Essentially, BaaP refers to banks that integrate services from fintechs to augment their own offerings. We believe that this is the future of financial services business models and will outline how we think this can be pulled off. This is a massive shift from any form of financial services business that we have ever known. A platform play within financial services is different from traditional business thinking.
This article aims at providing an overview, setting FinTech services into a commercial and technical context. This project has benefitted the bank to improve the customer experience and drive customer acquisition costs significantly. The use of the banking platform drove the customer acquisition costs down to €5 from as high as €150-€165. DBS has also provided its APIs for automated compliance platforms, AI Chabot services, and mobile push notifications. In the last few years, we have seen a tremendous shift towards cloud services and especially the emphasis on the use of services as means of a platform.
The concept of Banking as A Platform is relatively new but has immense potential. Platform banking would provide a digital marketplace for banking (and perhaps even non-banking) services, increasing the limits of what it can provide. Yet, this objective is not easily achievable, and banks have many factors to consider before undertaking such an endeavor. Together, these factors enable non-financial companies to build new products using banking services such as deposits, money transfer, payments, currency exchange, lending, and more. Like other “as a Service” models, BaaS uses mainly application programming interfaces to provide connectivity with its users. Since the providing bank has all of the regulatory permissions to offer banking services, BaaS users can integrate them without having to go through burdensome regulations themselves.
Infrastructure as a service (IaaS)
Baas-FinTech demand for upstart services is strong, piqued by widespread frustration with big banks; supply is growing, fueled in part by financial types itching to do something other than toil inside those same mega corporations. Low interest rates have made capital, the raw material for many money-related startups, cheap and plentiful. Wallet and payments service providers went a step ahead and built products to enable one-touch solutions instead of a user having to go through multiple steps to complete a transaction. For an instance on your mobile; your payment app gives you to option to choose the payment method i.e pay via , credit card, debit card, mobile wallet, bank account, cash coupon available for redemption or even your loyalty points. As a normal user it might be confusing at start but over the time it gets into lifestyle. For FinTech its an opportunity to pick services to push through BaaP and BaaS model and owning an entire business paradigm is neither feasible nor desirable anymore.
- It can be used to offer banking services in environments where a large group of users already exist, including chains of grocery stores, hypermarkets or existing online portals.
- To topup the surprise package all those companies who became BaaS experts almost all of them came out of payments and banking domain with zero or no knowledge on subject.
- Equally importantly, it provides banks with an opportunity to build partnerships and reach new customers.
- Generally, banks will be best served by reselling on their own marketplaces not only in-house services but vendor services where commission revenue is possible.
- Their requirements and the needs of their customers have motivated the implementation of sophisticated services and tools with the state-of-art in technology.
The infrastructure as a service layer provides basic infrastructure services through an IaaS provider. A majority of these services would be available on demand and do not necessarily need to be FinTech services . 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.
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But, at the same, the bank wanted to reduce the time required to authenticate the users. Live Oak Bank, headquartered in Wilmington, North Carolina, has partnered with Plaid to provide their customers with a secured & speedy branchless banking. Clients use their trusted banks but get access to advanced functions to manage their finances. Open banking is gaining momentum worldwide with PSD2 , CMA , UPI and many similar initiatives being undertaken elsewhere.
This is indicative of how blockchain has become an important weapon in any digital banking arsenal, alongside concepts such as digital treasuries and digital wallets . The fact that services may “easily” find users, may incite more service providers to come on-board. In theory, a single service provider could also offer its atomic service to the end customer. But he would risk to fail, because of a lack of a suitably large portfolio of services to offer. 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.
Equally importantly, it provides banks with an opportunity to build partnerships and reach new customers. With their recognisable brands and extensive ‘Know Your Customer’ research, banks can tap into a massive market. Conclusion-The financial services including insurance industry is facing a wave of digital disruption that is starting to reshape the sector. Payment as a Service – kind of services is really needed or badly needed by looking at current mess or flood seen in market.
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Per one recent study from Accenture, banks that embrace Open Banking trends could profit from a potential revenue uplift of 20 percent, whereas those failing to do so risk losing 30 percent to disruption by the end of 2020. Most major banks today are vertically integrated, with closed-loop offerings. Their products and services run within proprietary distribution channels and tightly controlled infrastructure, such as Bankers Automated Clearing Services or Automated Clearing House .
