BaaS in Focus: Changes in the Banking-as-a-Service Industry and How to Futureproof Your Business

The BaaS (Banking-as-a-Service) space is going through another shake-up, leaving some businesses unsure of how they’ll keep offering the financial services their customers have grown to rely on. With some key players stepping out of the game, it's sparked fresh conversations about whether BaaS is as stable as it seems. Critics might point to these shifts as proof that there are cracks in the model, but really, it's more about learning how to protect your business from these kinds of changes.

But what does this mean for BaaS users? Well, it’s not an unfamiliar scenario. Think back to the Wirecard collapse in 2020. While the circumstances are different, the effects on businesses that depended on those services are eerily similar. The message is clear: BaaS users need to have strategies in place to reduce the risks of being overly reliant on a single provider. With the rapid evolution of the industry, further changes are almost inevitable.

Despite the turbulence, the future of BaaS remains promising. Sure, the industry is going through growing pains, but that’s to be expected when transforming something as entrenched as the financial services sector. Some companies won’t make it in the long run. Why? Margins are tight, regulations are increasing, and competition is fierce. Combine that with the fact that partner banks in the BaaS model are statistically more likely to face regulatory scrutiny compared to traditional banks, and it’s clear why not every provider will survive.

At the same time, the investment landscape has shifted. Gone are the days of "growth at all costs." Investors now want to see a clear path to profitability, which adds another layer of pressure for fintechs. It’s no longer enough to show rapid growth—you need to prove that growth is sustainable.

Over the last few years, we’ve seen some high-profile challenges in the BaaS sector. Whether it’s the collapse of Wirecard or regulatory actions against partner banks in the US, the risks are real. But does this mean BaaS is a broken model? Not at all. For businesses looking to leverage embedded finance, the potential rewards still far outweigh the risks—especially if those risks can be managed properly.

So, what does the future look like in BaaS? It’s all about managing risk. The key takeaway from recent events is that businesses can no longer afford to put all their eggs in one basket. Relying solely on a single banking licence or service provider is a gamble. And, as we've seen, it’s one that doesn’t always pay off.

Take, for example, the comparison between fintechs like Curve and N26 in the aftermath of Wirecard’s collapse. N26, which had its own banking licence, managed to keep its operations running smoothly. Curve, on the other hand, faced disruptions as its reliance on Wirecard’s licences meant customers temporarily lost access to their funds. The lesson? Having a diversified approach is crucial.

Fortunately, securing a banking licence isn’t the only solution. For many businesses, working with multiple licence holders and service providers is a far more practical and cost-effective way to spread risk and ensure continuity. This strategy allows businesses to remain flexible and avoid being at the mercy of a single provider's fate.

In today’s fast-paced fintech world, relying on just one provider can severely limit both the services you offer and the markets you can operate in. By partnering with multiple providers, businesses can not only protect themselves from sudden changes but also remain agile and scalable.

Many fintechs start with just one or two core features. But as they grow, so do the complexities of their operations. From KYC processes and white-label banking to card issuing, lending, and insurance, fintechs quickly find themselves managing an increasingly intricate web of integrations. In the past, scaling like this meant building a complex tech stack and juggling multiple relationships with providers. Today, flexible fintech platforms and aggregators make it possible to switch between providers seamlessly, allowing businesses to scale up—or down—without disruption.

The recent exit of certain BaaS providers is a reminder that the fintech revolution is still in flux. But for forward-thinking businesses, the technology exists to not only futureproof against these inevitable changes but also to thrive within them. By working with multiple providers and adopting flexible, scalable solutions, fintechs and digital businesses can continue to grow—even in a rapidly evolving landscape.

BaaS remains a game-changing technology. It democratises access to financial services, enabling digital businesses of all sizes to offer solutions that were once only the domain of large financial institutions. With the right strategies in place, businesses can mitigate the risks and keep offering innovative, reliable services to their customers—no matter what challenges arise in the industry.

In short, BaaS is far from broken. It’s evolving. Businesses that adapt to these changes by diversifying their providers and staying agile will be well-positioned to succeed in the next phase of this financial revolution.