This article explores key Fintech-as-a-Service statistics and shifts, examining market growth projections, adoption rates across different financial sectors, and the impact on traditional banking models driving this financial phenomenon.
We'll look into how FaaS is expected to grow at a CAGR of 18.5% from 2023 to 2032, how 82% of traditional banks and financial institutions plan partnering with fintech companies, and how FaaS solutions can reduce a bank's IT costs by up to 40%.
From open banking APIs to cloud-based core banking systems, FaaS is not just changing how financial services are delivered – it's redefining the very nature of banking in the digital age.
This article combines open-access resources and proprietary data to present accurate, up-to-date statistics and relevant developments in the Fintech Service Business.
Our methodology involves:
While we strive for accuracy, occurrences in the MaaS market are shifting rapidly.
These statistics reflect current patterns and should not be considered permanent facts.
Fintech-as-a-Service (FaaS) emerged in the early 2010s, propelled by cloud computing advancements.
It refers to a model where financial technology is provided as a service through APIs, allowing businesses to integrate financial capabilities into their platforms without extensive infrastructure.
FaaS has grown rapidly since its inception, with Stripe's 2011 launch of its payment processing API (Application Programming Interface) marking a key milestone. (Stripe)
An API is a set of protocols allowing different software applications to communicate, enabling seamless integration of financial services.
Today, the FaaS market encompasses a wide range of providers offering services from payment processing to core banking systems.
Companies like Plaid, Marqeta, and Rapyd are at the forefront, while open banking regulations such as PSD2 in Europe shape the sector's development.
The FaaS market is valued at $358.8 billion in 2024, with projections indicating a compound annual growth rate (CAGR) of 17.6% over the forecast period, according to Markets and Markets.
FaaS is transforming financial services by enabling rapid digitalization.
Over 82% of traditional financial organizations plan to increase collaboration with fintech companies, fearing that 88% could lose part of their business to fintech competitors. (Tipalti)
These collaborations can yield substantial benefits, with Accenture reporting that banks adopting FaaS solutions may reduce IT costs by up to 40%.
As FaaS continues to evolve, it's becoming increasingly important for banks, fintech startups, and regulators.
Its ability to facilitate faster, more cost-effective financial service delivery is reshaping how financial products are created and distributed in the digital age.
The sector of Fintech as a Service (FaaS) is rapidly growing, driven by technological advancements and shifting consumer demands.
Here are the major trends currently shaping the FaaS market:
Open banking is a major remarkable shift that is restructuring the Fintech as a Service (FaaS) sector.
This regulatory framework mandates banks to share customer data with third-party providers through secure APIs, fostering transformation and competition.
As of 2023, the global open banking market is projected to reach $43.15 billion by 2026, growing at a CAGR of 24.4% from 2021. (EIN Presswire)
This drift enables FaaS providers to offer modular solutions that enhance customer experiences and streamline services.
For instance, companies like Plaid facilitate seamless integration of financial services, allowing businesses to access consumer banking data securely and efficiently, thus driving the adoption of personalized financial products.
The integration of artificial intelligence (AI) and machine learning (ML) into FaaS is transforming financial services by enhancing personalization and operational efficiency.
The AI in fintech market is expected to grow to $49.43 billion by 2028, reflecting the increasing reliance on these technologies for data analysis and customer insights. (Globe Newswire)
FaaS providers utilize AI for fraud detection, risk assessment, and customer service automation, improving service delivery while reducing costs.
For example, Zest AI employs machine learning algorithms to help lenders make better credit decisions, showcasing how AI can optimize traditional processes within the financial sector.
Embedded finance is another major drift in the FaaS market, allowing non-financial businesses to integrate financial services directly into their platforms.
This approach simplifies transactions for consumers by providing relevant financial solutions at the point of sale.
The embedded finance market is expected to reach $7 trillion by 2030, driven by the demand for seamless user experiences. (Forbes)
Companies like Shopify have adopted this model by offering integrated payment solutions within their e-commerce platforms, enabling merchants to provide financing options directly to customers during checkout.
Digital wallets have surged in popularity as consumers increasingly prefer contactless payment methods.
