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Banking-as-a-Service: the story so far, and where we go next  



Marouane Bakhtar, UK Managing DirectorSynpulse  


Although fintech funding overall has slowed considerably in the past six months, Banking-as-a-Service (or ‘BaaS’) startups have remained an attractive target for acquisitions and investments in 2023 so far (Source)Above deal volume, we should also note the quality and banking expertise of those buyers and investors – which include specialised PE and VC firms, plus established banking brands.  

Indications suggest that the market is still confident that BaaS is going to be a major revenue stream for the financial services (FS) players of the future. But how will this innovation fit into a long-established banking market like the UK?  

Setting the scene 

Digitalisation has revolutionised the banking world in recent decades. From individual development in the early days to today’s era of banking-as-a-service, banks have continuously evolved to meet the increasing demands of modern banking.  

The 1960s to 1980s were characterised by individual development in banking. During this phase, banks built their own core banking systems that provided basic functions for processing transactions. These systems were mostly developed internally and operated on mainframe computers. At that time, security was still subordinate and data processing was slow and fragmented. 

In the 1980s, the phase of standard software began. The banks recognised the inefficiency of in-house developments and resorted to commercialised solutions. It was not until the 1990s that banks increasingly focused on more open, flexible and customer-oriented core banking systems. This has resulted in a banking ecosystem that is especially complex, layered, and filled with regulatory expectations.  

The Airbnb moment 

With the advent of the internet and advancing digitalisation, the era of Software-as-a-Service (SaaS) began in banking. From 2000 to 2020, banks began offering innovative financial services competitively and developing new products quickly and cost-effectively. The architecture of such core banking systems was open, scalable, adaptable, lean and fast. Cloud technologies enabled a flexible infrastructure, which is why resources could be scaled quickly and used efficiently. 

However, a tide is turning. In the hotel world, this was seen as Airbnb grew rapidly in scale. From being one of many platforms with a niche and informal community, Airbnb became the platform, with a full suite of professional home-letter and home-stayer tools. Entire new industries like professional Airbnb lettings management sprung up around it. Airbnb became the controlling centre of its own ecosystem.  

The same upheaval is about to happen in the banking world. This places us at the threshold of a new era: with banking-as-a-service and platform-as-a-service at the centre. Platforms will undoubtedly dominate the future of banking.  

The central reason is simple. End customers need banking services, even if banks do not look the same as they did a few years ago. From a consumer perspective, platforms can be convenient because they offer simplicity, choice of products, and new tech-driven features which fit easily into their everyday lives. For example, having bank accounts from multiple banks visible in one app, aggregated by trusted providers with systems exchanging information using an agreed, secure standard.  

Using BaaS to build the banks of the future 

Banking-as-a-service offers the possibility to provide financial services via application programming interfaces (APIs) and to integrate them seamlessly with other systems. This will allow FS providers to offer banking services themselves as well as help other companies embed banking services into their products and services. 

Moving ahead of the curve gives banks the chance to differentiate themselves and maintain customer retention. In a world of rising interest rates and a squeeze on operating margins, maximising customer retention and lifetime is essential to long-term stability Especially as Gen Z customers (born from 1990-2010) open their first adult current accountsbanks need to offer the innovative and intuitive banking experience that will ensure them as customers for life.  

Using the BaaS model enables banks to bring new concepts to market maturity quicker. Using prefabricated modules and APIs as building blocks can help banks to keep up with evolving financial service needs of customers. This makes more time for team leaders to focus on core strategic priorities for the bank’s long-term strategy.  

There are also several operational advantages for banks in the platform model. With banking-as-a-service solutions, data is managed in a centralised way, which enables more efficient data management. At the same time, there is no longer a need for programming to make solutions configurable, because existing available solutions are easily customisable. However, because everything is connected, banks don’t miss out on valuable customer insights and the opportunity to design personalised services which align with the bank’s brand and business strategy. 

Using BaaS to move from competition to co-petition 

As we saw in the Airbnb example above, digitalisation and a shift in the ‘centre’ of an industry’s ecosystem can cause major upheaval and disruption. Similarly in the financial services world, fintechs and alternate finance options like peer-to-peer lending have started competing with legacy banks. Competition and pressure to innovate have increased in both sectors, creating new opportunities for consumers and businesses alike.  

But the next stage of the journey, moving towards a platform-based ecosystem, is likely to be more complicated than simple head-on competition. This is because the nature of the model itself demands some level of integration and data sharing to work. This means that financial services organisations of all sizes and specialties need to be ‘in it to win it’.  

