Banking-as-a-Service (BaaS) is growing in popularity among businesses as a strategy to improve client engagement and retention. BaaS in Latin America will grow at a 14.27% compound annual growth rate (CAGR) between 2022 and 2027. The market’s size is anticipated to expand by USD 2,430.08 million.
The notion of open banking, which promotes a secure interchange of financial data between banks and authorized third-party providers, is central to the evolution of BaaS. FinTech and software platforms can provide personalized and data-driven financial solutions to customers that were not available in traditional banking systems before by utilizing BaaS.
This report about the BaaS market in Latin America provides detailed market segmentation by component (platform and services), type (cloud-based and API-based), and end-user (big enterprise, small enterprise, and medium organization). It also offers a thorough examination of drivers, trends, and challenges. Furthermore, the report contains historical market data from 2017 to 2021.
What Is Banking as a Service (BaaS)?
Even if you are unfamiliar with the phrase “BaaS,” you have heard of SaaS. All “as a service” domains follow the same principles.
The service provider offers you its current solution, typically a subscription, allowing you to reap its benefits without investing in your resources and equipment. Companies choose SaaS to avoid custom software product development, whereas BaaS allows them to sidestep all of the formalities associated with offering banking services.
Otherwise, to provide them, they would require a license, which is not easy to obtain. Granted by the national supervisory authority, it requires you to meet stringent conditions.
How Can One Use Banking as a Service?
Before going more region-specific, let’s understand how one can use BaaS in their business. As you can see, the potential for BaaS in software and FinTech organizations is enormous, but how can you truly integrate it into your platform? There are two scenarios: one is direct, and the other involves a third party.
In the first scenario, you can set up your own BaaS FinTech or software platform by working directly with banks that provide you access to their data and systems via the Application Programming Interface.
In the second option, you collaborate with a BaaS third-party supplier who provides the underlying service, connecting you to financial goods and services. You might be charged on a subscription basis or per service. It is vital to note that the collaboration might be white-label or co-branded, resulting in a curated relationship.
➬ The news of the week which improves the #digitalbanking offer ⁑ @CetelemSpain became a bank by launching a #BankingasaService model. Thanks to a new range of financial solutions & products for consumers: current accounts, debit cards & interest-bearing savings accounts. pic.twitter.com/P41HeD42Fh
— BNP Paribas 𝙋𝙚𝙧𝙨𝙤𝙣𝙖𝙡 𝙁𝙞𝙣𝙖𝙣𝙘𝙚 (@BNPP_PF) September 14, 2023
The Function of Open APIs in Facilitating Smooth Integration in the Banking Sector
Direct cooperation with banks eliminates the need for third parties, which could save money and provide more flexibility when growing. It also needs you to pay more for API management and maintenance to make significant changes to your infrastructure.
At the same time, you are responsible for managing regulatory needs such as GDPR and Payment Card Industry compliance. Open Application Programming Interfaces (APIs) enable the easy integration of banking functionality into FinTech and IT platforms.
Banks and financial institutions allow third-party developers to access their services by exposing well-defined APIs, facilitating the secure interchange of data and transactions. These open APIs act as a bridge between traditional banking infrastructure and the new solutions provided by agile technology suppliers.
Encouraging cross-industry relationships that result in innovative financial goods and services is another benefit of using open APIs, which also expedites the procedure of obtaining financial data.
Open API adoption has, therefore, emerged as a factor in changing the economic landscape, transforming how businesses and consumers handle their money, and advancing the sector’s transition to a more connected and user-focused future.
For this reason, you can incorporate financial services and products into your program by using a third-party provider. They take care of compliance so you may concentrate on your main task. Underwriting, risk management, and fraud prevention likewise remain on their side. Payment networks and schemes can be accessed directly or indirectly by you.
In What Ways Do APIs Facilitate BaaS in Latin America?
Because of the region’s broad use of API software, businesses can integrate a combination of financial services into their current business models by collaborating with providers of banking infrastructure. FinTechs and their clients can share data more quickly with these new technologies.
According to an Atlantico analysis, while open banking adoption is increasing, data sharing remains unstable and problematic for both digital and traditional bank service providers.
