Author - Daniels Kenneth In category - Software development Publish time - 12 October 2022

For the distributor, offering financial products opens up new revenue lines at attractive margins and can deepen its relationships with customers, and can then capitalize on cross-selling opportunities. Fast-moving banks are doing just that, turning to platform or marketplace models by partnering with agile startups, updating legacy systems and building their own platforms.

  • There is growing recognition that a BaaP approach will become a major feature of the financial services industry, but we’re not there yet.
  • Banks win because they increase customer satisfaction, simultaneously saving money on development and support.
  • Banking-as-a-Service is a key component to open banking, in which banks open up their systems and allow third parties to access their data to enhance their own services in real time.
  • Multinational Spanish banking group – and one of the largest financial institutions in the world – Banco Bilbao Vizcaya Argentaria, S.A.
  • What is of the utmost importance for startups is that BaaS can shave off a ton of money and at least a couple of years in business and product development.

Banking as service is more of service platform used by Neo banks, brands to launch banking products to launch products to market faster( robin hood giving checking and savings accounts .These brands use BAAS to launch products. We believe that BaaS will bring together digital technology platforms and finance to change the shape of economies and most sectors for years to come. BaaS is a clear opportunity for financial institutions to capture new revenue growth at a low cost. Also, a BaaS business is scalable and agile, making it particularly suitable for entering new markets and then expanding. For distributors, it is an opportunity to open new revenue lines at attractive margins and gain a much deeper understanding of consumer behavior through financial data. To fight back, some incumbent financial institutions are spending billions of dollars to digitize their existing business models. But it might be more effective for them to start up new models – that is, BaaS – by embedding their products in other platforms.

The Platformization of Banking

As the image below shows, BaaS can have multiple layers of services, and the client can choose to adopt a couple of layers, or a single layer into their business. Some may say that Banking as a Service is white-label banking and they would be right.

  • Once a bank begins demonstrating maturity on delivering its API product set, there are several more specific methods for monetizing APIs worth considering.
  • Above this bank would be the centralized Middleware layer that Skinner refers to as “bank as a service”.
  • 30% of customers are considering switching banks, 42% of customers have used a Buy Now, Pay Later service, and 2x ROAA for banks focused on BaaS offerings.
  • Like other “as a Service” models, BaaS uses mainly application programming interfaces to provide connectivity with its users.
  • In such a constellation, FinTech banks are enabled to compete directly with banks by offering core-banking services without having to build all the products that would be needed.
  • A successful strategy for overcoming this situation is to break the monolithic services into distributed and decentralized microservices, where Banking is provided as a service in the cloud.
  • Normally traditional banks have been very poor in delivering quality online products and services.
  • Bank customers win because they receive new and better services from a bank.

The bank would appear as any other online bank where all banking services are presented and seamlessly integrated in a single user interface. Another option is that the bank will operate as a white label bank, which will then have a software as a service provider on top of the BaaP operating as the front-end to the end-customer. Banking-as-a-service, or BaaS, is a great opportunity for existing banks, insurers, and wealth managers to reach a greater number of customers at a lower cost by teaming up with non-financial businesses. But if they do not react in a rapid, strategic manner, BaaS could also pose a threat, as it opens up the financial services market to new challengers. Incumbent banks and other financial institutions need to make strategic decisions about how to enter this growing business – what products to offer and which partners to work with.

Monetizing data

Plug & Play APIs are ready-made modules that are compatible with any platform out of the box and include solutions for trading, oAuth, fraud monitoring, white-label banking, user interface, and more. These APIs provide a technical approach that creates a competitive advantage over more traditional financial institutions in a market where novel fintech startups emerge constantly.

In a more competitive market, differentiation is of high importance and BaaP providers allow banks to identify their strength and build their ecosystem around it. To become “every person’s bank” by offering all possible services on a single platform. Despite this, financial institutions are uniquely positioned to use the BaaP model to provide both a network of innovative products and services and the trustworthiness of a long-standing institution. By welcoming open APIs, banks can form a new decision-making framework that caters to their preferred strategy and the realities of the market. Banking as a platform is a digital ecosystem that allows third-party solutions to work directly with the bank’s infrastructure without a BaaS provider.

Banking as a Service vs. Open banking vs. Platform banking

Drive your fintech digital innovation to cross border, seamless banking and payments. BaaS and BaaP aim to provide services offered by next components using the platforms available in the cloud. All three of these financial services are different, yet they each provide their own distinct value. If you’ve got accounts with multiple different banks, investment accounts, loans, then you have to look at them separately, because the banks’ systems are resolutely incompatible. Open Banking will let you see them at the same time, which should make it easier to manage money.

Banking-as-a-Service vs Banking-as-a-Platform

The result is that traditional banking services can now be virtualized and dispatched via composite application services. This does, however, present a challenge in verifying that none of the plugged-in services will violate regulations that have been imposed by banking authorities. The BaaP would be a bank that is fully licensed or use an external regulated bank’s licensed banking services. There is a need for monitoring functions that will enable seamless and secure operations across applications and domains through secure authentication.

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For instance, DBS is ramping up its digital efforts for corporate banking customers by relying on APIs. Last year, they reported a net profit increase of 28 percent to USD 4.17 billion. This enables FinTech banks to compete directly with traditional banks by offering core-banking services without having to build all the products that would be needed.

One reason is that incumbent financial institutions are not using their technological assets as efficiently as they could and find it difficult to reduce the cost of technology. Its end-to-end payment services are accessible via an interoperable proprietary platform that’s PCI-DSS (Payment Card Industry – Data Security Standards) certified and hosted in Tier-4 data centers for advanced security. Bankable helps its partners meet the technological and regulatory challenges of developing disruptive financial services. The UK is leading the open banking movement with regulatory efforts that are reverberating throughout the world. Countries across continents have introduced open banking regulations of their own, indicating that the financial services industry is moving toward an era where sharing data and infrastructure will be table stakes.

When these services are provided through a BaaP, they will need to be compliant with the BaaP’s API specifications. The services may either be physically deployed in the BaaP’s domain or work externally. This gives the potential for the ability to plug financial services from other banks into the BaaP to create new composite application services.

What is the difference between banking as a service and banking as a platform?

As already established, the BaaS business model means that banking institutions enable fintech and non-financial businesses to provide financial services. Banking as a Platform (BaaP for short), on the other hand, enables fintech and non-financial companies to provide services to banking institutions.

Take one established, medium-large global bank with between $300 billion and $400 billion in assets in Asia. To improve their customer experience and provide the best customer journey, banks change their approach by using big data for open banking.

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