It’s been a rollercoaster ride for the banking-as-a-service sector over the last year, with a host of mergers and acquisitions and layoffs. On the other hand, large companies are eagerly adopting the concept for competitive advantages and to drive value for customers.

BaaS can refer to three different parts of the industry: one is the classic one of offering bank-like services to other players in the industry, a second is providing the charter and bank services, however not doing the underwriting, and a third is banking components, which is more of a fintech, that isn’t a bank, providing bank-like services without a charter.

“I believe [banking-as-a-service] is a potentially phenomenal growth space for banks to go after,” Accenture’s global banking lead, Michael Abbott, told TechCrunch+. “There’s already tried-and-true models out there, like private label and co-branding. You’re providing that banking capability, consumer lending and credit card portfolios to consumers, small businesses and increasingly at the corporate level.”

And it is a big market. Banking-as-a-service is expected to grow 15% each year to be valued at nearly $66 billion by 2030. Companies continue to attract venture capital, too. This year, Treasury Prime secured $40 million in Series C funding and Synctera raised $15 million to launch embedded products in Canada. Meanwhile, Omnio raised $9.8 million and UK-based bank Griffin raised $13.5 million in June.

But it hasn’t all been rosy. Synapse and Figure Technologies were among the first to hold layoffs; Synapse laid off 18% of its employees in June, and Figure Technologies, which includes Figure Pay, laid off 90 people — or about 20% of its workforce — in July.

Banking-as-a-service involves a lot of facets and can be quite confusing, so to make sense of what’s going on, we sat down with people representing BaaS companies, fintech experts and investors to chat about the sector and where it goes from here.

The struggles

While BaaS companies were the recipient of aggressive venture capital infusions in 2020 and 2021, in the last six to 12 months, there was “a recognition or a rationalization of those investments,” Synctera CEO Peter Hazlehurst told TechCrunch+.

Around two dozen companies in this sector were funded during those two years, and perhaps a half dozen are still operating today. So how did that happen? According to Hazlehurst, the answer is pretty simple. “They used venture dollars to make irresistible deals to customers to get usage,” he said. “Twelve months ago, we were losing deals because we wouldn’t sign someone up for free. The challenge was the actual market price of that transaction was underwater.”

https://techcrunch.com/2023/08/11/fintech-banking-as-a-service-outlier/