Shaping Europe’s BaaS revolution

By Eduardo Martinez Garcia, CEO and Co-Founder, Toqio


BaaS has gained widespread attention in recent years. A comprehensive set of end-to-end banking solutions tailored to retail and business customers, delivered through technical interfaces like APIs, BaaS-powered financial services bring benefits for all stakeholders in the value chain: customers, customer-facing partners, technology firms, and financial service providers. Customers benefit from convenient access to banking products and services, allowing them to pay, borrow, save, and invest in the same digital platform where they conduct their lifestyle or business activities.

BaaS is still in its early stages in Europe, but the potential opportunities ahead could lead to a revolutionary shift in the financial service industry. The changes have begun and are gaining momentum, indicating a rapid evolution of BaaS and BaaS-powered business models. Over the coming years leading to 2030, BaaS is expected to grow at an annualized rate of 15% to 16% globally, and the same applies to Europe as well.

The UK and Germany have been the traditional breeding grounds for BaaS providers in the region. The two countries are the largest market for BaaS platforms, representing around 60% of the market share in Europe. Over the past few years, we have seen the evolution of BaaS gain a foothold in several other European countries, including Lithuania, Sweden, Finland, Spain, and France. While a few major players currently dominate the European BaaS market in terms of market share, mid-sized to large incumbent banks are gradually expanding their market presence by forging alliances with technology providers to offer new propositions.

Incumbent banks in the UK and Europe are increasingly betting big on BaaS as a key driver of growth and innovation. By leveraging their balance sheets, expertise in compliance and risk management, and technology infrastructures, these banks are well-positioned to tap into the growing demand for digital financial services.

In recent years, the use cases for BaaS have expanded beyond just account and payment services. With the rise of Open Banking, BaaS providers are now offering a range of APIs for identity verification, loan origination, digital wallets, budgeting tools, and investment platforms. BaaS has also started to unlock digital financial services for small businesses in the form of B2B BNPL (Buy Now Pay Later), earned-wage access, corporate cards, working capital, and supply chain finance.

Heightened Regulatory Scrutiny

As the use of BaaS platforms continues to grow across Europe, regulatory bodies are paying closer attention to these providers and the potential risks they may pose to the financial system. Regulators in the UK, Germany, and Lithuania have already heightened regulatory scrutiny of BaaS providers, with more stringent regulations being put in place to mitigate potential risks such as money laundering, fraud, and financial instability.

Consolidation is also expected to be a growing trend in the BaaS market in both the UK and Europe, as providers seek to scale their operations and expand their customer base. This trend is also expected to intensify, further driven by factors including increased competition, regulatory pressures, and the need to provide a broader range of services to customers.

As BaaS becomes more prevalent, financial service providers are recognizing the need for wider ecosystem collaboration. This includes working with fintech startups, digital platforms, traditional banks, technology firms, and regulators to reimagine the design, development, distribution, and support of financial products.

BaaS isn’t going anywhere. Rather than be used merely as a neobank pipeline, however, the true power of BaaS is going to emerge as it inevitably evolves into embedded finance. We’re going to see a myriad of new use cases and innovative implementations of financial services by everyone over the next few years, from manufacturers to FMCG retailers to distribution firms. Things will be somewhat chaotic for a bit then calm down, with companies realising the true potential of the embedded finance paradigm.

BaaS is and will remain a fundamental part of the landscape because it enables businesses, particularly fintech startups, to access and integrate financial services easily. It eliminates the need for companies to build services from scratch, reducing development time and costs. BaaS fosters innovation, allowing businesses to focus on their core offerings while providing a wider range of financial products to customers. This accessibility democratizes finance, encouraging competition and ultimately improving financial services for consumers and businesses alike.


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