All You Need to Know About Banking-as-a-Service (BaaS)

In ancient times, traders and merchants exchanged monies in their native currency with other traders – an act that happened predominantly on benches. This is where the word “bank” comes from: deriving from the Italian word for bench, which is “banco.” Well, if one were to coin a word for the bank of today, it would be called “roccaforte,” which in Italian means “fortress.” One look inside a modern bank will make the allusion clear, confined, and highly guarded places with little or no space for flexibility and speed. The fortress, however, is not merely a safeguarding mechanism, it has inadvertently led to the isolation of financial constructs from other financial institutions, market forces, cultural aspects, social changes, and everything else that is deemed as “disrupting.” In a world where the pull of digital process has manifested in the form of tangible forces that impact us in our daily lives, the worst thing banks can do is to compromise on their flexibility, speed, scalability, and adaptability.

Can you imagine a bank that is deconstructed and dissected to its core, only to be rebuilt in order to fit in with the structures, laws, and practices of the digital world? Fidor, a digital bank whose name was derived from the Latin word for “trust,” is your answer. Not only has the online bank done away with the confines of traditional brick-and-mortar “fortress” banks, but it has also diversified its service offerings based on the flexibility and functional creativity that mobile platforms provide. The bank offers everything from community financial solutions to content management systems and loyalty programs through a mobile interface.

Digital platform-based banking systems that offer the chance for open innovation through data sharing, process management, and specialized innovation – this is the future. With digitalization pushing banks closer to the edge of our present paradigm, forcing them to either fly or die, such ecosystems are the most holistic way to deal with such a temporal shift. In the banking-as-a-service ecosystem, there are two types of players: 1. FinTechs that offer banking-as-a-service capabilities to other FinTech platforms that helps them to expand their product capabilities faster; 2. Traditional banks who sensed the upcoming changes in the business and started opening up their banking capabilities for other FinTech players through APIs, and established themselves as leading banking-as-a-service providers. For banks, this makes a lot more sense as adding the banking-as-a-service capabilities helps these banks create a hedge against disruptive competition and enables them to remain seated in the center of banking by facilitating innovators to build their services around these banks.

Why Banking-as-a-Service?

The signs of the future are everywhere; they’re especially noticeable as they leak through the cracks and gaps that exist within the framework of functioning that banks follow, day-in, and day-out. The inclusion of FinTech companies in specific aspects of banking, such as lending, account management, payment gateways, and card issuance offers the chance for specialized innovation in these areas, especially from the perspective of customer experience.

The future of consumer finance is a bright one (and a colorful one as well), with sleek and sophisticated designs lining the walls of digital pathways through which an individual user may travel, explore, and interact with various financial services, all of which can be availed of with merely a few clicks. Companies like Square have built their digital home with the sophisticated design elements that apps like IFTTT and Weebly offer, thereby being able to fit entire financial marketplaces into a single mobile interface. Square has also released a vast array of APIs so that other FinTech players can become a part of the digital ecosystem that they have built.

Specialized corporate entities managing and polishing each process that falls under the umbrella of the traditional banking system is fertile ground for innovation-driven enhancement of systems and structures which have remained unchanged for centuries!

solarisBank is one of the pioneers in building FinTech communities for diversifying financial services for the digital consumer. A digital-native bank, it is now a fully licensed financial institution powered by German company Finleap which is invested in the development of underlying regulatory and infrastructural capabilities for the bank to scale up. solarisBank has revolutionized the cumbersome process of traditional licensing, which forced FinTech startups to be utterly dependent on existing banks and their licenses to launch financial services by unleashing a slew of APIs for different consumer finance offerings. They have released APIs for everything from online loans and compliance & trust solutions to transaction services and working capital financing. Their modular-based banking toolkit can now be used by any FinTech venture looking to launch their own brand of financial services, without having to jump through a myriad of excruciating and time-consuming regulatory loops.

How Would Transformation Occur?

Bringing banks into the equation as platforms through the integration of APIs helps in the development of specialized units/entities centered on each banking service/product, each with its own unique value proposition. The most exciting aspect of this particular arrangement is the ability to nurture collaboration as well as competition within the ecosystem. FinTech startups collaborate with both banks as well as other ventures to enhance, modify, and scale-up financial processes.

The banks of the future do not merely act as institutions; they act as vast and intricate platforms that are the result of the culmination of diverse forces and processes, each of which is managed and maintained by independent entities. This movement is being spearheaded by pioneering digital banks like BBVA and RBL, whose motto has been to imbue financial services with efficiency, rapidity, ease of accessibility, and comprehensibility: the sweetest fruits of digitalization. RBL offers value-added APIs, which can bring about automation and efficiency-centred revolutions for FinTech platforms, especially through eKYC, Credit Score API, Currency Rates API, and PAN Verification API, which can complete change the topography of the financial landscape by inculcating a subscription-based user experience enhancement model, without all the strings that come attached with working with multiple vendors and partners.

Through APIs that allow for the integration of third-party functionalities, banks can become core nodes in a network of FinTech-powered processes. This arrangement would allow them to be open and receptive towards network effects, which have been ignored traditionally in order to maintain a rigid culture and market outlook. The fostering of such FinTech ecosystems offers banks the chance to evolve and develop their functions, services, and products to a much larger scale as compared to a model where everything is contained within the four walls of safety and security. Specialized innovation in various facets of banking is the perfect way to deal with the myriad uncertainties that lie in wait within the nooks and crannies of the traditional financial empires.