Nonetheless, there is a clear difference in performance between the two groups. The survey discovered that API conversion rates from digital financial institutions account for 61% of total volume, compared to only 28% for traditional banks.
— ITSS Global (@TeamITSS) April 18, 2023
How Does the BaaS Model Work in Latin America?
Banking as a Service (BaaS) is a growing business model in Latin America as the region has continued to prioritize the digitization of financial services. BaaS has enabled any company that wishes to provide banking products and services to its customers efficiently and securely without having to change its operations or infrastructure or request a license.
Neobanks and FinTech businesses do not need to get a bank license to provide financial services under the terms of the BaaS partnership model. Organizations can integrate financial and payment services into their current user experience by collaborating with banking infrastructure providers via the use of APIs.
FinTech software development companies can also exchange data with their partners and clients in an agile and flexible manner thanks to APIs. Innovation deployment is expedited from the outset with BaaS, and businesses have complete assurance over the total cost of ownership at the time of product launch.
Conversely, financial institutions are increasingly realizing that they are overspending on maintaining their legacy infrastructure. As a FinTech company, neobank, or challenger bank, it is now more economical to collaborate with infrastructure companies who have demonstrated their ability to function in several vertical markets.
Neobanking Landscape in Latin America
Digital banking has grown in Latin America during the past few years. Because of shifting consumer demands and changing regulatory requirements, financial services innovations and advances have surged throughout the region.
1. Environment Regulation
Positive regulatory initiatives have contributed to the growth of neobanks in Latin America. Brazil will introduce one of the most comprehensive open banking systems globally. Other strategies to promote competition and remove barriers to entry in the region include Colombia’s new regulatory sandbox and Mexico’s FinTech Law.
2. Adoption of Digital Banking
The top ten digital banks in Latin America serve more than 90% of all neo-bank customers. Larger countries, such as Mexico and Brazil, are increasing their presence in smaller nations. Latin America has a significant market opportunity with the correct offer, as demonstrated by Nubank’s strategically customized solutions.
How Do Neo Banks Meet Consumer Needs in Latin America?
Let’s look at the current banking situation in LATAM countries and how neo-banks are helping to improve their finances.
1. Unlocks Financial Inclusion
Many neobanks in Latin American countries provide accounts with no or low commissions or fees, and no minimum account balance is required.
This neo-banking strategy will enable the general public with little financial means to use digital banking solutions that were previously unavailable due to high account minimums. The mobile-first approach of neo-banks parallels banking penetration.
Because of the rapid proliferation of smartphones in recent years, more than half of smartphone users now use mobile and online banking services.
2. Increased Focus on SMEs
For small and medium-sized firms, neo-banking offers a speedier and more efficient alternative to traditional credit rating procedures.
While standard solutions have high interest rates and long application response times, independent neo-banks can provide more economical and accessible payment options.
Neo banks, for example, are alleviating significant pain points for SMEs and small merchants in Latin America by using machine learning to assess business creditworthiness more quickly and efficiently. It makes banking processes more transparent, including risk assessments and decision-making.
3. Affordable Online Banking Options
There is a need for affordable digital banking options that encourage clients to avoid using cash. It’s because the majority of people in the LATAM region are impoverished. Neo banks are using an integrated strategy to provide affordable, customized solutions.
Brazilians can, for instance, open a free account with Brazil’s Nubank if they have a smartphone and a regular Central Provident Fund status on Receira Federal Brasileira.
More than 2,500 fintechs are already transforming the financial sector in #Latam and the #Caribbean by providing banking services to digital consumers, helping to increase access to online banking. How can we leverage this #DigitalEconomy boom?https://t.co/FLqsWs9ev3 pic.twitter.com/htOfLFmCfl
— Inter-American Development Bank (@the_IDB) April 1, 2022
4. Working Together in the Correct Way
Neo banks will work with FinTech firms more frequently as open banking gains momentum. It will take work to inform politicians and consumers about the advantages of open banking using this technique.
Customers will be encouraged to voluntarily and safely share transaction data with third parties. Neo banks in the Latin American and Caribbean region have already inked agreements with industries such as blockchain, cryptocurrencies, payments and remittances, real estate, blockchain, WealthTech, and marketplace financing.
