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 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 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.
TECHCOMBANK AND COMPASS PLUS CELEBRATE 15 YEAR MILESTONE IN BANKING PARTNERSHIP
Since issuing the first Visa card 15 years ago using solutions provided by trusted partner Compass Plus, Techcombank, one of the top commercial joint stock banks in Vietnam, has become the country’s market leader for Visa payments volume and has received numerous prestigious awards from the international payment network.
Techcombank was Compass Plus’ first customer in Vietnam, and following the initial project in 2005 to issue Visa cards in the country, the partnership has continued to go from strength to strength. The bank has used Compass Plus solutions to expand its card business and banking portfolio, and has also built an in-house processing centre using its partners software.
Originally brought in to help grow its business and develop its offering for individuals and small to medium businesses, Techcombank selected Compass Plus as the partner that had the expertise to support both its technical and business requirements.
“We are proud to mark this milestone in our partnership with Compass Plus,” said PhD Hoan Dang Cong, EVP, Deputy Head of Retail Banking at Techcombank. “Over the last 15 years, we have appreciated the efforts from the strong and well-established relationship we have with our trusted partner, as well as stable card business performance and flexibility to enable business growth.”
“Techcombank is one of the most technologically advanced banks in the country, and we are proud to be able to say that not only are they our customer, but that we have such a positive and long-standing relationship with them,” said Igor Simonov, AVP, Business Development and Sales Manager at Compass Plus. “As the Vietnamese banking sector responds to demands for more advanced payment methods than ever in a move away from cash, we will be ready to deliver and to provide the ongoing support needed to spur further growth for banks, such as Techcombank.”
XALQ BANK SUCCESSFULLY COMPLETES IMPLEMENTATION OF TRANZAXIS
As part of a strategic project to modernise its infrastructure, Xalq Bank, one of the leading banks in Azerbaijan, has launched the open development payments platform TranzAxis from Compass Plus. The flexibility of this software solution will allow the bank to expand the range of services and products provided to customers and quickly respond to market changes.
The joint project with Compass Plus, which sees the automation of back-office operations for managing cards and customer accounts, also gives Xalq Bank access to technologies and tools that will enable it to transform its card business, and promptly develop new products and services that meet customers’ needs and the realities of the financial market of Azerbaijan.
In addition, during this project, the bank automated the processing of payment card transactions, including maintaining customer data, managing charges and limits and other card data; business logic and accounting for various types of cards, including the full cycle of servicing credit cards, and also provided automated interaction with third-party systems of both the bank and its partners. In addition, the new system has revised and optimised tools for accounting and analysis of the bank’s terminal network (ATMs and POS terminals).
“Thanks to the professional support of the Compass Plus team we completed this project in the quickest time possible, despite the COVID-19 pandemic. We are sure this is just the beginning of a long-term partnership, and the capabilities of the TranzAxis software platform will provide us with a good basis for business development for many coming years,” said Nazim Ibrahimov, project manager and a member of the Executive Board of Xalq Bank.
Head of IT department of the Bank, Ali Akhundov, commented on the joint work: “This project has become part of a large-scale process of modernising the bank’s IT infrastructure, which includes updating many systems and services. Due to its flexibility, functionality and architecture, TranzAxis plays a key role in automating our retail business.”
Alexey Osipov, Executive Vice President at Compass Plus, said: “The Azerbaijan market is extremely important for us, with 7 out of 30 banks and 2 processors operating in the country already Compass Plus customers! This project has, once again, confirmed the leading position of Compass Plus in Azerbaijan, and we are delighted to partner with Xalq Bank, one of the largest players in the financial services market.”
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