HOW BANKING AS A SERVICE IS SHAPING CUSTOMER EXPERIENCES IN FINANCIAL SERVICES

By Leonard Coen, Head of Sales Financial Institutions & Fintech Europe at Wirecard

 

With Uber, Alibaba, Tencent, Apple, Amazon and Google launching financial products, we have seen an increasing push of non-bank players moving into financial services, a market that for centuries was reserved for banks. However, big tech companies with endless resources aren’t the only ones entering this space. Banking as a Service (BaaS) democratizes financial services and facilitates these to nearly any business, allowing companies of all sizes to extend their offering accordingly.

 

Why has it become so attractive for businesses to offer financial services?

Firstly, consumer expectations are rapidly evolving. Easy to use and fairly priced financial services via digital interfaces are becoming the new norm. Secondly, by adding financial services to their offering, businesses can create additional revenue streams, accelerating the path to customer profitability. Thirdly, financial products are extremely sticky. If successful, they do not only bring in revenue but also increase retention and brand loyalty. Finally, financial products unlock rich data about customer behaviors, which can be leveraged in many different ways.

I believe that startups, SMEs and large companies should be able to quickly launch financial products and at a reasonable cost without having to become a bank nor having to build prohibitively expensive financial technology in-house. While new entrants capture new revenue streams with financial services, consumers benefit from more choice, better products, and lower prices.

The key is Banking-as-a-Service (BaaS), a trend enabled by a new breed of providers such as Wirecard, which enable businesses of all industries and sizes to move into financial services quickly and affordably.

 

What does “as a Service” mean?

The “as a Service” trend is nothing new. Around the globe, it has been sweeping across various industries and radically changing many of them by creating new opportunities and innovation. For instance, the whole era of Digitalization would probably not have happened without the emergence of “Software as a Service”. Launching a software company was once upon a time prohibitively difficult: entrepreneurs had to buy physical servers, source expensive software licenses and then code databases before being in a position to build a new product. Today, a single developer can go from initial idea to deployment in days, thanks to providers such as Amazon Web Services or Google Cloud that offer the above mentioned infrastructure “as a service”, thereby tearing down some major entry barriers.

 

And what about “Banking as a Service”?

Traditionally, innovation pace in financial services was quite slow. On one side, large banks and financial institutions are fighting against legacy IT systems, costly brick and mortar footprints, and a strong culture of risk aversion. On the other, startups are constrained by the huge upfront costs and regulation linked to the launch of a financial product.

How challenging it is for non-bank players to offer banking services? Firstly, you need a banking or similar financial license. These are not only expensive,  but more importantly require compliance with strict regulation on money laundering, banking secrecy, deposit protection as well as IT security, to name only a few. Due to the critical importance of financial institutions in the economy, these licenses are very difficult and time-costly to obtain.

In addition, some kind of technology core i.e. a core banking system is required. This software is responsible for opening and maintaining user accounts, and logging where the customers’ money is and how it is moving around. The core banking system would need to integrate with a series of payment systems so customers can send and receive money using SEPA or SWIFT rails. To issue payment cards, you need to become a principal member of either the Visa or Mastercard network.

Data is also critical when it comes to issuing loans. To issue loans you need to build up intelligence about the credit history of the target group via credit scoring agencies or alternative means. Regulations also play a key role, including Anti-Money Laundering and Know Your Customer. Last but not least, the company wishing to build a financial product would need to implement fraud prevention systems, which requires yet again more software and systems. Clearly, it is a challenge to build a financial product as a non-bank player.

What if we brought the entire stack described above to the financial services industry “as a Service”? Similar to the change that cloud providers brought to the computing and storage space, the entry barriers would be dramatically reduced and various players could offer financial services, thereby driving innovation and new revenue streams. That is exactly what BaaS providers such as Wirecard are doing.

Licensed financial institutions with a strong tech DNA such as Wirecard enable non-bank players to launch financial products by giving them access to proprietary financial infrastructure as a service. The BaaS provider stays mostly invisible to the end customer and serves as an infrastructure supplier. Any business can embed financial services into their product offering, such as mobile bank accounts, debit or credit cards, loans and payment services, without obtaining their own banking license and banking technology.

Let’s take a look at two concrete examples of BaaS embedded into non-bank product offerings:

 

Xolo

Xolo is an online platform for launching and running micro-businesses anywhere in the world. In 2020, Xolo decided to launch a digital banking offering for micro-businesses to complement their service portfolio. By leveraging on Wirecard’s one-stop shop BaaS offering, Xolo users can now virtually open a business bank account within 48 hours, receive a corporate debit card, and be able to effectively manage their banking, tax and compliance activity via a unified dashboard.

 

Payhawk

Payhawk aims to fully automate and simplify corporate expenses, offering an all-in-one corporate expense and spend management service for small and medium sized companies.

With the support of Wirecard, Payhawk launched a corporate expense card for its corporate clients, who will in turn provide it to their employees to use for business expenses. The corporate card has an app and web interface to give corporate clients a comprehensive dashboard for complete control and transparency over employees’ spending, travel expenses and other payments.

BaaS will further accelerate the trend of businesses all over the world moving into financial services thanks to drastically reduced entry barriers. The surge of creative and ambitious entrants will not only lead to a tremendous amount of innovation but also to a significantly enhanced customer experience.

spot_img

Explore more