Compliance as a Competitive Advantage

By Cassy Ramsey   

The surge in global e-commerce, projected to reach a staggering $8.1 trillion by 2026, along with the rapid growth of digital payments at an annual rate of 15%, has driven a significant shift in consumer expectations. Flexibility and choice in banking are no longer optional; they are critical components of the customer experience. As a result, Banking-as-a-Service (BaaS) has transitioned from a luxury to a requirement for companies seeking to offer flexible financial products that create a better customer journey and provide a competitive edge. By embedding banking products directly into their platforms, businesses across various sectors can enhance customer engagement and unlock new revenue streams.   

Current Landscape of BaaS 

Despite the optimistic projections for the BaaS market—expected to reach €105 billion by 2030—the sector has faced persistent challenges regarding consistency and quality. Not all BaaS providers are created equal; differences in licensing, product offerings, and compliance expertise can significantly impact a provider’s ability to deliver compliant financial products. Ultimately, these inconsistencies restrict the true potential of BaaS. The initial phase of BaaS focused heavily on technological advancement, with the ‘tech’ taking priority over ‘fin’, often at the expense of robust banking foundations. Many providers lack a full banking license – and may not possess adequate regulatory knowledge – leading to a severe disconnect between technological capabilities and compliance. 

Given that BaaS is a relatively new model of financial services, regulators have been adapting their understanding and approach to BaaS. Efforts have been made to  scrutinise BaaS more rigorously, with regulators pushing for higher compliance standards in the industry. As businesses adopt BaaS solutions, they are increasingly demanding not just technology, but the necessary banking expertise to ensure compliance and protect their brands. The new emerging phase of BaaS, dubbed “BaaS 2.0,” places compliance at the forefront, not merely as a regulatory checkbox but as a strategic differentiator. 

Compliance as a Strategic Driver 

With the evolution of BaaS comes the necessity for a paradigm shift in how businesses view compliance. Historically, compliance was often treated as an afterthought, leading to consequences such as regulatory fines and reputational damage. As regulators tighten their grip on BaaS, providers must recognize that compliance should not be considered a burden; it is a cornerstone of sustainable operations. 

The licensing of a BaaS provider directly correlates to the services they can offer, which reminds us of the importance of due diligence in selecting a partner. Different financial products are subject to different regulatory compliance requirements. Companies should seek providers that offer comprehensive and compliant financial products backed by the applicable licenses. Additionally, understanding the provider’s compliance and risk management capabilities will have a profound impact on the effectiveness of their BaaS solution.   

Building a Strong Risk Culture 

For BaaS providers, fostering a robust risk culture is essential -“Risk appetite” must be communicated clearly and integrated throughout the business. By viewing risk as a catalyst for growth rather than a business constraint, providers can make informed decisions that positively impact their service offerings. It’s crucial that BaaS providers educate their clients about regulatory requirements, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) practices, and ensure alignment on risk management objectives.   

The lack of understanding among some providers has led to significant regulatory challenges, particularly when clients onboard users without proper vetting or compliance. Partnerships should be scrutinised through second line oversight – allowing decisions to be made on the ROI and reputational risk of some business relationships. 

By embedding compliance into the initial stages of client onboarding, providers can mitigate risks and enhance the overall integrity of their services.   

Compliance as a Competitive Advantage 

For BaaS providers looking to distinguish themselves in this maturing industry, establishing trust will be paramount. Achieving this trust requires a proactive compliance strategy. Non-financial businesses, such as retailers, often lack the financial regulatory knowledge required to navigate compliance complexities independently. Therefore, BaaS providers must adopt a proactive approach to compliance that includes a “compliance-by-design” philosophy. This approach integrates risk management into the initial product discussions and aligns operational processes with compliance requirements. 

Moreover, fostering collaboration between compliance, sales, and product development teams will ensure regulatory considerations are addressed early in the customer engagement process and product development process. This compatibility will lead to reduced operational delays and more efficient market entry, ultimately resulting in improved ROI. 

Conclusion: The Future of BaaS 

As the BaaS landscape matures, the organizations that will flourish are those that regard compliance as a core strategic pillar rather than a mere regulatory requirement, or worse, an active barrier to business development. By embedding a culture of compliance into their business models, BaaS providers can differentiate themselves from competitors while fostering strong relationships with both regulators and partners.   

The future of Banking-as-a-Service is not solely about technology; it is about building a resilient framework that prioritizes compliance, enabling sustainable growth and trust among customers. Now is the critical moment for BaaS providers to evolve, ensuring that compliance is woven into the very fabric of their operations.

About the Author 

Cassy (Kathleen) Ramsey is currently the Chief Risk Officer (CRO) at Aion Bank, which offers Banking-as-a-Service (BaaS) and Direct-to-Consumer solutions across Europe. In this role, she is responsible for second line functions, including Risk, Compliance and IT Security. She is part of Aion’s Executive Committee, as well as its Board of Directors. Cassy also currently serves on the Board of Wise Europe as an Independent Non-Executive Director and has held other non-executive board positions at other banks and fintechs.