According to “The State of Banking-as-a-Service in the UK & Europe”, changes have already begun and are gaining momentum, indicating a rapid evolution of BaaS and BaaS-powered business models.

Regulation changes leading to the rise of BaaS providers have rapidly altered the financial landscape throughout the last decade. The market has seen a surge of challenger banks, neobanks, and embedded finance providers seeking to bring about positive change to the financial service sector — the global BaaS platform market is poised to expand at 15.7 percent CAGR between 2021 and 2031.

The report lists five big trends on the horizon, including the role incumbent banks play in betting on BaaS to become a key driver of growth and innovation, the expansion of use cases, heightened regulatory scrutiny, sector consolidation, and ecosystem collaboration.

The study highlights a substantial rise of BaaS across Europe. The UK and Germany continue to be the largest markets for BaaS platforms, representing around 60 percent of the market share. However, the research also shows BaaS gaining 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.

Eduardo Martinez Garcia, CEO and Co-Founder of Toqio, commented: “One of the main use cases for BaaS has always been to enable early-stage innovation. Yet, it seems that with fewer early-stage businesses set to participate in the market over the next 12-24 months, new use cases need to be identified to drive growth. As more mature businesses, specifically those outside of financial services, look to take advantage of BaaS, we expect this to drive a shift in player make-up.”

The report states BaaS unlocks two significant market opportunities in the financial industry: embedded finance and fintechs. The first pertains to the growing integration of embedding financial services into the customer journeys of non-financial companies with large customer bases, such as those in the retail and e-commerce industries. The second centres on niche-focussed fintechs emerging that offer targeted financial products for specific customer segments through technology and business model innovations.

Sanjeev Kumar, Founder and CEO at WhiteSight, said: “Banking-as-a-Service (BaaS) has experienced remarkable growth, transitioning from a budding idea fueling niche fintech ventures to a driving force empowering major brands in offering financial services. WhiteSight’s commitment to providing well-researched insights, combined with our collaboration with ecosystem enabler Toqio, allows us to thoroughly assess the shifts in BaaS business models driven by recent regulatory hurdles, industry consolidation, and increased participation of incumbent banks. We trust that this report will provide a comprehensive understanding of the industry’s trajectory, helping stakeholders navigate the evolving landscape and capitalize on emerging opportunities.”

The experts interviewed for the report think the top three most critical factors to accelerate the adoption of BaaS in Europe are regulatory clarity and guidance, ecosystem collaboration, and more licenced players. When it comes to the top three use cases enabled by BaaS in the short to medium term (one to three years), experts believe digital payments, embedded bank accounts, and card issuance will lead on the retail side of operations, while embedded credit, embedded bank accounts, and digital payment acceptance will lead on the business side.

Companies that were interviewed for the report include Alviere, BBVA, ClearBank, Currencycloud, Enfuce, Griffin, SEB, Standard Chartered, and Thistle Initiatives.