BaaS market. According to the European Banking Authority (EBA), as of December 2020, there were 403 registered Account Information Service Providers (AISPs) and 170 Payment Initiation Service Providers (PISPs) in the European Economic Area. This legal framework has promoted open banking and financial innovation, accelerating the deployment of BaaS solutions across the continent.

Furthermore, Europe's booming fintech ecosystem is a key driver of the region's BaaS market. According to Innovate Finance, European fintech investment totaled USD 49.4 Billion in 2021, a 144% increase over 2020. The UK alone accounted for USD 11.6 Billion of this investment or a 217% yearly growth. This vibrant fintech sector has several potential for BaaS providers to collaborate with startups and major financial institutions, hence fostering innovation and market growth in the region.

North America:

North America is estimated to exhibit substantial growth within the market during the forecast period. The growing popularity of embedded finance is a major driver of the BaaS market in North America. According to a Lightyear Capital analysis, the embedded finance market in the United States alone is predicted to rise from USD 22.5 Billion in 2020 to USD 230 Billion in 2025, an astounding 922% increase. This rapid development is being driven by non-financial enterprises incorporating banking services into their products, opening up new potential for BaaS providers to power these embedded finance solutions and extend their market position in North America.

Furthermore, North America is experiencing a spike in digital banking use, which is boosting the BaaS market. According to a survey, the number of digital banking users in the United States is expected to increase to 216.8 million by 2025, from 196.8 million in 2021. This marks a 10.2% growth in only four years. The growing demand for seamless digital financial services is motivating traditional banks and fintech companies to use BaaS platforms, which is driving market growth in the region.

Asia Pacific:

The Asia Pacific region is estimated to exhibit the highest growth within the market during the forecast period. The Asia Pacific region is experiencing a spike in digital banking usage, which is fueling the growth of the BaaS market. According to McKinsey's Personal Financial Services Survey, the number of digitally active banking customers in Asia Pacific climbed from 54.5% in 2017 to 88% in 2021. In growing nations such as Indonesia, digital banking adoption increased from 58% in 2017 to 95% by 2021. This huge surge in digital banking usage provides an ideal opportunity for BaaS providers to offer novel financial solutions to a fast-rising user base.

Furthermore, the Asia Pacific region has a large unbanked and underbanked population, creating a huge opportunity for BaaS industry growth. According to the World Bank's Global Findex Database 2021, around 1 billion adults in East Asia and the Pacific lack access to banking services. In Southeast Asia alone, 70% of adults are unbanked or underbanked. This massive untapped market is prompting fintech startups and traditional banks to use BaaS platforms to access and serve these people with novel financial products and services.

Global Banking-as-a-Service (BaaS) Market: Segmentation Analysis

The Banking-as-a-Service (BaaS) Market is segmented based on Type, Enterprise Size, End-User, and Geography.

Banking-as-a-Service (BaaS) Market, By Type

Cloud-based

API-based

Based on Type, the market is segmented into Cloud-based and API-based. The cloud-based segment is estimated to dominate the banking-as-a-service (BaaS) market during the forecast period. The growing use of cloud technology and the benefits it provides, such as scalability, flexibility, and cost-effectiveness, are driving the expansion of the Cloud-based BaaS segment in the overall Banking-as-a-Service market.

Banking-as-a-Service (BaaS) Market, By Enterprise Size

Large Enterprises

Small and Medium Enterprises (SMEs)

Based on Enterprise Size, the market is segmented into Large Enterprises and Small & Medium Enterprises (SMEs). The large enterprise segment is estimated to dominate the banking-as-a-service (BaaS) market. Large enterprises, with over a thousand people, have a broader range of company locations, a huge and devoted client base, a strong brand reputation, and the ability to fund their operations at a cheap cost of capital. Their big client base generates massive amounts of customer data, which may be processed to provide new financial services at a reduced cost and in greater volume.

Banking-as-a-Service (BaaS) Market, By End-User

Banks

Fintech Corporations

Others

Based on End-User, the market is segmented into Banks, Fintech Corporations, and Others. The bank segment is estimated to dominate the banking-as-a-service (BaaS) market due to traditional banks' increasing embrace of BaaS technologies to improve client experience, decrease operating costs, and remain competitive in the quickly changing financial services industry. Banks are using BaaS platforms to modernize their infrastructure, offer digital goods faster, and reach new consumer segments, hence driving the segment's growth.

Banking-as-a-Service (BaaS) Market, By Geography

North America

Europe

Asia Pacific

Rest of the World

Based on Geography, the Banking-as-a-Service (BaaS) Market is classified into North America, Europe, Asia Pacific, and the Rest of the World. Europe region is estimated to dominate the market during the forecasted period due to the region's robust regulatory environment and the growing acceptance of digital banking products by both individuals and businesses. European banks are focusing on improving cost efficiency and risk management, which has resulted in increased technological expenditures and the adoption of BaaS models. As a result, many traditional banks are collaborating with fintech firms to update their offerings and enhance client experiences, strengthening Europe's position in the BaaS market.

Key Players

• The "Banking-as-a-Service (BaaS) Market" study report will provide valuable insight with an emphasis on the global market. The major players in the market are SolarisBank (Solaris SE), Sqaure, PayPal, Fidor Bank (Groupe BPCE), Moven, Prosper, Matchmove Pay Pte Ltd Source, TREEZOR (SOCIETE GENERALE GROUP), OANDA, and Currency Cloud

Our market analysis also entails a section solely dedicated to such major players wherein our analysts provide an insight into the financial statements of all the major players, along with product benchmarking and SWOT analysis. The competitive landscape section also includes key development strategies, market share, and market ranking analysis of the above-mentioned players globally.

• Banking-as-a-Service (BaaS) Market Recent Developments
• In November 2022, Treasury Prime collaborated with Plaid, an API-first data network that powers the digital financial ecosystem. The goal is to seamlessly integrate Treasury Prime-supported accounts with any external fintech offered through the Plaid ecosystem.