Banking as a service (BaaS)—why banking needs reinvention

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It is quite noteworthy that six of the ten world’s most valuable companies are platform companies. Even though none of them is a bank, banks have proceeded with building public APIs to develop and nurture a whole ecosystem of external partners (independent developers, technology vendors, and service providers). 

Banking-as-a-Service (BaaS) model implies an in-depth understanding of using technologies (API, in particular) so that third parties can create business applications. The mobile banking era is flourishing, however, delayed going to market, a limited number of personalised products and slower innovation are still among the most widespread concerns. Would APIs help optimise the backend infrastructure complexity? 

APIs are primarily used in transportation, technology, travel and retail, as they assist in communication between disparate applications, which leads to operational efficiency and improved customer experience. Since leading banks are also utilising APIs, the rise of API-based middleware connecting banking assets encouraged the growing popularity of Banking-as-a-Service or BaaS.

So what exactly is BaaS? 

Banking as a service

Let us explain how it works by using a simple example: Bank B needs to optimise a cumbersome mortgage process, which is paper-based. Fintex F offers an option – a programming product with a user-friendly UI that implies conducting the entire mortgage process from application to approval. So B’s API provides F with access to B’s customer data. As a result, bank achieves a hassle-free experience applying for mortgages. 

BaaS platform aims at facilitating communication between two or more distinct types of customers. For example, thanks to Facebook, content generators (value creators) and users (value consumers) can interact efficiently, as it gives them the infrastructure. 

For instance, Facebook facilitates direct interactions between content generators (value creators) and users (value consumers). Facebook itself is a platform owner or facilitator providing the infrastructure to originate and sustain the different customer types. 

As we already mentioned, BaaS serves as an end-to-end model that enables third parties to connect with banks through API, which is a key to taking advantage of an open banking opportunity. Among the main strategies for monetisation is charging a monthly fee for accessing the platform or purchasing each service separately. 

Unlike traditional banks who have the whole value chain, BaaS concentrate on one or two stages of the value chain and align to one of four following types:

Statistics claim that the UK’s new revenue from open banking-enabled businesses was £500 million ($700 million) in 2018, and Insider Intelligence anticipates it to reach £1.9 billion ($2 billion) by 2024. So let us dwell on the benefits of SaaS platforms not only for banks but also for customers. 

Top 3 main benefits of BaaS for banks

BaaS for banks

Additional Sources of Revenue

Banking as a Service helps stakeholders to find ways of getting revenue. The main goal is to set efficient strategies for monetisation which suit your business needs and collaborate with skilled vendors. For example, JP Morgan Chase collaborated with a fintech firm called On deck to process small business loans promptly. 

Cost-efficient Initiative

Since there is no need for banks to invest resources in technological development, it assists them in focusing on further investments. According to statistics, 77% of banks are determined to support or have already invested in open banking initiatives for commercial customers.

More Customer Insights

Gaining customers also means achieving insights into your clients’ preferences, namely their financial requirements and buying habits. As a result, banks utilise customers’ data to customise offers (indeed, 80% of clients prefer to respond to personalised recommendations. In addition, being aware of customer preferences helps to establish a targeted approach to multi-channel marketing. 

How can Banking as a Service benefit end customers?

Keeping higher competition leads to the creation of innovative products

When non-banks provide core banking services, it increases innovations and responsiveness of UI. Third-party stakeholders aim to solve specific customer pain points (simplifying the lending money process, for instance). It all resulted in developing highly customised financial products and obtaining frictionless. 

More attractive customer experience

For those who tend to use Facebook, Apple and Amazon, instant gratification has become a must, so they demand the same level of quality from their financial institutions. Nowadays, the customer does appear as the winner: real-time access to offerings is an indispensable part of modern financial platforms. Yet, apart from satisfying clients’ needs, financial products are to protect their data from leaks and comply with robust security protocols.

Get business insights on the latest tech innovations in banking!

Outsourced software development

PNN Soft created several reliable solutions for the banking branch. We have been delivering programming products for 20 years, and we hone our skills to put our ideas into the newest solutions and services. We pay particular attention to security, and IT support during and after development in this process. 

We focus on achieving an in-depth understanding of individual companies’ features and needs. That is why our clients prefer a long-term cooperation.

PNN Soft prioritises Agile, Scrum, and RAD methodologies to interact with clients effectively, satisfy customers’ needs and obtain more flexibility. Our Agile teams of experts include software developers, GUI designers, testers, technical writers, and managers. 

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