Bank-as-a-Service (BaaS) as a strategy to increase customer engagement and retention is becoming increasingly popular with businesses。BaaS CAGR in Latin America to reach 14% from 2022 to 2027.27%。Market size is expected to expand 24.$300.8 billion。

The concept of open banking, which facilitates the secure exchange of financial data between banks and authorized third-party providers, is at the heart of BaaS development.。With BaaS, fintech and software platforms can provide customers with personalized and data-driven financial solutions that are not available in traditional banking systems。

BaaS Growth in Latin America

This report on the BaaS market in Latin America provides detailed market segmentation by component (platform and services), type (cloud-based and API-based), and end users (large enterprises, small businesses, and midsize enterprises)。The report also provides an in-depth study of drivers, trends and challenges。The report also includes historical market data from 2017 to 2021.。

What is BaaS?？

Even if you're not familiar with the phrase "BaaS," you've heard of SaaS。All "as a service" areas follow the same principles。

Service providers offer you current solutions, usually subscriptions, so you can get the benefits without having to invest resources and equipment。Companies choose SaaS to avoid the development of custom software products, while BaaS allows companies to eliminate all the formalities associated with providing banking services。

Otherwise, to provide these services, a license is required, and obtaining a license is not easy, because the license is issued by the national regulatory agency and strict conditions need to be met。

How to use BaaS？

Before understanding the specific regions, let's first understand how to use BaaS in the business。BaaS has great potential in software and fintech companies, but there are two situations in which it is truly integrated into its own platform: one is direct integration, and the other involves third parties。

In the first case, you can work directly with the bank to access the bank's data and systems through APIs to build your own fintech or software BaaS platform。

In the second case, you work with a BaaS third-party provider that provides the underlying services to connect you with financial products and services。You can charge per subscription or per service。It is worth noting that this collaboration may be a white label or co-branding, and thus a carefully planned relationship。

Open API facilitates banking consolidation

Working directly with banks without a third party saves money and provides more flexibility when developing。But if you want to make a major infrastructure transformation, you need to pay more for API management and maintenance.。

At the same time, you are also responsible for managing regulatory requirements such as GDPR and payment card industry compliance, APIs that enable easy integration of banking functions into fintech and IT platforms。

Banks and financial institutions facilitate the secure exchange of data and transactions by allowing third-party developers to access their services through publicly defined APIs。These APIs serve as a bridge between traditional banking infrastructure and new solutions from agile technology vendors。

Another benefit of using APIs is to encourage cross-industry relationships, resulting in innovative financial products and services, which also speeds up the process of accessing financial data。

As a result, API adoption has become a factor in changing the economic landscape, changing the way businesses and consumers handle money, and driving the industry's transition to a more connected and user-centric future.。

Therefore, you can incorporate financial services and products into your plan by using third-party providers。They are responsible for compliance so you can focus on your main tasks。Similarly, they are responsible for underwriting, risk management and fraud prevention, and you have direct or indirect access to payment networks and plans。

How APIs facilitate BaaS in Latin America？

Due to the extensive use of API software in the region, enterprises can integrate their financial services portfolio into their current business models by partnering with banking infrastructure providers.。Fintech companies and their customers can use these new technologies to share data faster。

An analysis by Atlantico notes that while the adoption rate of open banking is increasing, data sharing remains erratic and problematic for both digital banks and traditional banking service providers.。

Nonetheless, there are significant differences in the performance of the two types of banks。The survey found that digital financial institutions accounted for 61% of the total API conversion rate, while traditional banks accounted for only 28%。

How the BaaS model works in Latin America？

In Latin America, BaaS is an evolving business model as the region has always prioritized the digitization of financial services.。BaaS enables any company that wants to efficiently and securely deliver banking products and services to its customers without having to change its operations or infrastructure or apply for a license。

Under the terms of the BaaS cooperation model, new banks and fintech companies can provide financial services without obtaining a banking license.。Businesses can work with banking infrastructure providers to integrate financial and payments services into their current user experience by using APIs。

With APIs, fintech software developers can also exchange data with their partners and customers in a flexible and agile manner。With BaaS, innovation deployment is accelerated from the beginning, and enterprises can fully ensure total cost of ownership when launching products。

Instead, financial institutions are increasingly aware that they are spending too much to maintain traditional infrastructure。As a fintech company, new bank or challenger bank, it is now more economical to work with infrastructure companies, as these companies have proven themselves capable of functioning in multiple vertical markets。

The new banking landscape in Latin America

Over the past few years, digital banking has grown in Latin America。Financial services innovation and advancements are surging across the region due to changing consumer demand and changing regulatory requirements。

1.Environmental Regulation

Aggressive regulatory initiatives boost new banks in Latin America。Brazil will launch one of the world's most comprehensive open banking systems, and other strategies in the region to promote competition and remove barriers to entry include Colombia's new regulatory sandbox and Mexico's FinTech Law.。

2.Adoption of Digital Banking

Latin America's top 10 digital banks serve more than 90% of new bank customers。Larger countries such as Mexico and Brazil are increasing their presence in smaller countries.。As Nubank's strategic bespoke solutions demonstrate, Latin America has a huge market opportunity if the right services are delivered。

How the new bank meets the needs of Latin American consumers？

Let's take a look at the state of the banking sector in Latin American and Caribbean countries and how the new bank can help improve financial conditions in those countries。

1.Unlocking financial inclusion

Many new banks in Latin American countries offer commission-free or low commission accounts and do not require a minimum account balance。

This new banking strategy will enable the general public with weak financial resources to use digital banking solutions that were previously unavailable due to excessively high account thresholds.。New bank "mobile first" approach is similar to the penetration rate of banking。

Due to the rapid adoption of smartphones in recent years, more than half of smartphone users now use mobile phones and online banking services。

2.Greater focus on SMEs

For SMEs, new banking offers a faster and more efficient alternative to traditional credit rating procedures。Standard solutions have high interest rates and long application response times, while independent new banks can provide more economical and convenient payment methods。

For example, the new bank used machine learning to assess corporate credit more quickly and efficiently, thereby alleviating a major pain point for Latin American SMEs and small merchants.。It makes banking processes more transparent, including risk assessment and decision-making。

3.Affordable Internet Banking Options

Affordable digital banking options are necessary to encourage customers to avoid cash。That's because most people in Latin America and the Caribbean are poor。The new bank is adopting a comprehensive strategy to provide customized solutions at affordable prices。

For example, Brazilians who own a smartphone and have a normal CPF account with the Brazilian Federal Brasileira can open a free account with the Brazilian Nubank.。

4.Collaborate in the right way

As open banking grows, new banks will work more frequently with fintech companies, and there's a long way to go to get politicians and consumers to understand the advantages of open banking。

Society needs to encourage customers to voluntarily and securely share transaction data with third parties。New banks in Latin America and the Caribbean have signed agreements with industries such as blockchain, cryptocurrency, payments and remittances, real estate, blockchain, WealthTech and market finance.。