Banking-As-A-Service: The Progression Of Banks In The Digital Age

The banking industry has traditionally been considered a pioneer in process automation, but they are currently in the background of digitized, customer-driven financial services today. Nonetheless, in the mobile-obsessed world of today, traditional banking is under threat. Banks must, therefore, retool their products and services to meet today’s device-obsessed consumer expectations.

In that regard, the growing popularity of SaaS (Software-as-a-Service), IaaS (Infrastructure-as-a-Service) and PaaS (Platform-as-a-Service) might give birth to industry-specific services and platforms in the not so distant future with solutions such as Banking-as-a-Service (BaaS) and BaaP (Banking-as-a-Platform).

Financial services are undergoing a major transformation because of the unbundling of these services. To learn more, consider the following:

  • There has been extensive coverage by research companies and specialized media outlets of the amount of insurgent financial technology companies (FinTechs) deeply disrupting the traditional banking industry around the globe. FinTechs have made available to the market a wide assortment of innovative plug-and-play, multi-channel and easy-to-use banking solutions.
  • These new offerings, including digital wallets, wealth management, peer-to-peer lending, and payment services, are becoming increasingly popular with customers of banks and other financial institutions. Banks and finance must, for this reason, rethink their approach to service delivery in a way that transcends new technology adoption to retain and grow wallet share.
  • Banks can compete in this fast-changing market by utilizing Banking-as-a-Service (BaaS), which substitutes building and managing financial solutions for building and managing consumer-driven financial management tools and offerings.

This process should be premised on the following items:

  • Preparing, adapting or building a solid API-led ecosystem;
  • Choose and formulate the most suitable API strategy;
  • Selecting partners that are in line with your company’s market and customer strategy;
  • Building strong partnerships with FinTechs and independent software developers to support and monetize APIs;
  • Have a change management strategy in place to implement and keep moving BaaS forward within your company;

If banks can successfully implement BaaS, they can evolve from being just a mere peripheral institution in the digital age and become an important broker that enables many different benefits for consumers and partners across the digital value chain, expanding their partners’ customer base, enhancing innovation and creating new revenue sources.

The traditional approach that most mainstream retail and commercial banks have adopted is now suffering strong competition from all sides. Banks have always conducted end-to-end service delivery by integrating experience, processes and products, but the recent consumer centricity that is taking over the market and the born-digital FinTechs are providing the market with significant customer experiences by accessing application services and data across financial services providers, just to mention one of the so many trends that are now influencing the rise of BaaS.

Key Market Trends

Banks must deeply reshape their value propositions to survive in this new market order. In the future, banks will use this model as a new business model, a tool kit for competitive advantage, and among the many items included in this model, banks will focus on these three:

  • Banks Assemble Tailor-Made Financial Management Solutions: The implementation of BaaS is based on components that can provide any type of plug-and-play capability, which allows banks to assemble tailored financial management solutions to meet customers’ fast-changing needs. Furthermore, banks will be able to experience better standardization and cost reduction by using componentization methodologies. 
  • Open banking APIs Orientation: BaaS is aimed at providing innovative customer-oriented solutions by opening up existing banking assets and capabilities; APIs serve as the foundational element for providing BaaS, assisting and stimulating traditional players to digitize. With APIs, banks can share information with internal developers, partners and third parties, like FinTechs, who will then use this information to build services such as mobile payment applications, peer-to-peer loans, and analytical dashboards.
  • Focus On Innovation And Customer Centricity: Banks must provide consumable capabilities and data to external and internal partners, such as a virtual intelligent assistant, to provide customers with a more innovative and customer-driven offering, increasing revenue sources and driving down costs.

To Conclude

As you evolve and survive the digital age, you can stay relevant, keep market share and maintain an industry presence with OpenPayd. The impact of BaaS will only grow, as banks continue to focus on consumer needs, expectations and technology-enabled capabilities, as well as innovate to level up the competition.

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