Don’t Miss Out on the Rise of Banking as a Service

Banking

By Paddy Vishani

The banking sector has undergone significant changes in recent years. The ways that products and services are delivered, along with what customers expect from their banks, have moved on markedly, with the pandemic merely accelerating the pace of change.

Technological advancements, coupled with the social and financial ramifications of Covid-19, have set the stage for a revolution within the banking sector. Now is the time for banks – and new challengers – to step up to meet rising expectations.

The market has seen a steady stream of new arrivals in the form of fintechs and neo-banks like Starling and Revolut, for whom a key part of their platform is the integration of open banking and digitalised services. People are beginning to discover how data-rich, tech-based solutions can provide value, and how easy, rapid access to their financial information can transform their lives, not to mention their financial and emotional wellbeing.

Despite their rapid rise, these new challenger banks are not yet in a position to take the place of Tier 1 banks, which remain at the heart of both the high street and the financial services sector. However, these challengers are often more agile and more attuned to growing demands such as sustainable banking and novel lending methods. Crucially, fintech solutions are also allowing businesses from other sectors to enter the financial services world by giving them the platform to deliver their own financial products and services, such as retailers also providing credit to customers through things like Buy Now Pay Later (BNPL).

For years, there have been numerous seemingly insurmountable obstacles preventing them from offering integrated financial services: regulatory hurdles, access to banking licenses, and inflexible, branded products are chief among them. Solutions were needed that could make offering customisable and reliable financial services easy for almost any business – enter Banking-as-a-Service (BaaS).

BaaS has arrived

BaaS providers can offer the same advantages that are enjoyed by Tier 1 banks (security, reliability, and regulatory licensing) to smaller businesses, meaning they can avoid the associated headaches of navigating those traps themselves. They’re not just selling their status, either – BaaS firms allow larger banks to offer customisable white-label or out of box products that can effortlessly slot into any offering.

The associated costs and difficulties of building a new financial product – a mortgage, say, or a credit card – from the ground up can be prohibitive for smaller businesses, particularly for those whose primary focus is not financial services. A small eCommerce retailer selling clothing, for example, has enough on their plate managing stock, handling shipping and maintaining their website and branding without having to somehow incorporate a fully functional credit lending system into their purchasing journey. With the help of a BaaS provider, they can offer their customers new and convenient services and expand their clientele, at low cost and high speed.

The demand for services like these is being driven, in part at least, by the increasing popularity of BNPL. The sector is growing at a rate of 39% a year, and in the UK, almost 10 million online shoppers said that they avoid retailers that do not offer a split payment or BNPL service at checkout.

BaaS providers can allow retailers to offer split payment solutions at checkout without having to redirect to outside lenders, which makes the customer journey less convenient. In doing so, BaaS providers can improve an overall customer experience and deepen a consumer’s relationship with a particular brand.

Partnerships are key

Having access to services like these allows businesses to avoid handing over their influence to other companies and, instead, to maintain full control of the customer experience and journey. In competitive sectors like online retail, it can be a crucial differentiator.

At the heart of the BaaS revolution is the power of partnerships; the provider forms a beneficial partnership with both the bank powering the services and the user offering them, creating a feedback loop of mutual benefit that makes both parties stronger and more profitable.

Strong partnerships are at the heart of Yobota’s operations, with our core team made up of bankers and tech experts who understand not only the pitfalls of regulatory challenges, but also the benefits on offer for those who can take advantage of the BaaS opportunity.

Better services, stronger market

Unfortunately, some have latched onto the misguided notion that white labelled BaaS solutions will strip away differentiation within the sector and lead to a single homogenised banking service shared by all. This simply is not the way it works – providing businesses and brands with white labelled services allows them to customise those products to the exact needs and demands of their unique clientele, creating a landslide of novel, practical services that are tailormade for every corner of the market.

Now is the moment for BaaS providers to have the greatest influence; this is a time where digital banking services are in their youth, but wider uptake has already begun and access to these services will soon be considered the standard. This means that BaaS providers are positioned to completely revolutionise the market – but this will force them to ensure their products are fit for purpose.

BaaS solutions need to be easy to use and integrate, but also scalable and extensible so that they can grow with the businesses they power. They need to seamlessly connect their client to the primary bank’s critical functions, carefully adhering to any and all compliance protocols and safely ringfencing the bank’s and the users’ data.

While now is the time for BaaS to shine, this does not mean it will be easy, and in the coming years only the best providers will be able to fuel the digital transformation already beginning to sweep the banking world. The industry needs solutions that are accessible, scalable, and affordable, and it is up to BaaS providers to deliver.

About the Author

Paddy Vishani

Paddy Vishani is the Strategic Partnerships Manager at Yobota – a core banking technology platform utilised by challenger banks. He has experience in financial and technology consulting, specialising in change management and service implementation. He has worked in several areas within financial services including retail banking, capital markets and the treasury.

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