What is Fintech-as-a-Service?
The past couple of years have undeniably marked a significant period often referred to as the “fintech boom.” During this time, consumers around the world widely embraced contactless payments and transitioned to online shopping, even for essential items. Concurrently, the excitement surrounding cryptocurrencies and the metaverse has added extra impetus to the fintech industry.
With virtually every company vying for a share of the market, the question arises: how can we democratize the adoption of fintech and ensure its accessibility on any platform? This is where the concept of fintech-as-a-service, or FaaS, becomes relevant.
Fintech, short for financial technology, encompasses software applications designed to streamline financial services for consumers and simplify financial operations for businesses. Fintech-as-a-Service, or FaaS, takes this a step further by providing financial technology as a service. Here's how it works:
Illustrating Fintech-as-a-Service with an Example
Consider the partnership between Airbnb, the vacation rental giant, and PayPal, the digital payment provider. Airbnb integrates PayPal’s FaaS technology through a single connection. This integration enables Airbnb customers to access additional online and in-app payment options seamlessly. In this scenario, PayPal acts as the FaaS provider, offering its fintech capabilities to Airbnb.
Is Fintech-as-a-Service Regulated?
Yes, FaaS solutions are subject to regulation to ensure compliance with data protection laws, anti-money laundering measures, and fraud prevention. Regulatory technology (RegTech) is often employed to ensure compliance without inflating costs. Regulations like the Financial Conduct Authority (FCA) in the UK, FinCEN for Money Services Businesses in the US, and the General Data Protection Regulation (GDPR) in Europe are applicable to FaaS providers. In the Middle East, FaaS providers must adhere to regulations established by regional regulatory authorities to ensure the security and integrity of financial transactions. These regulations reflect the unique regulatory landscape and priorities of Middle Eastern countries, emphasizing data security, financial transparency, and consumer protection.
4 Pillars of FaaS Success
There is a reason for fintech-as-a-service or FaaS’s meteoric rise at this moment. In addition to favorable market circumstances, there are four factors contributing to the success of FaaS:
The Current Landscape of the Fintech-as-a-Service Market
Based on a report from IndustryARC, the global market for FaaS startups is forecasted to reach a staggering $161 billion by the year 2026.
The widespread embrace of FinTech solutions and platforms on a global scale is expected to be a driving force behind the market’s growth. Additionally, the integration of cutting-edge technologies such as artificial intelligence, cloud-based software, and the utilization of big data in the realm of financial services is poised to further expedite the expansion of FaaS. Furthermore, the growing trend of using mobile phones for online purchases is anticipated to provide a substantial boost to the fintech-as-a-service sector.