The digital wallet market is projected to grow from $9 trillion in 2023 to $16 trillion by 2028, highlighting a major shift towards mobile payments and digital transactions. (Juniper Research)
FaaS providers are capitalizing on this shift by offering customizable digital wallet solutions that integrate with existing business operations.
For instance, Square's Cash App enables users to send money instantly while providing businesses with tools for payment processing, reflecting how digital wallets are becoming essential for modern commerce.
As financial regulations become more complex, the demand for compliance solutions within FaaS is increasing.
Financial institutions are required to navigate various regulatory frameworks efficiently, which has led to a rise in FaaS offerings that include built-in compliance tools.
The global compliance software market is expected to reach $55 billion by 2025, fueled by the need for robust risk management solutions. (Grand View Research)
Companies like ComplyAdvantage provide real-time compliance monitoring tools that help organizations meet regulatory requirements while minimizing risks associated with non-compliance.
Key challenges in Fintech as a Service (FaaS) are critical to understanding as organizations navigate the complexities of integrating financial technology into their operations. Here are the major challenges:
Navigating the regulatory framework is a serious challenge for Fintech as a service (FaaS) provider.
With varying regulations across countries and regions, fintech companies must comply with numerous laws, such as the General Data Protection Regulation (GDPR) in Europe and the Financial Crimes Enforcement Network (FinCEN) regulations in the U.S.
This complexity can hinder transformation and slow down market entry for new solutions.
For instance, companies operating internationally often face challenges in aligning their services with local regulations, which can lead to increased operational costs and delays in product launches.
As of 2023, regulatory compliance costs are estimated to consume up to 10% of revenue for some fintech firms . (Ascent RegTech)
Cybersecurity remains a critical concern for FaaS providers due to the sensitive nature of financial data.
Financial services are prime targets for cyberattacks, and data breaches can have severe consequences, including financial losses and reputational damage.
In 2023, it was reported that over 90% of financial institutions experienced at least one cyber incident in the past year. (PurpleSec)
To mitigate these risks, FaaS companies must invest heavily in robust security measures and continuously update their systems to counter evolving threats.
For example, firms like Plaid have implemented advanced security protocols to protect user data while maintaining user trust.
Attracting and retaining talent remains a critical hurdle for fintech companies, compounded by a rapidly evolving tech space.
With demand surging for skilled professionals in areas such as AI, data analysis, and cybersecurity, the competition for talent is fierce.
A recent report highlighted that 90% of FinTech executives view talent shortages as one of the primary challenges to their growth strategies. (Economist Impact Event)
For example, companies like Revolut are constantly innovating yet struggling to find skilled engineers and compliance experts to support their dynamic operations.
Consequently, fintechs must invest in employee development programs and inclusive workplace cultures to remain competitive.
Building consumer trust is essential yet challenging for FaaS providers, particularly given the skepticism surrounding newer fintech solutions.
Many consumers remain cautious about sharing sensitive financial information with unfamiliar platforms, which can slow adoption rates.
A survey indicated that around 70% of consumers expressed concerns about data privacy and security when using fintech services. (MDPI)
To overcome this hurdle, companies like Chime focus on transparency and user education to foster trust and encourage wider usage of their services.
The rapid growth of the fintech sector has led to increased competition among FaaS providers, making it challenging for new entrants to establish themselves.
As of 2023, there are over 26,000 fintech startups worldwide, creating a crowded marketplace where differentiation is crucial. (Exploding Topics)
Established players like Stripe and Square dominate the market with comprehensive offerings, leaving smaller firms struggling to capture market share.
To compete effectively, new entrants must innovate continuously and find niche markets or unique value propositions that set them apart from established competitors.
Emerging opportunities in Finance as a Service (FaaS) are reshaping the financial sector, providing innovative solutions that enhance efficiency, scalability, and compliance. Here are some key opportunities:
Open banking is creating substantial opportunities for fintech companies by enabling third-party providers to access consumer financial data through application programming interfaces (APIs).
With over 100 billion APIs accessed globally in 2024, open banking has gained remarkable attention and mainstream adoption, allowing fintech innovators to develop personalized financial products and services. (Statista)
For example, Tink, a European open banking platform, has partnered with over 3,400 banks to offer account aggregation and payment initiation services, driving financial transparency and customer control. (Tink)
As regulations loosen and consumer awareness grows, fintechs adopting open banking can establish new revenue streams and enhanced customer experiences.
