Knowledge Base

Unlock Marketplace Potential with Banking-as-a-Service

It’s never been more critical for marketplaces with international customers to provide a smooth payment experience for their customers worldwide. The COVID-19 pandemic accelerated digitalization of businesses as global lockdowns emphasized the need for digital presence and ability and increased customers’ dependence on digital devices and online businesses for essential and non-essential needs.

Building a marketplace with a smooth customer experience is a massive goal with lots of essential moving parts for any organization to manage. Key among them is ensuring easy payment and payout options for customers regardless of location. For marketplaces looking to scale operations and achieve global relevance, offering accessible international payments is not just an option; it’s a necessity.

Marketplaces can now leverage Banking-as-a-Service (BaaS) to achieve scale and embed extended financial capabilities within their platforms. BaaS is a growing niche of specialized online financial service providers; typically, third-party companies that offer access to payment gateways for multiple currencies, card processing, and other financial services through their licenses and access to bank Application Programming Interfaces (APIs).

Receiving, paying, and refunding customers becomes easy and convenient with the high power of BaaS plugged in – this is an essential factor that can reduce churn and increase customer loyalty in marketplaces.

What is Banking-as-a-Service (BaaS)?

Banking-as-a-Service (BaaS) is an end-to-end process ensuring smooth and cohesive financial transactions online. It is a customizable plug-and-play solution that enables marketplaces to provide financial services to their customers within their apps, products, and platforms, making the user experience better and customer loyalty stronger.

BaaS enables businesses to expand their abilities and reach customers on new continents and countries without having to tackle the challenge of securing regional financial licenses to operate across borders, bank partnerships, regulatory responsibilities, and financial compliance they would have to deal with to foster such wide-reaching banking capabilities. 

Through BaaS, marketplaces can plug into bank services through third-party providers like Nium, who have access to handle financial services through the bank APIs. This enables the marketplaces to offer products and services that reach markets and regions they wouldn’t reach otherwise and increase their earnings through new business opportunities like diversified product offerings for customers, foreign exchange, credit, and even escrow services where needed.

With BaaS platforms increasingly available, marketplaces can pick and choose these much-needed bundles of financial services for their customers swiftly and efficiently.

What are the benefits of BaaS for marketplaces?

When a marketplace offers a robust and safe in-app or product experience, customers feel satisfied and catered for.

In addition to the marketplace’s core offerings, users are confident that their payments will be debited accurately, stored in escrow if needed, refunded if requested, and paid into the receiving account without trouble. Here are other ways Banking-as-a-Service benefits marketplaces.

1. Provide locally preferred currency options to increase customer acquisition and retention

Before marketplaces can provide payment options across borders, they must endeavour to fulfil numerous regulatory and KYC prerequisites for each country and region they operate in.

Take the Asia Pacific (APAC) region, for example. It is a market that is fragmented and home to several regulators. A marketplace would have to get numerous licenses and regulatory compliance to serve customers widely from this region. As a direct response to this challenge, the IDC Financial Insights estimates that by 2022, BaaS platforms would contribute over 60% of retail banking products and services in APAC.

In another example, when Brexit’s proposed timeline ends on 31 December 2020, businesses with an EU license will no longer be eligible to provide financial services in the UK. Instead, they will need streamlined licenses. They will have to reach out to different regulatory and government bodies before their payment solutions synchronize.

The various requirements and licensing needed for marketplaces to scale and operate across regions makes the attempt for one organization wieldy, time, and effort-consuming. Plugging into a BaaS platform easily enables access to financial services in local currencies within these regions.

With a Nium partnership, marketplaces can bypass these tangential regulatory obligations and ensure real-time cross-border payments. This increases customer acquisition and retention on their platforms.

2. Penetrate new markets and create additional income streams

As Amazon Web Services (AWS) enables sales executives to use Salesforce for pipeline management, BaaS allows marketplaces to plug into bank APIs to unlock payment options, enter new markets, and create additional income streams from customers’ needs on the platforms. 

With BaaS, marketplace platforms can incorporate data-driven foreign exchange capabilities to provide more value to their customers from new markets with unique currencies. This creates additional income streams for the marketplaces as they can buy FX lower and sell higher while still giving premium and convenient value to their users.

3. Increase customer retention and loyalty

Without prompt or easy payments or receipt of funds, marketplaces can lose customers en masse. Especially in today’s competitive space, a platform’s financial abilities are almost synonymous with the user experience on the platform, leading to word-of-mouth referrals, user acquisition, retention, and loyalty.

Attempting to solve this issue by creating payment solutions from scratch only diverts a marketplace from its core offering. This leaves them stuck with the consequence of slow payments: friction between buyers, sellers, and the marketplace itself.

By choosing to enhance in-app or product experience through partnering with licensed BaaS platforms and focusing on their core offerings, marketplaces can listen to and engage customers to keep transacting on their platforms. 

4. Quicken onboarding process

Nearly 40% of customers abandon onboarding processes on digital platforms. Marketplaces are no different.

When acquiring new customers online, the onboarding process is a critical point in the customer journey. When partnered with BaaS, marketplaces can offer more intriguing solutions to their customers which includes mobile and web application options with intuitive and personalized onboarding based on their payment details and location.

If onboarding requires strident KYC details, it is vital to make the process as quick and frictionless as possible. With an onboarding process built to centralize and simplify the user experience and single-source payment processes, a marketplace can rapidly enlist prospective customers with less hassle.

With BaaS incorporated on a marketplace platform, marketplaces can also leverage prior signups and KYC details on the BaaS platforms. An example is when a customer who already has a Nium card signs up to a marketplace that is partnered with Nium, they are not required to take extra steps when it comes to registering for payments or payouts, making for seamless transactions within the marketplace.

The possibilities of marketplaces and BaaS platforms in partnership are endless. As these two digital innovations partner to create more value for their customers, they, in turn, create wealth for smaller businesses, startups, e-commerce stores, online service providers, and individual makers on the internet.