What is Banking-as-a-Service (BaaS), why is it taking off right now, and what does it mean for your business?
Here you’ll find simple resources that answer your questions and help you get started with BaaS – the future of financial services.
Peter Cox (CEO at Contis) introduces BaaS
Why is Banking-as-a-service taking off right now?
Increasingly, we’re seeing fintechs and innovators disrupt the business model of traditional banks. In 2018 alone, UK SMEs generated £500 million in Banking-as-a-Service revenue. This flurry of activity has led Inside Intelligence to predict revenue potential will grow to £1.9 billion by 2024.
By taking a leap into the Banking-as-a-Service space, companies looking to embed finance can turn this challenge into an opportunity to thrive. There are dozens of ways that non-banks can improve customer experience and boost their revenue by offering their own banking services.
Continue reading as we explore the reason why Banking-as-a-Service (and the ‘bank in a box’ model) is taking off in today’s financial climate.
What is Banking-as-a-Service?
At its core, Banking-as-a-Service (BaaS) is a model that involves licensed banks and e-money providers integrating their digital banking services directly into the products of other non-bank businesses. This allows non-bank businesses to deliver digital banking services (such as current accounts, debit cards, and mobile payment services), without needing their own licence.
What’s the need for Banking-as-a-Service companies?
- Keep those costs down and boost efficiency. Banking-as-a-Service enhances functionality while reducing operational costs (from liquidity and capital) and delivering more personalised customer experiences. Non-banks can leverage Banking-as-a-Service to build propositions quickly and cost-efficiently by aggregating services and core banking systems.
- Give your customers a sweet upgrade. With improved banking and finance functionality, you have bigger scope to expand your customer offer. For example, if you’re a rental car company, Banking-as-a-Service provides the tools to embed a fuel card into your offering to save on human processing costs (like fuel refunds), offer rewards and perks, or even partner with a specific petrol company.
- Stand out from the crowd. With successful financial innovation efforts, your brand more easily differentiates from competitors. Financial products are ‘sticky’, and also offer more opportunites to interact with your customers. Take insurance for example, which is an industry notorious for infrequent customer interaction. Insurers can use Banking-as-a-Service to embed a card or payments app into their proposition to create daily customer touchpoints (every time the customer spends). The result? A healthy dose of brand loyalty and an expanded product offering.
- Trailblaze the way towards new financial solutions. Banking-as-a-Service is a hotbed for innovation. Pioneering banking services can make moving money more flexible. For example, a crypto or stock trading exchange company can embed payment products through Banking-as-a-Service to provide seamless on/off ramps that improve the flow of money into their trading platform. Ka-ching!
- Data! Data! Data! All digital payments generate data. There’s a golden opportunity for forward-thinking companies to extract value. Taking insurance as the example again, data insights give insurers the ability to understand industry trends, customer saving and spending behaviours, as well as improve targeted upselling and plan strategic expansion. Every company that embeds Banking-as-a-Service can put their already-valuable data to work.
Why is Banking-as-a-Service taking off right now?
Before the days of digital transformation, integration was much harder. This meant companies only adopted new integrations once in a generation (or as little as possible). Thanks to the headaches that typically came with integrating new systems, financial institutions were forced to be extremely picky with the partner they selected so that decisions made were profitable in the future.
Today, the opposite is true. Through APIs and SDKs, integrations are far simpler. Companies can collaborate with as many best-in-class partners as they want, meaning that the limitation is now more about the number of partners or suppliers that a company can manage (rather than functionality restrictions).
Banking-as-a-Service is rapidly growing now that external environmental factors are aligning. For the first time, the industry is pulling in the same direction. From technology and integration to demography and customer expectations, the pace of financial innovation in Banking-as-a-Service has quickened and shown it can solve real-world problems for the people who matter most — customers.
What is the Bank in a Box Concept?
The idea of the “Bank in a Box” refers to regulated entities that offer their clients all the tools to deliver a financial product to a customer. As an integrated tech solution, the model transforms core banking operations using a fintech service provider or third-party interface.
The benefit for large financial institutions is that a “bank in a box” can offer every service under the sun to scale as the company grows and expands.
For companies that want to offer banking services, every government in the world requires a banking license. But, acquiring a banking licence is tough, demanding that you follow strict compliance regulations and meet capital requirements. The good news? Banking-as-a-Service can help.
What challenges and obstructions does Banking-as-a-Service face?
