Banking Fintech

A seven-year-old idea comes of age: banking-as-a-service

A seven-year-old idea comes of age- banking-as-a-service. Main image: Oxy_gen, Shutterstock.com
Written by Chris Skinner

It’s not just banks’ products, processes and designs that should plug-and-play, says Chris Skinner. We should be able to plug-and-play any other services into the BaaS model.

In 2009, I coined the word BaaS. No, nothing to do with sheep! Instead, BaaS stands for banking-as-a-service. In 2016, everyone is talking about this:

I’m not saying I was ahead of my time, but seven years is a long time in the life of a dog. Anyhow … the reason for blogging about this is that my friends in Singapore, Vladislav Solodkiy and Igor Pesin, who run the fintech VC firm Life.SREDA, have just released a new report called … you guessed it … Bank-as-a-Service. They kindly reference where the idea came from and point to banks’ opportunities to grow business by releasing more of their capabilities as APIs, as software, as apps, as widgets … as anything that can plug-and-play into anything else.

Part of this is that it’s not just banks’ products, processes and designs that should plug-and-play, but we should be able to plug-and-play any other services into the BaaS model, such as Stripe, PayPal, Fidor, Moven or any other APIs, apps and analytics we want.

Opening up to the world

The Life.SREDA report mainly focuses on financial APIs and their usage. For example, they cite the fact that, in December 2015, LetsTalkPayments.com counted 63 insanely useful APIs from fintech startups across 12 segments “to supercharge your product”.

LetsTalkPayments.com counted 63 insanely useful APIs from fintech-startups across 12 segments "to supercharge your product".

They also note that Gartner predicted in 2013 that, by now, 75% of the top 50 banks in the world will open their API and 25% of these banks will have their app stores for customers. They haven’t, by the way, as I’d estimate it as more like 25% of the top 50 banks have opened their APIs. But what do I know?

Having said that, there are some great examples of firms that have opened themselves to the world. One of the best examples is Bancorp. Bancorp has over 75 million prepaid cards in circulation in the US, and over 100 private-label, non-bank partners, including Simple. This has given them a combined annual processing volume of $232bn. As a result, the bank has grown from its “roots as a branchless commercial bank to become a true financial services leader, offering private-label banking and technology solutions to non-bank companies ranging from entrepreneurial startups to those on the Fortune 500″.

The Life.SREDA report also points to Fidor, which is the power behind the telco Telefonica, and its O2 banking service in Germany. A bank that pays interest in mobile data.

FidorOS suite of modules for digital banking.

There’s a range of other examples from Wirecard (the bank licence behind Holvi and Loot Bank) to SolarisBank. Notably, that’s three German banks leading the market. I would also point to PayPal and PrivatBank as other notable examples.

Anyway, you can read Life.SREDA’s report at its newly launched website, Bank-as-a-Service.com.

READ NEXT: 2015: It’s time to open source finance

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Oxy_gen, Shutterstock.com

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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