Moving forward, instead of the race to scale there will be a race to integrate. Rather than building their own customer bases in siloes, fintechs are likely to look towards key players like banks and Big Tech companies to create partnerships of mutual benefit and scale their customer bases together.  

The emergence of an ecosystem-based future   

Banking-as-a-Service is proving to be a transformative force in the banking world. The shift from in-house development to cloud-based infrastructure is changing the way banks deliver their services and interact with their customers.  

What is now needed is a clear way for FS players across the market to collaborate together on providing the next generation of services. All participants in the ecosystem – banks, fintechs, asset managers, credit factories, payment transaction processors, brokers, custodians, data providers – can benefit from common economies of scale and standards. What is needed is for early adopters to keep up the momentum of this transition. In the meantime, financial services players are best placed to hedge their bets and integrate widely, positioning themselves for the emergence of the next banking ecosystem.  


Are SaaS platforms challenging banks for a piece of the payments pie?




4 common myths about the role of open source in financial services

Attributed to: Ralph Dangelmaier, Global CEO of BlueSnap


The finance industry is at a tipping point with software firms on the brink of becoming banks. This may seem like a farfetched idea, but now that software platforms come equipped with payment capabilities, their SME customers may want to receive more financial products from these platforms.

This is part of the wider trend of ‘embedded finance’ – when companies which aren’t banks incorporate financial services such as lending, insurance, and payments into their product.

Software firms are particularly leveraging ‘embedded payments’ – where the ability to accept and process payments comes with the software itself. Think of a school consolidating all the payments a parent would make for their children – tuition, books, extracurricular activities – in one software platform. This trend has exploded in popularity because there’s a desire among companies, and their customers, for everything from products to payments to happen under one roof.

With the market value of embedded payments expected to reach £2.08 trillion by 2026 and customers becoming increasingly married to their software, let’s look at how we ended up at this turning point in payments.

How chasing convenience puts money in platforms’ hands

Ralph Dangelmaier

The growth of embedded payments is propelled by the need for ease, trust, and convenience. As platforms are selling payments hand-in-hand with their software, customers don’t need to integrate with additional service providers just to accept payments. And they’re already bought into using the platform for its other functions.

Not only is this kind of back-end reconciliation easy and convenient but it helps software platforms generate revenue too. That’s because software companies that embed payments become Payment Facilitators (a.k.a PayFacs) – allowing them to monetize transactions that happen within their platform.

By selling payments, software firms can see up to a fivefold increase in value per client. Rather than depending on software subscriptions alone, these platforms now receive a cut of every transaction that’s facilitated using their software too. This provides them and the businesses they serve with a mutual incentive – shared profits.

Software platforms are passionate about helping their customers create the most easy-to-use experience to drive a higher volume of transactions. Of course, there are many ways to launch new revenue streams, but why leave money sitting on the table when all you have to do is become convenience-obsessed?

Why finance teams want software and payments in one  

As a payment expert who’s worked in a bank’s back office, I know how important a financial software stack can be. In its highest form, it can steer a business’ entire financial strategy.

Often these stacks are well curated, but the biggest drawback is the manual collection of data across platforms. Trying to build a financial picture of a business using your ERP, CRM, human resource and billing system can involve hours of laborious data entry.

For everyday finance teams, this isn’t an efficient use of time. They need to be able to pull data swiftly to advise their executives on financial strategies. CFOs are also under pressure to choose the right software stack to streamline processes and ensure payments ROI.

That’s why payment technology that removes the manual work for finance teams – to get from A to B more quickly – is growing in popularity.

Software firms using embedded payments are saving them hassle and time. Not only that, it helps the key financial decision makers of SMEs stay in a constant state of financial planning, where they can change their strategy whatever the market conditions may be.

The end of traditional banking for SMEs?

Increasingly, SMEs are struggling to get the payments support they need from traditional banks. The ‘higher risk, lower return’ view of the small business market among banks leaves software platforms in a ripe position for a takeover.

There are over 90,000 software companies in the UK alone. With nearly half of software platforms (48%) turning to embedded payments to gain a source of competitive advantage, this figure could represent a threat to corporate banking as we know it.

SMEs don’t have the deep pockets that multinational businesses have. The Amazons and BMWs of the world have long reaped the benefits of a corporate account with a large bank – and the round the clock support this offers.

But SMEs face high conversion fees and often receive minimal support chasing late payments, leaving them between a rock and a hard place. If these businesses can save money by moving from banks to software platforms, then banks are at risk of losing their position over the middle market.

Looming regulation

Until now banks have been able to defend their position because safety and security is key. Once platforms become regulated, then what? It won’t be long before regulators eye up the software industry as their next big focus.

But regulatory bodies like the FCA, PRA and more favour ‘controlled innovation’, so this will take time.