Banking-as-a-Service (BaaS) is growing in popularity among businesses as a strategy to improve client engagement and retention. BaaS in Latin America will grow at a 14.27% compound annual growth rate (CAGR) between 2022 and 2027. The market’s size is anticipated to expand by USD 2,430.08 million.
The notion of open banking, which promotes a secure interchange of financial data between banks and authorized third-party providers, is central to the evolution of BaaS. FinTech and software platforms can provide personalized and data-driven financial solutions to customers that were not available in traditional banking systems before by utilizing BaaS.
This report about the BaaS market in Latin America provides detailed market segmentation by component (platform and services), type (cloud-based and API-based), and end-user (big enterprise, small enterprise, and medium organization). It also offers a thorough examination of drivers, trends, and challenges. Furthermore, the report contains historical market data from 2017 to 2021.
What Is Banking as a Service (BaaS)?
Even if you are unfamiliar with the phrase “BaaS,” you have heard of SaaS. All “as a service” domains follow the same principles.
The service provider offers you its current solution, typically a subscription, allowing you to reap its benefits without investing in your resources and equipment. Companies choose SaaS to avoid custom software product development, whereas BaaS allows them to sidestep all of the formalities associated with offering banking services.
Otherwise, to provide them, they would require a license, which is not easy to obtain. Granted by the national supervisory authority, it requires you to meet stringent conditions.
How Can One Use Banking as a Service?
Before going more region-specific, let’s understand how one can use BaaS in their business. As you can see, the potential for BaaS in software and FinTech organizations is enormous, but how can you truly integrate it into your platform? There are two scenarios: one is direct, and the other involves a third party.
In the first scenario, you can set up your own BaaS FinTech or software platform by working directly with banks that provide you access to their data and systems via the Application Programming Interface.
In the second option, you collaborate with a BaaS third-party supplier who provides the underlying service, connecting you to financial goods and services. You might be charged on a subscription basis or per service. It is vital to note that the collaboration might be white-label or co-branded, resulting in a curated relationship.
➬ The news of the week which improves the #digitalbanking offer ⁑ @CetelemSpain became a bank by launching a #BankingasaService model. Thanks to a new range of financial solutions & products for consumers: current accounts, debit cards & interest-bearing savings accounts. pic.twitter.com/P41HeD42Fh
— BNP Paribas 𝙋𝙚𝙧𝙨𝙤𝙣𝙖𝙡 𝙁𝙞𝙣𝙖𝙣𝙘𝙚 (@BNPP_PF) September 14, 2023
The Function of Open APIs in Facilitating Smooth Integration in the Banking Sector
Direct cooperation with banks eliminates the need for third parties, which could save money and provide more flexibility when growing. It also needs you to pay more for API management and maintenance to make significant changes to your infrastructure.
At the same time, you are responsible for managing regulatory needs such as GDPR and Payment Card Industry compliance. Open Application Programming Interfaces (APIs) enable the easy integration of banking functionality into FinTech and IT platforms.
Banks and financial institutions allow third-party developers to access their services by exposing well-defined APIs, facilitating the secure interchange of data and transactions. These open APIs act as a bridge between traditional banking infrastructure and the new solutions provided by agile technology suppliers.
Encouraging cross-industry relationships that result in innovative financial goods and services is another benefit of using open APIs, which also expedites the procedure of obtaining financial data.
Open API adoption has, therefore, emerged as a factor in changing the economic landscape, transforming how businesses and consumers handle their money, and advancing the sector’s transition to a more connected and user-focused future.
For this reason, you can incorporate financial services and products into your program by using a third-party provider. They take care of compliance so you may concentrate on your main task. Underwriting, risk management, and fraud prevention likewise remain on their side. Payment networks and schemes can be accessed directly or indirectly by you.
In What Ways Do APIs Facilitate BaaS in Latin America?
Because of the region’s broad use of API software, businesses can integrate a combination of financial services into their current business models by collaborating with providers of banking infrastructure. FinTechs and their clients can share data more quickly with these new technologies.
According to an Atlantico analysis, while open banking adoption is increasing, data sharing remains unstable and problematic for both digital and traditional bank service providers.