Banking-as-a-Service capabilities are expansive, but there’s no one “silver bullet” solution.
For organisations looking to adopt and integrate innovative banking functionalities, the first port of call must involve identifying the specific issue(s) at hand. Moving without direction can limit objectivity and blind even the most pioneering companies to potential opportunities.
The kicker for most companies is when “Magpie Syndrome” sets in. Because Banking-as-a-Service holds so much potential, an affinity for ‘shiny objects’ (in this context banking functionalities) combined with seamless integration can lead modern organisations to adopt an ‘integrate everything’ approach.
Chief Disruption Officer at Contis, Jason Olivier, advises that before settling on an integration, financial institutions should ask themselves:
- What is the problem you’re trying to solve?
- Why do you need this integration?
- What’s it going to do for you?
- How does it help you to reach your end objective?
(…emphasis on you here!)
COVID-19’s impact on Banking-as-a-Service
Let’s look at Apple for a moment, who have combined tech like Face ID and Touch ID with their digital credit card to give users more privacy, easy access to their financial info, and eliminate fees.
Apple, a non-financial-services company, is able to bring out market-leading financial services thanks to Banking-as-a-Service. Better yet, the tech giant hasn’t had to become a bank and get licensed to do so. Instead, they’ve got the tools to focus on innovation and product development while making inroads into the world of financial services.
The pandemic forced companies to adapt and adopt new ways of working, and digital payments have become more relevant than ever as people move online. Shopping has gone digital, and that trend is likely to become a permanent feature in life going forward.
With Banking-as-a-Service everyone has the ability to stay ahead of the curve. It delivers the flexibility to cherry-pick the functionalities that are going to work best for you and your customers. Better yet, you don’t need any financial services expertise to make sure your company adapts to the changing landscape. Plan how banking and payments enhances your current offer, and your Banking-as-a-Service provider does the rest.
Is Banking-as-a-Service the future?
Banking-as-a-Service is often referred to as “white-label banking” since financial services are delivered through the branded product of the non-bank.
Jason Olivier explains, “so long as companies stitch Banking-as-a-Service components together correctly, and providing they know what they’re trying to achieve, a huge benefit is the ability to access the best-in-class tech solutions of the day.”
Companies can prototype far quicker, easier, and more inexpensively. Once the foundation of a financial product is established, it’s much simpler to build, scale, and expand on the tech without drying up every last resource.
This creates internal efficiencies, reduces cost, and ultimately gives end-customers access to a personalised and value-adding service that meets their individual needs.
- Current Accounts. Secure current account and payments platform are combined, configurable and fully API-enabled with BaaS.
- Card Issuing. Fully-branded consumer prepaid, consumer debit, business prepaid, or business debit cards can be issued either digitally or physically.
- ‘Zero balance cards’. Using unique ‘Buffer’ technology designed by Contis, many business cards for staff with zero balance can all be connected to one central parent account to draw only the amount needed for a transaction — reducing liability, financial waste, and improving cash flow.
- Consumer Insights. For example, ‘Know Your Customer’ (KYC) processes incorporate the verification of identity, the understanding of the client’s business and identifying the purpose of a customer’s usage of a financial product to create in-depth oversight.
What are the benefits of Banking-as-a-Service?
Customers sit at the centre of the future of Banking-as-a-Service. Embedded finance will be the most prevalent use of open banking, and Banking-as-a-Service will operate in a way that underpins that. The democratisation of consumer data will be used to define the elements of bias to inform why people choose to buy certain products or services.
So long as customers are happy to share their data on the basis that it can benefit them, Banking-as-a-Service and Open Banking will continue to grow together. Providing trust and reciprocity rule the day, the value of customer data will continue to fuel Banking-as-a-Service innovations to satisfy consumer appetite.
Uncover your next Banking-as-a-Service solution today
Contis is transforming payments, issuing and processing. We provide Banking-as-a-Service with the mission to help organisations unleash their true potential with award-winning, cloud-based, real-time accounts and payments solutions.
Whatever type of business you run, Contis provides frictionless payments solutions and gets you to market in record time.
Get in touch to find out how our team of experts can help.
Short Q & A
BaaS questions answered
Where did BaaS originate and why has it taken off?
Who does BaaS benefit?
What’s most important when choosing a BaaS provider?
What is Contis’ unique approach to BaaS?
Where is embedded finance heading?
Why use a BaaS provider?