What is embedded finance?
In India, embedded finance is transforming how people interact with financial services. This type of finance refers to integrating financial services into everyday products and activities, making them more convenient and accessible for people. For example, instead of going to a bank to get a loan, you may be able to take out a loan through your mobile phone company.
Embedded finance is still in its early stages in India, but it has the potential to improve financial inclusion significantly. According to the Reserve Bank of India, only about 35% of the population has access to formal banking services. By making financial services more accessible and convenient, embedded finance can help increase access to these services for everyone.
What is Baas?
One of the most famous examples of embedded finance is Baas, which stands for “bank-as-a-service.” BaaS providers in India allow businesses to offer their customers banking and other financial services without having to set up their bank or partner with a traditional bank. This online payment platform not only makes it more convenient for consumers but also gives businesses a new revenue stream.
BaaS is an end-to-end process that facilitates direct connections between fintech companies and banks via APIs. This enables various types of banking transactions – borrowings, cards, investments, financial protection, transfer of funds, etc. As part of open banking, BaaS platforms have emerged as key components that enable banks to provide account holders with greater financial transparency.
To counteract the threat posed by fintech, the technology-savvy legacy banks may want to move into the BaaS space, which enables them to share their infrastructure and data. It is anticipated that native customers will have access to this type of information within a few years. This means that financial institutions that begin their implementation now have a competitive advantage and will likely be rewarded with a high level of demand.
Banking-as-a-Service: How Does It Work?
Fintech companies or other third-party providers access BaaS platforms by paying a fee. Third-party providers then gain access to the financial institutions’ APIs through the BaaS providers. This enables the development of new products for the banking industry or the offering of white-label banking services based on the use of existing systems and information.
The launch of a BaaS platform will not only position institutions as leaders in open banking but will also create a wealth of new revenue opportunities. BaaS services are typically monetized by charging customers a monthly fee for access to the platform or by charging a fixed fee per service.
To put it simply,
- Businesses and individuals who use BaaS pay for it
- Using a BaaS platform, the bank or financial institution opens up its APIs
- These APIs are utilized by a fintech company or individual to develop innovative financial products
The future of BaaS in India
Advances in technology are contributing to the trend of IT consumerization, commoditization of banking services, and an increased expectation of accessibility and convenience among consumers. The financial services industry in India has undergone great change in the past few years as it has developed a strong foundation to withstand the effect of significant change.
Many banks have now adopted a service-oriented and componentized architecture approach, resulting in significant restructuring of their existing back-end processes. Furthermore, as a result of the advent of open banking, componentization will become even more prevalent, thereby increasing collaborations between banks and fintech companies.
Due to the growing needs, expectations, and capabilities of technology, its impact will only expand. As a result, banks must embrace BaaS fully to remain relevant in the digital world, maintain market share, and maintain a strong presence in their industry.
How are these services transforming India?
The rise of Baas providers in India is transforming the country’s financial landscape. By providing access to banking and financial services through mobile apps, these companies are making it easier for people to manage their money and make payments.
Baas providers are also helping to reduce the cost of financial services in India. By using technology to connect customers directly with banks and other financial institutions, they can offer lower prices than traditional intermediaries.
In addition to making it easier for people to access financial services, Baas providers are also helping to improve the quality of those services. By using data and analytics, they can provide insights that can help banks and other financial institutions better serve their customers.
The growth of Baas providers in India is a positive development for the country’s economy.
Conclusion
Embedded finance and Baas are transforming India. These new online payment platform technologies are making it easier for people to access financial services and are helping to drive economic growth. While there are still some challenges to be addressed, such as ensuring that these services are accessible to all, it is clear that embedded finance and Baas are positively impacting India’s economy.