Who ever imagined that the ways in which we pay would become so enmeshed in feelings of customer satisfaction, brand loyalty, and the profound commercial affinities now achievable?
A number of people did, actually. And they are busy imagining, reimagining and bringing to life the warm and fuzzy transactional traits now associated with the many ways we can pay.
PYMNTS’ October Banking As A Service Playbook: Powering The Next Generation Of FinTech Innovation, a collaboration with Transcard, examines developments around banking as a service (BaaS) and how its digital-first nature makes it ideal for current banking needs.
Integrating application programming interfaces (APIs), cloud-based systems, advanced artificial intelligence (AI) and machine learning tech, BaaS facilitates innovation, helping FinTechs and financial institutions (FIs) develop new instant money products while managing data and keeping security foremost. And it goes well beyond that as a unifying financial faculty.
“BaaS models serve as an important framework for relationships between banks that want to maintain and add value to their corporate customers, FinTechs with solutions that address specific inefficiencies and corporations that want to use payments and financial services to improve the value they provide to their end users,” according to the new Playbook.
‘Side-By-Side’ Banking Systems
True BaaS believers — a group that’s growing daily — have the European Union (EU) and its pioneering open banking push to thank, in large part. “The European Union has led the charge toward open banking, creating a regulatory framework through PSD2 that requires banks to open up their APIs to support expanded financial services,” per the new Playbook.
On the other hand, “Creating a hospitable regulatory environment and actually bringing novel financial services to market are two very different things … and FI incumbents with banking licenses are not necessarily eager to give up their market shares.”
It’s not an either/or proposition, however, as more players are discovering. In fact, for many FIs BaaS is precisely the solution they seek to more easily modernize core banking systems.
“There’s no reason banking-as-a-service platforms can’t complement and sit side by side with an existing core platform, because BaaS platforms that are specialized are not trying to take over all functions and features of traditional core applications,” Transcard CEO Greg Bloh told PYMNTS. “Sitting side by side is super important from an FI’s perspective — they’re looking for a partner that will complement and align with their offerings.”
Legacy And BaaS, Together At Last
The word “innovation” would be retired from the vocabulary from overuse in 2020 alone, if not for the fact that inventive approaches to banking and payments are in fact yielding solid results.
For that reason, among others, legacy banks have mostly shed their BaaS trepidation.
The new Banking As A Service Playbook notes, “The share of global FI executives that regard platform-based banking as a competitive threat has declined since 2015, according to a recent report published by technology giant IBM. Nearly 80 percent of FI executives believe these innovations will help them differentiate themselves and compete, the study showed.”
It’s a good indicator that not only are there ready digital fixes for legacy core banking issues, but that deploying one keeps FIs competitive in a climate dominated by the digital shift.
“Many innovations in the BaaS space have been made possible through cloud-based platforms that allow users to move beyond the limitations of legacy payment … systems and communicate with third-party partners through secure APIs,” the Playbook states. “A recent study uncovered that a majority of banks and financial services organizations are only in the early stages of implementing cloud-based systems. The findings suggest that FIs must find BaaS partners that can help them bridge this technology gap through open APIs and other tools.”