Embedded finance continues to offer notable opportunities within Fintech-as-a-Service (FaaS).
Non-financial companies are increasingly integrating financial products like payments, insurance, and lending directly into their platforms.
According to Bain & Company, the embedded finance market is projected to generate $7 trillion in global revenue by 2030.
This shift allows brands to create seamless user experiences, as seen with Uber offering in-app payments or Shopify providing small business loans.
By embedding financial services, businesses can deepen customer relationships and unlock new revenue streams, making it a lucrative growth area for fintech firms providing these solutions.
Decentralized Finance (DeFi) represents a paradigm shift in financial services, offering transparent and inclusive solutions through blockchain technology.
DeFi applications allow users to engage in borrowing, lending, and trading without traditional intermediaries.
As of 2024, many DeFi platforms are built on the Ethereum blockchain to provide open access to financial services for anyone with an internet connection. (DeFi)
Companies like Uniswap facilitate direct trading, showcasing the potential for lower fees and streamlined processes in financial transactions.
The growth of DeFi continues to attract investment and users looking for alternative financial solutions beyond traditional systems.
Cross-border payments represent a growing opportunity within the FaaS market.
As global commerce increases, businesses seek faster and cheaper ways to transfer funds internationally.
Ripple and other fintech companies are leveraging blockchain technology to facilitate near-instant cross-border transactions, eliminating the delays and high fees associated with traditional methods.
The cross-border payments market is expected to reach $250 trillion by 2027. (World Economic Forum)
Additionally, the rise of central bank digital currencies (CBDCs) and cryptocurrencies could further simplify cross-border transactions, positioning FaaS providers at the forefront of this emerging market.
Neobanks have become a transformative force in the financial sector, particularly for underserved demographics.
The global neobanking market, valued at $96.2 billion in 2023, is anticipated to reach $3.7 billion by 2033. (Precedence Research)
Neobanks use technology to provide a suite of services, including loans and insurance, targeting users who prefer mobile banking solutions over traditional bank branches3.
For example, Ally Bank, known for competitive loan rates and user-friendly digital platforms, exemplifies how neobanks can efficiently cater to tech-savvy customers.
This segment's growth highlights the demand for accessible, personalized banking solutions.
FaaS offers immense opportunities to expand financial inclusion, especially in underserved markets.
In regions like Africa and Southeast Asia, where traditional banking infrastructure is limited, fintech platforms are providing mobile-based banking, lending, and insurance services.
For instance, M-Pesa in Kenya has successfully enabled millions to access digital financial services through mobile phones.
The World Bank reports that 1.4 billion adults globally remain unbanked, presenting a major opportunity for FaaS providers to bridge this gap.
By offering microservices tailored to these populations, fintechs can play a pivotal role in driving economic development.
Environmental, Social, and Governance (ESG) factors are increasingly shaping the financial services sector, creating new opportunities for FaaS providers.
Consumers and businesses are demanding sustainable financial products, such as green loans or carbon offset tools.
Fintech companies like Stripe are integrating carbon removal services into their platforms, allowing businesses to offset emissions directly through payment processing.
The global green finance market is expected to grow remarkably, with ESG assets projected to reach $53 trillion by 2025.
FaaS providers that embed ESG considerations into their offerings can tap into this growing demand for sustainability-focused financial services.
The impact of ESG (Environmental, Social, and Governance) initiatives on stakeholders is significant and multifaceted, influencing various groups in profound ways.
Here’s an overview of how ESG practices affect different stakeholder categories:
Positive: Opportunity to modernize operations and offer new services quickly.
Negative: Increased competition and potential loss of market share.
Adaptation required to stay relevant in a rapidly evolving financial market.
The data and shifts in fintech-as-a-service paint a clear picture: a transformative wave reshaping financial services.
This sector presents both opportunities and challenges for all involved.
To thrive in this environment, stakeholders should consider:
The future belongs to those who can harness the power of technology while maintaining the trust and reliability that define traditional financial services.
