The Rise of BaaS in the Middle East
Banking as a Service (BaaS) is reshaping the financial landscape in the Middle East by allowing banks to offer their products and services through third-party platforms.
This integration of non-banking entities with regulated financial systems accelerates the introduction of specialized financial products to the market.
Banks are increasingly adopting BaaS, with the market expected to grow at a CAGR of approximately 25%, potentially reaching $5 billion in revenues by 2026, constituting around 4% of the region's total banking income.
Strategic Benefits and Growth Potential
BaaS presents significant cost-saving opportunities for banks, enabling them to restructure their cost base and convert fixed costs into more variable ones. As larger incumbent banks recognize the need to remain competitive, the adoption of BaaS solutions is expected to further drive growth.
Projections suggest BaaS revenues could reach $28 billion by 2031, comprising about 17% of the Middle East's total banking income. Initially focused on payments and accounts, BaaS is poised to expand into consumer lending, supporting innovative products like "buy now, pay later".
Diverse Landscape of BaaS Providers in the Middle East
The landscape of BaaS in the Middle East is characterized by a diverse array of providers, each offering unique capabilities tailored to meet the evolving demands of financial services.
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Implementing BaaS: Overcoming Challenges
While some banks may hesitate due to concerns over service robustness and loss of independence, the benefits of BaaS outweigh these challenges.
To mitigate risks, banks should adopt strategically flexible contracts, rigorous compliance controls, and a robust partnership governance model.
Conducting pilot projects can also help minimize disruptions during implementation, ensuring a smooth transition to BaaS.
Enhancing Customer Experience through BaaS
The BKN301 BaaS Orchestrator provides traditional banks in the Middle East with tools to modernize and enhance their service offerings. This platform enables banks to offer personalized, efficient, and digitally advanced services, meeting the expectations of tech-savvy customers without the need for a complete overhaul of existing systems. Its modular design allows selective integration, empowering banks to innovate and stay competitive in a rapidly evolving fintech landscape.
By embracing BaaS, banks in the Middle East are not only adapting to disruptive forces but also positioning themselves as leaders in financial innovation, thereby securing their future relevance in the digital economy.
[Sources: Arthur D. Little | Economy Middle East ]