Banking as a Service (BaaS) creates a fully-integrated supply chain that ensures the full completion of solutions offered over the Internet.
It offers on-demand accessibility that provides managed opportunities that fit within a specific timeframe.
The platform-based model has become one of the most popular ways to do business online today. Easy distribution and access through mobile technologies allow for disruptions in the traditional banking model.
BaaS creates a place where developers can build innovative services or products for their customers. It allows for a secure data exchange, individual authentication, and compliance with all relevant regulations.
How Does BaaS Differ from Open Banking?
Banking as a Service allows consumers to have access to functionality. Open banking creates new opportunities for consumers to recognize more choices in their markets.
The definitions for BaaS often merge with other forms of banking because it is such a new service. Agencies in the United States still operate in closed environments. That means it is challenging to offer BaaS opportunities in a meaningful way.
There is also resistance to the idea of providing third parties access to existing bank data. This process would improve customer experiences, but it would also create new risks for information exposure. That’s why the process is only 1% complete despite the revolutionary changes that would occur across the industry verticals.
Banks Can Use BaaS for Fintech Capabilities
The BaaS relationship does not need to be a one-way street. TransferWise uses this approach with its fintech offerings to reroute money from a bank account within the country of the recipient so that the funds do not need to cross borders. This process allows them to make international money transfers at a lower cost. The UK’s Monzo is integrating this specific service into its banking app.
As open banking becomes the standard for the industry, financial institutions can begin to use the plug-and-play method of service creation to build new opportunities. If you wanted to offer a service like PayPal to consumers, then you could use the various tech aspects of the platform to provide a custom opportunity without the added development costs.
The EU’s PSD2 forces banks with online accounts to provide customer account information to registered third parties with the consent of the account holder. This regulatory requirement creates an opportunity for competitors to access data that allows them to launch competitive products.
BaaS disruptions could cause traditional institutions to lose up to 40% of their income. There will be a need to increase information technology budgets to provide needed services to consumers. Embracing the platform approach can help institutions to provide more capabilities while developing revenue-sharing contracts.
MasterCard’s Partner Wallet is another example of BaaS at work. It allows any retailer to build on the MasterPass payment network. That makes it possible for the merchant to use website checkout security and in-app capabilities for transactions on their own service.
Banking as a Service could be problematic if institutions refuse to embrace the concept. Those who can find a way to be innovative in this environment will discover that BaaS will accelerate their opportunities.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
Media Contact
Company Name: Deltec International Group
Contact Person: Media Manager
Email: Send Email
Phone: 242 302 4100
Country: Bahamas
Website: https://www.deltecbank.com/