Nonetheless, there is a clear difference in performance between the two groups. The survey discovered that API conversion rates from digital financial institutions account for 61% of total volume, compared to only 28% for traditional banks.
— ITSS Global (@TeamITSS) April 18, 2023
How Does the BaaS Model Work in Latin America?
Banking as a Service (BaaS) is a growing business model in Latin America as the region has continued to prioritize the digitization of financial services. BaaS has enabled any company that wishes to provide banking products and services to its customers efficiently and securely without having to change its operations or infrastructure or request a license.
Neobanks and FinTech businesses do not need to get a bank license to provide financial services under the terms of the BaaS partnership model. Organizations can integrate financial and payment services into their current user experience by collaborating with banking infrastructure providers via the use of APIs.
FinTech software development companies can also exchange data with their partners and clients in an agile and flexible manner thanks to APIs. Innovation deployment is expedited from the outset with BaaS, and businesses have complete assurance over the total cost of ownership at the time of product launch.
Conversely, financial institutions are increasingly realizing that they are overspending on maintaining their legacy infrastructure. As a FinTech company, neobank, or challenger bank, it is now more economical to collaborate with infrastructure companies who have demonstrated their ability to function in several vertical markets.
Neobanking Landscape in Latin America
Digital banking has grown in Latin America during the past few years. Because of shifting consumer demands and changing regulatory requirements, financial services innovations and advances have surged throughout the region.
1. Environment Regulation
Positive regulatory initiatives have contributed to the growth of neobanks in Latin America. Brazil will introduce one of the most comprehensive open banking systems globally. Other strategies to promote competition and remove barriers to entry in the region include Colombia’s new regulatory sandbox and Mexico’s FinTech Law.
2. Adoption of Digital Banking
The top ten digital banks in Latin America serve more than 90% of all neo-bank customers. Larger countries, such as Mexico and Brazil, are increasing their presence in smaller nations. Latin America has a significant market opportunity with the correct offer, as demonstrated by Nubank’s strategically customized solutions.
How Do Neo Banks Meet Consumer Needs in Latin America?
Let’s look at the current banking situation in LATAM countries and how neo-banks are helping to improve their finances.
1. Unlocks Financial Inclusion
Many neobanks in Latin American countries provide accounts with no or low commissions or fees, and no minimum account balance is required.
This neo-banking strategy will enable the general public with little financial means to use digital banking solutions that were previously unavailable due to high account minimums. The mobile-first approach of neo-banks parallels banking penetration.
Because of the rapid proliferation of smartphones in recent years, more than half of smartphone users now use mobile and online banking services.
2. Increased Focus on SMEs
For small and medium-sized firms, neo-banking offers a speedier and more efficient alternative to traditional credit rating procedures.
While standard solutions have high interest rates and long application response times, independent neo-banks can provide more economical and accessible payment options.
Neo banks, for example, are alleviating significant pain points for SMEs and small merchants in Latin America by using machine learning to assess business creditworthiness more quickly and efficiently. It makes banking processes more transparent, including risk assessments and decision-making.
3. Affordable Online Banking Options
There is a need for affordable digital banking options that encourage clients to avoid using cash. It’s because the majority of people in the LATAM region are impoverished. Neo banks are using an integrated strategy to provide affordable, customized solutions.
Brazilians can, for instance, open a free account with Brazil’s Nubank if they have a smartphone and a regular Central Provident Fund status on Receira Federal Brasileira.
More than 2,500 fintechs are already transforming the financial sector in #Latam and the #Caribbean by providing banking services to digital consumers, helping to increase access to online banking. How can we leverage this #DigitalEconomy boom?https://t.co/FLqsWs9ev3 pic.twitter.com/htOfLFmCfl
— Inter-American Development Bank (@the_IDB) April 1, 2022
4. Working Together in the Correct Way
Neo banks will work with FinTech firms more frequently as open banking gains momentum. It will take work to inform politicians and consumers about the advantages of open banking using this technique.
Customers will be encouraged to voluntarily and safely share transaction data with third parties. Neo banks in the Latin American and Caribbean region have already inked agreements with industries such as blockchain, cryptocurrencies, payments and remittances, real estate, blockchain, WealthTech, and marketplace financing.
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