Banking-as-a-Service and the survival of banks in the digital age

Most of the innovations in financial services industry, including insurance, are coming through leaders who are very new to the industry or come from outside the financial industry. The growing demands 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 a very close future with solutions such as BaaS (Banking-as-a-Service) and BaaP (Banking-as-a-Platform).

The correlation between income and access to formal financial services is still very strong in today’s world, however, this landscape is now changing with incumbents and mobile/internet innovators now integrating with main-stream banking systems through central banks regulatory frameworks, which are now becoming more flexible globally, and extended by FinTech service providers, which are pushing hard to change the world of financial services. Entrepreneurs are leading a pack of disrupters, most of them raised in the shadow of companies like Sqaure, PayPal, Fidor Bank, Moven, Prosper and other, who wants to change the business model of banks and financial institutions forever. 

The “unbundling” of financial services has become something imminent and has been deeply transforming the industry, as shown in the chart below:

Marco Antonio Cavallo

As it has been reported largely by many research companies and specialized channels, the large amount of insurgent financial technology companies (FinTechs) are deeply disrupting the traditional banking services industry around the globe as never seen before, making available to the market a wide assortment of innovative plug-and-play, multi-channel and easy-to-use banking solutions. And theses new offerings, including digital wallets, wealth management, peer-to-peer (P2P) lending and payment offerings, are increasingly becoming favorites to banks and other financial institutions consumers. In order to retain and keep wallet share, banks and financial must rethink the future of service delivery that they currently offer, in a way that transcends new technology adoption. Banks must think progressively and embrace a strategic and operational approach that is capable to deliver services across different channels in an innovate and personalized way so banks can to strongly state to their customers that they know them, hear them and understand their needs, as well as they are fully capable to deliver within the constraints of an ever-demanding regulatory landscape.

With Banking as a Service (BaaS), radically shift from building and managing financial solutions to assemblers of consumer-driven financial management tools and related offerings, which provide banks a solid path to compete in this fast-mutating market. BaaS makes banks able to accelerate their time to market into new environments and rapidly meet the needs and expectations of digital consumers, but moving to BaaS is not something easy, once banks must be willing to unlock their data and application services to partners, such as FinTechs and other third- party developers, through standardized and open APIs (Application Programming Interfaces), as well as plug-and-play within new emerging platforms in which they are not the actual owners of the customer experience and relationship, which is a complete new mentality to banks and their traditional business model.

This rather extreme transformation must be considered over a continuum of time and is predicated on the bank’s appetite for risk and digital business maturity following some steps to be successfully implemented, starting as an exploratory venture, then moving to an open API platform selection and expansion, transforming its core process and finally evolving into a fully comprehensive BaaS model, and all this process should have as a premise the items below:

• 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;
• Ensure the strategic alignment between business objectives and your BaaS project.

If banks are able to 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 a 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. The chart below sums up a few of these key market trends:

Marco Antonio Cavallo

In order for banks to survive in this new market order they must deeply reshape their value proposition. BaaS is now emerging as a new business model and an efficient competitive toolkit, and this business model includes many important items, but among those, banks such focus on the three below:

• Shifting to financial management solutions assemblers: an efficient BaaS implementation strategy focus strongly on componentized capabilities that enables any type of plug-and-play operation, resulting banks to become assemblers of tailor-made financial management solutions, built in order to meet the fast-changing customer needs and expectations. By adopting the componentization methodologies, banks will also experience better standardization and cost reduction.
• Open banking APIs orientation: BaaS aims on the delivery of innovative customer-oriented solutions through the opening of banks’ traditional capabilities and assets, and APIs are the foundational item for provisioning BaaS, assisting and stimulating traditional players to leap into digitization. APIs enable banks to share data with internal developers, partners and third-parties, such as FinTechs, which then manipulate this data to build valuable service offerings, including mobile payment applications, peer-to-peer lending solutions, analytical dashboards among other solutions.
• Innovation and customer centricity focus: In order to provide a more innovative and customer-driven offer, banks must provide consumable capabilities and data to external and internal partners, such as a virtual intelligent banking assistant, spurring a multiplier effect for growing the customer base and revenue sources, while simultaneously reducing costs.

 It’s clear that there are many benefits in BaaS and in creating an API ecosystem. By doing so, banks become capable to better explore external innovation through data and logic exposed through open APIs, as well as use such capabilities to develop and new offerings and improve customer experience, customer loyalty and wallet share. Banks will also find new revenue sources and acquire new customers, specially the so-called digital natives seeking more innovative offerings. BaaS model improves significantly banks’ ability to respond better and faster to the ever-changing market conditions and shifting customer demands. But there is a risk component for banks when adopting BaaS, including loss of control over customer engagement, consumer base fragmentation and the erosion of bank-led product innovation, making it necessary for banks to properly manage and follow up such outcomes to meet and achieve their business objectives and goals.

Days are not far when we will see a fully digital bank designed to enable a wide range of FinTech services running through BaaS. 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. In order to survive the digital age, stay relevant, keep market share and maintain an industry presence, banks must embrace BaaS.

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