FinTechs Grow Through Embedded Finance, BaaS

With consumer preferences pushing BaaS and embedded finance to new heights, MasterCard‘s Sherri Haymond discusses how FinTechs are responding and what it takes for them to scale successfully.

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The current popularity of BaaS reveals both where the world is going and where it has recently been. That’s according to Sherri Haymond, Executive Vice President of Global Digital Partnerships at Mastercard. In an interview with PYMNTS, she explained that the amazing rise of banking as a service (BaaS) – which she believes will continue well into the future – had its roots in COVID-19.

When the pandemic hit, people and businesses suddenly needed to conduct much of their lives online. Everyone then acclimated to this new reality, Haymond said, getting used to doing almost everything online in a seamless, digital way. This change in behavior has lasted, even though the public health crisis has subsided.

“People are back to doing things in person, but there’s been a lasting, permanent change in people’s expectations about the speed and convenience with which things will happen,” Haymond said.

BaaS and embedded finance both fuel this major shift in consumer thinking and are driven by it. As Haymond explained, BaaS is being used to meet consumers’ insatiable need for seamless solutions – and this in turn has changed the very concept of what BaaS is.

BaaS used to be associated mainly with bank account provisioning, she said. But now – at a time when consumers want to do their finances or pay bills or buy groceries in one place – BaaS has expanded to support an ever-growing set of services. Haymond pointed out that many FinTechs now offer products typically associated with traditional FIs, such as full-stack lending, underwriting and card issuance.

The FinTech approach to BaaS and embedded finance is as dynamic as it is diverse. Some FinTechs offer highly specialized services, while others offer more generalized solutions. Furthermore, some start with one model and move to the other, while others do not fit into any category.

As far as Haymond is concerned, no one model is inherently better than another, and as BaaS continues to grow, such a range of approaches will remain. Moreover, new use cases will continue to emerge, creating new opportunities for FinTechs willing to pivot.

Still, she said, FinTechs that will scale and reach their full potential are the ones that offer the solutions people need. To be successful, companies must keep pace with customers’ demands and concerns – and that requires a relationship-oriented approach.

“You have to allow people to shop where they are,” she said. “This just makes sense.”