Banking-as-a-Service will hit mainstream adoption within two years, according to the latest Gartner Hype Cycle for Digital Banking Transformation. Gartner predicts that 30 percent of banks with greater than $1 billion in assets will launch BaaS for new revenue by the end of 2024, but half will not meet targeted revenue expectations.
“These banks typically have ambitions to generate and diversify revenue streams, or to a lesser degree, aspire to extend previously sunk regulatory investments, such as PSD2 in Europe, into revenue-generating machines,” says Jeff Casey, Senior Director Analyst at Gartner.
BaaS is one of four technologies that the analyst firm says have the potential for high levels of transformation in the banking sector and are likely to mature within the next couple of years. The other technologies include chatbots, a public cloud for banking, and social messaging payment apps.
Gartner says bank CIOs should consider how key innovations are shaping their industry and prioritize their technology investment strategies accordingly.
“BaaS sits at the peak of the Hype Cycle. The technology is gaining traction from both banks and nonbanks aspiring to establish or enhance direct and intermediated revenue streams,” says Casey
“Technology innovations like these are driving bank and nonbank competitor activity, influencing customer demand for products and services and shaping regulators’ actions globally,” he says.
Additionally, chatbots represent one of the primary use cases of artificial intelligence (AI) in banks and will impact all areas of communication between machines and humans. While mostly applied to customer service, IT service management, or human resources, chatbot uses are incredibly diverse. The change from “the user learns the interface” to “the chatbot learns what the user wants” has implications for onboarding, training, productivity, and efficiency inside the workplace.
Moreover, public cloud adoption is becoming highly transformational to the banking industry since banks can achieve a greater level of efficiency and agility by moving workloads to the cloud. Public cloud for banking delivers banking-specific software within a public cloud ecosystem, by integrating those applications with different degrees, from cloud-based to fully native.
Furthermore, social messaging payment apps rely on instant messaging platforms to originate payment transactions. The messaging app interface is used to register payment accounts and to initiate and monitor related transactional activity. The modernization of payment infrastructure and the ability to make use of open banking and payment APIs, provided new entry avenues for social messaging apps to deliver payments service.