Currently, to process transactions in Europe, businesses must go down the lengthy and costly process of becoming Payment Service Providers (PSPs). That’s why many software platforms are choosing to partner with a licensed payment provider which sells the payment package to them, instead.

In fact, 89% of software platforms choose to work with PSPs rather than become a PayFac themselves. It makes sense when it’s taken more than a year for some platforms to begin processing payments on their own.

Given the sizable financial risk of processing your own payments and the administrative burden this brings, it’s no wonder software firms are looking to fintech for a better way.

After all, it’s not just about processing the payments. A partnership with a payment technology partner comes complete with support in onboarding, underwriting, compliance, risk, payouts and customer support.

In short, software platforms see the benefits of selling payments and are primed to become the next big financial players.

Not only is there revenue for the taking but their customers benefit as well. With software platforms ready to offer SMEs a banking alternative and a superior customer experience, they’re offering a truly win-win solution for all involved. And it’s payment technology partners that can help them make this vision a reality.

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Emerging technology will power long-term sustainability within the UK banking industry 




By Peter-Jan Van De Venn, VP Global Digital Banking at Hexaware Mobiquity.


Sustainability has been a big focus for the banking industry in recent years, with the issue becoming increasingly important for consumers. It’s no wonder that sustainability has become baked into the purposes of almost every bank, from Natwest to HSBC.

However, the economic uncertainty of the last year has led to many banks putting it on the back burner. Challenging market conditions have forced financial institutions to change their priorities to concentrate on protecting the bottom line. Our research found there’s been a significant drop in the number of UK banks saying that sustainability remains a key business strategy. 12 months ago it was a major priority for 100 per cent of banks, but now that number has shrunk to 60 percent.

Whilst it’s understandable that banks are feeling the pressure at the moment, there’s a risk that they will miss out if they hit the pause button. From cost savings brought by innovative digital products and services, to improved brand reputation and increased profitability, there are a lot of longer-term benefits they could be failing to unlock. So how can they keep moving forward?

Losing momentum

Emerging technology holds the key to their success, with the power to disrupt current behaviours and promote a more sustainable culture. Banks are already aware of this, with 76 percent using digital transformation to drive sustainability, but a lack of leadership has made it difficult to build momentum in the last 12 months. Currently just over half (54 percent) of banks have tasked an executive at board level with overseeing sustainability – way down from 83% just 12 months ago.

This lack of board authority means banks are struggling to engage the entire organisation to move ahead with sustainable initiatives. As a result, almost two-thirds of banks are seeing progress slow, admitting they are not actively taking steps to foster more sustainable behaviours throughout the organisation. Those that have taken their foot off the gas need to find a way to move forward again.

No time for standing still

Banks know that technology can drive sustainable behaviour. For instance, many of them are already encouraging their workforce to work remotely, as a way of reducing travel. This has two benefits – not only does it cut the costs of running physical offices at full capacity, but also reduces the bank’s carbon footprint. There has never been a better time to invest in technology to drive more sustainable behaviours.

New digital products and services can also extend the benefits beyond employees to encompass the wider customer base. A fair number of banks are already investing to make this happen. More than a third (35 percent) of banking organisations are using Machine Learning (ML), Artificial Intelligence (AI), cloud and analytics to make digital services more easily accessible. Investment in these technologies will be critical as the number of physical bank branches continues to decrease, with figures from Which? showing this is taking place at a rate of 54 branch closures each month.

Hitting environmental and social responsibility goals

Emerging technologies can also help banks keep pace with tightening ESG rules and regulations. Banks are faced with demands for increasingly granular reporting and transparency on ESG – demanding a new approach. In line, 41% of them are developing data visualisation tools to improve stakeholder engagement and understanding of ESG risks and opportunities, while 37% are using machine learning and artificial intelligence to identify and track ESG risks and opportunities across a wide range of data sources.

More than one in three are also using the blockchain to improve transparency and traceability in supply chains, and implementing digital tools and platforms to collect, analyse, and report ESG data and metrics in a standardised and consistent manner. All these applications of emerging technology will put banks on track to address global environmental challenges and unlock a greener future.

Long-term sustainability

As the economic pressures hopefully start to subside, increasing numbers of banks will start investigating how they can use emerging technologies to provide engaging experiences and value-added services for customers, to drive greater revenue and efficiencies.

Whilst banks are right to focus on their revenue under difficult trading conditions, it’s important they don’t miss out on the long-term benefits that sustainability can bring. To capitalise on this, banks must keep pushing the boundaries and invest in emerging innovations to drive more sustainable banking behaviours, benefiting the planet and driving great digital experiences for customers.

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