Banking as a Platform BAAP: Innovating Retail Banking

The company disclosed a pretax loss for its newly-created platform solutions business of $1.2 billion for the first nine months of 2022. Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world’s media organizations, industry events and directly to consumers. To that extent, what we do is to use platforms that are neutral, try and run it multi-cloud, try and get as many ecosystem players for some of the key applications as you can in terms of the contingency,” he said.

Also, questions about who owns the customer and the customer’s data could become prickly issues. Digital platforms are poised to dramatically alter business models, competitive structure, pricing, and customer behavior in banking, similar to what we have https://globalcloudteam.com/ observed in other industries, such as retail. “Unlike in the past where the bank used to depend on platform vendors, we are building our own platform. We are also partnering with a lot of startups and fintechs, which is another deviation from strategy.

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In a nutshell, “as-a-Service” model is a way of using various software and hardware platforms – as a service for a certain period and number of users – without upfront investments in purchasing own infrastructure and licenses. Platform banking refers to lenders owning and operating a digital marketplace which allows for its customers banking-as-a-service to purchase physical goods and transact on non-banking services. According to Infosys Finacle, a platform business is likely to receive a valuation two or three times higher than a linear business. Legacy banks can get a head start on accommodating the oncoming digital progression and demands of customers by integrating BaaS.

For banks that offer BaaS, there aretwo primary denominations— those that offer solely BaaS (what we call “pure BaaS”), and those who also provide other retail services. Currently, a small number of companies have integrated BaaS platforms in a way that is meaningful to the customer or provides them with higher-value services. While the definition of BaaS has been muddled through interchangeable terminology and overuse, the central idea remains the same. It’s often likened to Banking as a Platform , and while the two are different, they are alternatives to solve the same issue. Banking as a Service and Banking as a Platform will both bring your banking services into the digital space.

We’ve listed only a few of the most successful BaaS providers and platforms on the market. Now it’s time to cover the core banking features BaaS can incorporate. Customers- They are still owned by banks, and by adopting a BAAP model they win because of better, newer, and tech-advanced services from banks. Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research. This website is using a security service to protect itself from online attacks.

• Banking as a Service is important because it improves the end customer experience by providing comprehensive BaaS solutions as partnered ecosystems.
• All these ingredients ensure the right kind of environment — one where third parties can integrate and test their apps in a sandbox, and then easily move to production.
• Certain services may not be available to attest clients under the rules and regulations of public accounting.
• Legacy banks can get a head start on accommodating the oncoming digital progression and demands of customers by integrating BaaS.
• Cloud deployment of Banking as a Platform product has more market capture due to better traffic, faster access to data, and improved efficiency.

Sharing data and creating access to infrastructure is slowly becoming the new demand from customers, and open banking and BaaS work to fulfill those expectations. Banks who are more tech-savvy than others and act now will have the advantage of creating banking as a platform early. The sooner you adopt the open baking and BaaS models, the more on top of the game you will be. Embedded analytics will become the undercurrent of platform banking, along with key differentiators of AI and ML to enhance customer experience. The DNA of Banking as a Platform shall be defined through API strategy and how agile a bank is to fully use APIs.

Some fintechs are helping community financial institutions; others are trying to replace them. “Smartphones, broadband internet, the 24/7 availability of commerce and financial data, and social networks have made us organize ourselves very differently than in the past. The Millennial generation, weaned on this new paradigm, now have completely different expectations than their parents or grandparents of communication and commerce,” says The Financial Brand. Jiani Zhang is President of the Alliance and Industrial Solution Unit at Persistent Systems. Prior to this role, Jiani was the General Manager of Industrial Sector for Persistent Systems. Jiani has extensive experience in management consulting, marketing, product development and technology management.

While there would be many questions to address in developing platform capabilities, banks should not wait too long to explore this model. And, quite possibly, the world of platform banking may arrive sooner than many expect. As sharing of customer data between buyers and sellers is integral to platforms, new risks and privacy considerations become key. Third-party relationships will likely also expose banks to various forms of operational risk, including information misuse and theft , system failures, business disruptions, legal disputes, and regulatory noncompliance. They may also introduce reputational risks for the platform operator.

Fintechs

Boasting $6.2 billion in assets and an annual combined processing volume of $232 billion, The Bancorp started as a branchless bank and is now a leader in digital financial services. The company provides private-label banking and technology solutions to non-bank businesses. It has held the number one position in prepaid card volume in the US for eight consecutive years and specializes in institutional banking and commercial lending. A bank as a license holder lends its license to a BaaS provider and grants access to its financial products.

Banking as a Platform cannot be used interchangeably with Banking as a Service because banking institutions enable fintech and non-financial businesses to provide financial services in the latter. In fact, BAAP is a business model that fits perfectly into the modern-day financial ecosystem, where fintech companies can enable banks and work in conjunction rather than as two separate bodies, to enhance customer experience. Banking as a Platform enables fintech and non-financial companies to provide services to banking institutions. In banking as a platform, technology companies provide software and infrastructure to banks and other financial services providers. With Banking-as-a-Platform , third-party developers can build products and services for bank customers. On the other side, BPaaS is being offered by tech companies, targeted to banks and financial institutions that already have licenses and possibly some other parts of the needed the infrastructure.

Is BaaS a fad?

Unlike traditional approaches, BaaP does not just create and push products. 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 . The transition to a new business model enabled by platform banking isn’t expected to be easy, but the payoff could be significant.

All of this can be achieved by simply installing a common platform across most products and services. They range in size from startups and small businesses to Fortune 500 enterprise companies. These businesses, directly benefiting from BaaS, offer their customer base convenient access to embedded financial services and banking products. BaaS can help them close sales faster without losing pipeline leads, attract new customers, and grow revenues. Banking as a service technology is a digital transformation that embeds multiple types of real-time financial services and products into the business offerings of non-bank businesses. BaaS is also a solution for FinTech companies providing payment services.

