Banking as a Service (BaaS) is emerging as a significant growth avenue for financial institutions in Latin America. By adopting the BaaS model, banks can extend their services through various digital platforms—both financial and non-financial—allowing them to reach new customers more cost-effectively while enhancing revenue streams.

According to Grand View Research's report on the Latin America banking-as-a-service market, the BaaS market in Latin America is expanding rapidly. In 2022, the market generated approximately USD 2.02 billion in revenue and is projected to grow at a compound annual growth rate (CAGR) of 17.2% from 2023 to 2030. This growth trajectory is expected to push the market size to around USD 7.19 billion by 2030.

Investing in the Right Technology for BaaS

For banks considering the development of BaaS capabilities, it’s crucial to evaluate the necessary investments in technology, time, and resources. A modern, cloud-based core banking system that supports API integrations is essential for enabling seamless BaaS deployment. However, banks operating on legacy systems may face significant initial costs when transitioning to this technology.

To manage these expenses, financial institutions can take a phased approach to core banking modernization. One effective method is implementing a "sidecar core"—a modern system that supports specific services distributed via BaaS integrations while allowing the legacy core to continue handling the majority of daily transactions. This strategy reduces financial outlay and minimizes the risk of operational disruptions during the transition.

Unlocking New Revenue Streams

BaaS enables financial institutions to tap into new revenue sources by leveraging third-party partner networks, such as e-commerce platforms, telecommunications companies, or small business management software providers.

The FI’s Guide to Achieving Banking-as-a-Service (BaaS) ROI

Beyond direct revenue from fees and interest, banks can capitalize on granular customer data obtained through BaaS integrations. This data presents valuable insights that can be used to develop additional revenue opportunities and enhance service offerings.

Reducing Customer Acquisition Costs

One of the biggest advantages of BaaS is its ability to lower customer acquisition costs. By partnering with digital platforms that prioritize a seamless user experience, banks can boost conversion rates and onboard customers more efficiently.

A study by YouYaa's analysis on the evolution of customer acquisition costs between traditional banks and neobanks, shows that traditional customer acquisition costs range from $100 to $200 per customer, whereas BaaS distribution channels can reduce these costs to as low as $5 to $35 per customer.

The Rise of Digital Banking in Latin America

The adoption of digital banking services is accelerating across Latin America, fueled by the increasing number of fintech users and the rapid expansion of digital payments. Brazil has emerged as a leader in this transformation, with a highly advanced banking sector that includes both established financial institutions and innovative fintech companies.

Enhancing Customer Engagement and Lifetime Value

Beyond acquiring new customers, BaaS helps banks enhance engagement and long-term profitability. The real-time data obtained from BaaS integrations provides financial institutions with valuable insights into customer preferences and behaviors.

By leveraging this information, banks can personalize their offerings and optimize services to improve Customer Lifetime Value (CLV)—a crucial metric for sustainable growth.

The Future of BaaS in Latin America

BaaS presents a compelling opportunity for financial institutions in Latin America to expand their reach, diversify revenue streams, and remain competitive in a fast-evolving digital landscape. By investing in the right technology, forming strategic partnerships, and focusing on customer engagement, banks can maximize the ROI of their BaaS initiatives and unlock new opportunities for growth.

Contact us to learn how Galileo can help your FI capitalize on the BaaS opportunity in LatAm.