Today, a transformational shift in how we access financial solutions is happening. The brands we use every day are increasingly offering banking products directly to their customers, underpinned by Banking-as-a-Service (BaaS). In turn, businesses adopting BaaS are reaping the benefits of increased revenue and stronger customer loyalty.

BaaS-powered embedded finance empowers businesses across multiple sectors to build better customer experiences by offering financial products in a contextual way, integrated seamlessly into the user journey.

Although BaaS has the potential to solve many customer journey friction points, adoption is not as straightforward as the ‘as-a-service’ moniker suggests. BaaS requires a far more strategic approach than integrating a technology solution. The most successful BaaS projects demand a sharp focus on customers’ needs and challenges, identifying the right product-market fit, and ensuring regulation and compliance are covered.

So, for any business considering a move into the BaaS space, here are three top tips.

Focus on customer needs

All successful BaaS projects start with a clear understanding of the business and its customers. The right BaaS solution will be dictated by customers’ friction points – the challenges they face, and the financial solutions that can solve them.

Among retailers and brands, for instance, BNPL is a popular solution for this very reason. It allows consumers to defer and split payments – the ability to purchase the items they want with the choice to pay over time. This means improved conversion for the vendor, but BNPL also gives customers the ability to choose more aspirational products.

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For high-ticket items, flights or home appliances, recent research highlights that consumers today will only shop with businesses that offer BNPL at checkout.

Regulation and compliance are pivotal

BaaS solutions are regulated financial products, so regulation and compliance are at the centre of any successful delivery. It’s impossible to stress this enough.

That said, not all BaaS providers are created equal, particularly where licensing and compliance are concerned. Some providers offer Electronic Money Institutions (EMI) licences, limiting the financial products they can offer to payments. Other providers have access to full banking licences, allowing them to offer a complete range of solutions, including the ability to hold deposits, offer savings accounts and enable lending solutions.

Along with the necessary banking licence, BaaS adopters will need to consider the regulatory experience and compliance expertise of the BaaS provider. Selecting a BaaS provider that can fully handle compliance and anti-fraud requirements is essential to avoid pitfalls, particularly as projects scale, in order to remain fully compliant every step of the way.

Think about scalability

Scalability is paramount with BaaS; starting a project without first considering how it can scale and evolve over time is a high-risk approach.

Again, scalability requires a considered approach built on the right technology and licensing, as well as a strong Go-to-Market plan in order to be successful. Many businesses will dip their toe in the water, often starting by offering embedded payment solutions – this is a sound strategy. But the right BaaS provider can then help businesses identify which additional products would offer value and where to in the customer journey to apply them.

We can be sure that the BaaS market will continue to grow at pace in the years to come, with adoption being driven across all manner of industries and in different use cases. But, adopters cannot run before they walk, and careful planning is required.

Undoubtedly, finding the right BaaS provider is essential, with those able to offer a full end-to-end service – technology, banking licence and regulatory and compliance expertise – best placed to help businesses navigate and scale their BaaS journey.

Hopefully the tips above offer a useful checklist of important things to consider.

Jean-Jacques Le Bon is Chief Strategy and Product Officer, Vodeno

Vodeno’s blockchain-based, cloud-native platform combines with financial products based on Aion Bank’s ECB licence to offer embedded banking services to European companies. Vodeno and Aion Bank are separate companies and backed by global private equity firm Warburg Pincus, as well as additional investors NatWest Group and the European Bank for Reconstruction and Development.