FinTech companies are financial technology companies using software to introduce better financial apps with more functionality and efficiency. FinTech uses advanced technologies, including AI/ML and RPA, to automate processes and create business intelligence. People often confuse banking-as-a-service vs banking-as-a-platform, while BaaS is more similar to open banking. However, instead of allowing third parties to access customers’ data, the BaaS model enables third parties to access the bank’s functionality. Although APIs have been around for decades, they have recently become mainstream as a prime driver of innovation and growth.

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Fintech companies, especially startups, quickly increase their customer base since bank clients trust their banks. We have prepared an article explaining how banking-as-a-service vs banking-as-a-platform vs open banking differ. Hopefully, you can learn more about each model and decide which one perfectly suits your business. This project has benefitted the bank to improve the customer experience and drive customer acquisition costs significantly. Incumbent banks with legacy technology stacks recognize the need to digitalize to remain competitive.

One of the surveys was geared toward retail banking, and the second was conducted in the context of payments and credit cards. Many banks, sensing the current digital trends, started offering their own BaaS platforms that enable direct access for fintechs and other businesses through APIs. Such an approach creates a competitive advantage for these more traditional financial institutions in a market where novel fintech startups emerge constantly. Banks can no longer afford to merely design products and services that meet today’s customer needs; they must radically innovate and transform for the future. Customers have become accustomed and are increasingly loyal to service providers that solve a broader spectrum of their needs.

The provider communicates with the bank’s infrastructure via APIs and delivers financial solutions for fintechs to use. Those, in turn, give access to banking functionality to their end customers. While formerly established banks were opening up their APIs and offering product innovation to startups, new challengers and neo-banks have established themselves with digital as core to their business.

While there has been a clear shift towards BaaS and API-based solutions for financial institutions, many companies still aren’t modernizing their services. Hydrogen integrates with leading BaaS providers and other banking APIs globally, orchestrating all of your digital banking needs. During such times of uncertainty, customers often rely heavily on their financial institutions to help them navigate the landscape and ensure their financial security. But if financial institutions aren’t sensitive to their customers’ needs during such times, they risk losing them to banks and other providers that are more in tune with the evolving needs of the end consumer. The opportunity is ripe for banks to pivot their range of services, earning their customers’ loyalties by providing tailored solutions that are easy to access, and to deliver a new level of experience and value. Banks invest a significant amount of money in developing, building, and evolving their various infrastructures, each of which provides specific functionality.

A Product Platform allows the lender to aggregate products and services sold on other e-commerce platforms, whereas a Service Platform allows one to aggregate service solutions for their customers. A Payment Platform offered generally by all lenders both in India and Globally, for their customers to transact, is a commonly taken avenue by banks to enter platform banking. It takes that foundation and expands it, allowing banks to offer access to functionality. By offering this extension, BaaS creates a more seamless experience for customers. To put it technically, open banking provides read-only data, while BaaS provides read and write data. This means open banking allows a tech company to pull data about bank accounts , while BaaS allows a tech company to actually open new accounts at the bank.

Banking-as-a-Service players

A primary appeal of BaaP is that it enables banks to jumpstart innovation. Many incumbent banks welcome this approach – perhaps because they know that technology is not one of their fundamental strengths, or a realization that their in-house tech expertise has become outdated and outmoded. Backlinks are a popular topic among financial institutions, but it’s important to understand how they work and how they can affect your SEO. In 2014, the Harvard Business Review asked if retail bank branches would survive in the digital world. They surmised that physical branch locations would still be an important component of a consumer’s overall banking experience.

What Small Banks and Fintechs Can Do to…

Banks, fintechs, service providers, and brands can achieve synergy by building functional and efficient integrated solutions. In an interconnected environment, everyone will reap their respective benefits, provided they promptly adjust strategies. Banking as a Platform is defined as a business model where third-party developers build products or services for banks. These developers can be from a fintech or any other software/technology company, and they embed APIs into platform functionalities, while a banking platform can itself manage data exchanges, authentication, and compliance. Technology has drastically changed customers’ expectations and how their needs are met. This means less time and cost to develop those products and services and also offers relationship managers a 360-degree view of the bank’s customers.

It also allows legacy banks to create new connections with fintechs and establish mutually beneficial partnerships. Showing that your bank is on top of the latest digital trends will convince more third-party institutions that you are well worth a partnership. Open banking, as it relates to U.S. financial practices, provides a solution toacknowledge the demands of customers. Banks have an inherent need to remain competitive and provide an integrated experience. The open banking format allows financial institutions to venture into integration, allowing third-parties access to customer data and building a foundation for further growth.

BaaS is different from open banking, which refers to the permissioned sharing of bank customer data and information in FinTech products and services. Railsbank, a London-based BaaS provider, serves the U.K., Europe, and the U.S. Railsbank developed proprietary infrastructure in-house that doesn’t run on top of legacy software stacks, unlike its competitors. Railsbank offers a variety of BaaS products and makes faster payments by directly connecting to payment rails.

Banking-as-a-Platform in practice

Wells Fargo used the software platforms to reduce customer acquisition costs by a significant margin and enhance their customer experience. Furthermore, this integration with Plaid has helped the bank to improve the customer experience tremendously and also made the banking easier for its customers. While the need to keep customers happy is obvious, banking in an ecosystem creates a new array of stakeholders, each of whom plays a vital role in delivering seamless customer journeys. Banks must balance the needs of multiple stakeholders and curate an ecosystem which is constantly changing.