FinovateFall 2020: Why Banking-as-a-Service is fintech’s newest trend
The concept of the “as-a-service” model sits at the core of fintech. After all, it’s what business-to-business (B2B) fintechs do; the third parties help financial services companies add to or enhance their existing offerings by providing a product that sits outside of their core competency.
One of the most common examples of this – Banking-as-a-Service (BaaS) – is exemplified in tech companies adding payment cards to their suite of products. Offering end-customers a payment method not only makes their original solution more sticky, it essentially turns the company into a challenger bank, even if the company has no ties to banking. Take Apple, for example. Apple is a tech company, not a bank, but launched a credit card in partnership with Goldman Sachs last August.
Despite BaaS having a long-standing history in fintech, the concept is having a moment within our industry. Here are a few reasons why:
Customers receive a one-stop-shop and usually end up with a better user experience. Banks, or the BaaS provider, benefits from increased revenue. In the case of the Apple Card, Goldman Sachs is gaining interchange revenue. And the business or organisation receives a boost from providing a closed-loop experience. When customers don’t have to leave their website or app in order to make a transaction, it not only keeps the customer coming back to the business, but it also makes it more difficult for them to lose that person as a customer.
Open banking is making it possible
Even though not every location has open banking mandates, customers have become accustomed to having their financial information available across platforms. Given this, many fintechs have come up with easier ways to increase data fluidity among third parties.
There is increased flexibility in two senses: first in the types of financial services available and, second, in the way the service providers have structured contracts and how they charge for services. As a result, implementation time is not only more efficient, but go-to-market time is faster. What used to take large financial institutions months to integrate now takes days.