As you might have noticed, we rather stress the customer side, as the service providers can be relatively easy orchestrated in, once a suitable amount of potential users can be exhibited. In such case one Software-as-a-Service provider on top of the BaaP will operate as front-end to the end-customer. This opens a plethora of possibilities for other companies (e.g., grocery stores) including banking services into their portfolio.
Instead, they simply serve as the underlying infrastructure that enables users to interact with each other. As you will already know from Part 1, as a Platform has never really taken off for various reasons. Traditional approaches and business models are easy as the banks had full control. Financial services industry incumbents created products, pushed them out and sold them to their customers.
Top 7 Examples of Banking as a Platform
Once a bank begins demonstrating maturity on delivering its API product set, there are several more specific methods for monetizing APIs worth considering. MNO and few other companies saw the difference and jumped in between banking and bank and successfully got them divorce or at-least manage to find their relationship with banking. Unfortunately most bankers are still not convinced that these scenarios will play out. These bankers are hoping that their retirements hits before they have to make a decision. The board of directors of a lot of community banks feel that they are the pillar of the community and the relationship will continue to be the answer.
As such, clients typically consist of early stage fintech startups, or non-financial businesses that are keen to integrate financial services with minimum development. For example, different banking-as-a-service providers offer different sets of services. Digital banking is not a fixed concept but a spectrum, and individual banks need to decide where on that spectrum they wish to place themselves. All of this is really a stepping stone to where the real future of banking lies – in platforms.
Integrated BaaS structure vs. single service offering
It can be used to offer banking services in environments where a large group of users already exist, including chains of grocery stores, hypermarkets or existing online portals. FinTech SaaS refers to all atomic or composite software-based financial services that are available on-demand. When these services are provided banking-as-a-service 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.
At the technology layer, external developers can extend platform functionality using APIs. At the business layer, users can create value on the platform for others to consume. Operating as a net consumer of partner APIs and open banking, this business model allows the bank to quickly explore new, digital services with the help of third party partners. As a result, the bank is able to rapidly offer new services and/or explore new markets, whilst still owning the customer. Utilising this strategy, the third parties, such as fintechs, digital banks, or other non-bank business’ can build their own products based on the foundations provided by the bank – integrated via APIs.
They built a digital platform with a single API, which acted as an integration point for other APIs to eliminate the challenge of connecting endless points and complicating the process. As per the last update of July 2018, their banking platform adds up to 155 different APIs for different functionalities. The bank partnered with Plaid to address the two key issues, namely security and speed. In the age of digital transformation, their conventional security measure was not adequate enough to tackle the modern-day security breaches. The main problem for a small bank like Legence was to provide this service at a cheaper cost than the big multinational banks.
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In contrast to the infrastructure services from the IaaS layer below, these FinTech application services are centered about banking and finance. 6) HR needs be rethought – which resources are needed for the core and which for the platform? The obvious rethink will develop along the lines of which resources are needed for the core and which for the platform.
The future of platform banking
More details about my posts, subjects and relevance please read thedisclaimer. To make it easier for developers to build payment apps for banks by embracing Open APIs in a pre and post PSDII world. Against this model it is clear that a platform play would not be successful within the banks with their current setups and mindsets as they have not developed the ability, nor the sophistication, to pull it off. Highest Rating Category means, with respect to an Eligible Investment, that the Eligible Investment is rated by each Rating Agency in the highest rating given by that Rating Agency for that general category of security. For example, an Investment rated “AAA” by S&P and “Aa3” by Xxxxx’x is rated in the Highest Rating Category.
While most know Mondo Bank for their Alpha and Beta programme, and selling out of a million pound of stock in 96 seconds, they also made no secret of their longer term intensions to become a marketplace. We would define a marketplace strategy as a sub-set of a platform strategy and are, similar with solarisBank, intrigued by how Mondo’s thinking will develop. The project features six “sub-systems,” each representing a different stage in the life cycle of payment services. To make it easier for banks to safely access new payment technologies by providing resources like curated app marketplaces. The use of these solutions allows banks to shift their focus from the minefield of AML and KYC compliance in order to focus on their customer offerings. At times, cash payments look like a lot of money to part with, which makes people reconsider paying and buying stuff.