BaaS is reshaping the financial ecosystem with new, low-cost solutions for delivering payment and other banking services, including embedded finance, white-label solutions and subscription-based banking systems. The opportunities are growing, but how businesses address the challenges of adopting BaaS will be essential for success.
Vilaiporn Taweelappontong, Asia Pacific Financial Services Consulting Leader and Consulting Lead Partner, PwC Thailand said that BaaS solutions, which allow non-banking businesses to offer financial services such as in-app payment, are increasingly significant in the country's financial ecosystem. They allow businesses, whether banks and financial institutions, software developers, fintech start-ups, or platform providers, to reach a broader target audience and pave the way for new financial services embedded in various applications.
These services cater to the growing needs of customers by integrating traditional banking with technology, thereby transforming financial service delivery and creating new, cost-effective financial solutions.
"BaaS solutions have completely transformed the competitive landscape of Thailand's financial services market over the past few years," Vilaiporn said.
"We have seen an expansion in the use of BaaS solutions in almost all categories, led by banks and financial service providers that use BaaS to enhance customer experiences and offer more personalised services. This has facilitated financial services, such as banks partnering with e-commerce platforms to provide loans or insurance services for high-value purchases," she said.
Vilaiporn continued that BaaS, as a business model, can create new forms of financial services by offering certain banking operations 'as a Service'[1], such as Lending as a Service (LaaS) delivered via cloud platforms. This allows financial institutions to streamline lending operations and offer loans to customers more efficiently. It also supports back office and middle office with services such as Compliance as a Service and anti-money laundering in the form of AML as a Service.
Furthermore, BaaS allows non-bank companies to connect with banks through Application Programming Interfaces (APIs)[2] to use various services. All of these factors benefit the overall financial ecosystem of the country as they help strengthen financial infrastructure through efficient digital channels, acting as a puzzle piece that will drive Thailand towards becoming a globally competitive digital financial hub, she said.
According to Vilaiporn, the new financial service models emerging from BaaS are:
- Embedded finance: This involves embedding financial services into non-financial platforms or apps, allowing banks to offer products directly to customers as Product as a Feature. This model is widely used, particularly in super apps, such as embedding loan services, Buy Now Pay Later services or insurance services.
- White-label solutions: Services offered by one organisation but sold under another's brand. For example, banks can offer white-label services to fintech companies and other businesses, generating revenue through licensing fees. This approach allows non-banks to offer banking services without building their own infrastructure, such as white-label ATMs that accept all types of cards and banks, reducing costs for banks.
- Subscription model: Banks can adopt a subscription model for premium, specialised financial services, such as advanced financial analytics and financial planning. For instance, Monzo, a UK-based branchless bank, offers three subscription levels, each covering different services and fees.
Moreover, BaaS enables banks to bring services or products to the market more quickly through API-powered initiatives. It also increases opportunities for generating new revenue streams by partnering with fintech companies and other third-party providers to reach underserved segments without substantial investment.
"BaaS will help banks to expand international transactions and financial services through partnerships with BaaS providers in target countries, which is highly beneficial for banks looking to enter new markets. It also promotes greater connectivity within the global financial ecosystem," she said.
The challenges of BaaS adoption
While BaaS presents new business opportunities, there are four key challenges in the Thai market:
- Regulatory compliance and data privacy: Ensuring full compliance with increasingly complex regulations, including the Personal Data Protection Act B.E. 2562 (2019) (PDPA), is crucial for building consumer trust. The threat of data privacy adds another layer of concern.
- Robust API security and management: This is essential as APIs are often used to access existing organisational data, including sensitive information. Proper API security planning will mitigate risks and assure customers that their financial data is protected from breaches.
- Legacy system integration: The complexity of integrating BaaS platforms with existing legacy systems remains a significant challenge. Ensuring seamless cooperation between internal systems and external parties is technically complex and resource intensive.
- Selecting reliable BaaS providers: Thorough due diligence is necessary, and relying on third-party providers may pose risks related to service continuity, security and regulatory compliance.
"Business leaders should choose BaaS providers with robust data management, strong security measures and international compliance certifications. Additionally, they should implement API with effective authentication and authorisation mechanisms. Finally, enforcing stringent access controls and regularly conducting penetration testing will reduce the risk of attacks and increase trust among digital financial service users," Vilaiporn said.
[1] What is XaaS (anything as a service)?, TechTarget
[2] What is API?, AWS
Source: PwC Thailand