By moving to a platform-based model, banks can open up the scope of their business and compete with fintechs on their terms. Technology has drastically changed customers’ expectations and how their needs are met. This means less time and cost to develop those products and services and also offers relationship managers a 360-degree view of the bank’s customers. All of this can be achieved by simply installing a common platform across most products and services. During such times of uncertainty, customers often rely heavily on their financial institutions to help them navigate the landscape and ensure their financial security. But if financial institutions aren’t sensitive to their customers’ needs during such times, they risk losing them to banks and other providers that are more in tune with the evolving needs of the end consumer.

• Here, we discuss our view on microservices-based banking architecture and how institutions should open up to explore prospects presented by the platform banking phenomena by taking a purposeful approach.
• The authors and reviewers work in the sales, marketing, legal, and finance departments.
• While the future of BAAP or platform banking is still in a nascent phase, strong strategic planning and a roadmap can help trail retail banks’ path to a complete platform world.
• The BaaS model begins with a fintech, digital bank, or other third-party provider paying a fee to access the BaaS platform.
• Banking-as-a-platform takes away the pains of building and managing a digital infrastructure to support the desired banking services and allows firms to focus more on delivering a stellar banking experience.

When she’s not writing, Barbara likes to research public companies and play social games including Texas hold ‘em poker, bridge, and Mah Jongg. Another example is a US bank that partnered with a leading technology company in 2019 to launch a fully embedded credit card with no fees, daily cashback, and seamless integration with https://globalcloudteam.com/ mobile devices. As a result of this partnership, the bank received the highest customer satisfaction rating in the Midsized Credit Card segment in 2021, according toa McKinsey study. This situation may be because in the past, banks have invested long time and money in the adoption of complex technology made by third parties.

Impact of fintech on Indian Retail Banking

According to another survey by Accenture, incumbent banks made up only 30 percent of the BaaP players. This is because the cost of creating a platform from scratch is high, and such a project could mean taking on significant technical debt. These APIs should not be viewed simply as technical interfaces that expose data to third parties, but instead as radical enablers of new and exciting customer experiences. Unlike traditional approaches, BaaP does not just create and push products. Driven by regulation, the advent of open APIs will upend the status quo by allowing third parties to act as alternative distributors and offer a new range of products.

Open banking initiative forces banks to give up their monopoly and open their systems to third parties. Barbara is currently a financial writer working with successful B2B businesses, including SaaS companies. She is a former CFO for fast-growing tech companies and has Deloitte audit experience. Barbara has an MBA degree from The University of Texas and an active CPA license.

Buy Now Pay Later Report: Market trends in the ecommerce financing, consumer credit, and BNPL industry

Building and maintaining a banking infrastructure is a costly and time-consuming process. Banking as a Service allows fintech companies to sidestep these costs and focus on developing their own value-added services and customer experiences. First you need to align on exactly which financial products you plan to make available banking as a service platform to your customers. As a part of that, you’ll want to create a flow of funds that shows how money flows between bank accounts. You’ll also need to become fluent with the compliance implications of what you’re planning to build. Some embedded financial products are easier to launch; others come with significant complexities.

BaaS is able to open new doors for these exciting new markets being explored today. Despite this, financial institutions are uniquely positioned to use the BaaP model to provide both a network of innovative products and services and the trustworthiness of a long-standing institution. By welcoming open APIs, banks can form a new decision-making framework that caters to their preferred strategy and the realities of the market. Whichever business model you are considering, it is important to have in mind that not all institutions are alike. To put it simply, different banking-as-a-service providers offer different sets of services.

FIDOR Bank

The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. Open banking is gaining momentum worldwide with PSD2 , CMA , UPI and many similar initiatives being undertaken elsewhere. These regulations seek to open the financial sector to competition, stimulate innovation, reduce costs, increase transparency and empower consumers. On the technology side, they will need to update development approaches, pursue process automation, experiment with rapid prototyping and maintain the APIs themselves.

All in all, digital banking services generate more revenue and create a better customer experience. Banking as a Service enables fintech companies to go to market faster, as they can leverage the existing infrastructure and services of traditional financial institutions. This allows them to focus on developing and marketing their own products and services. Platform banking is a feature that some chartered banks offer their customers.

Open banking providers (a.k.a third-party service providers)

Plug & Play APIs are ready-made modules that are compatible with any platform out of the box and include solutions for trading, oAuth, fraud monitoring, white-label banking, user interface, and more. These APIs provide a technical approach that creates a competitive advantage over more traditional financial institutions in a market where novel fintech startups emerge constantly. Banking as a Service enables fintech companies to access the core banking services of traditional financial institutions through APIs. This allows them to offer their customers financial products and services, such as payments, lending, and account management, without having to invest in and maintain their banking infrastructure. Banking-as-a-Service is an ecosystem of licensed financial institutions providing access to their embedded financial services to non-banking partners, generally through the use of APIs.

When they talked to restaurant owners, Toast realized that many of them couldn’t get the financing they needed to run their businesses. Toast started offering restaurant financing in 2019, and today their lending business generates $14M of revenue per year. In a fast-growing global market, BaaS solutions are always developing and evolving, allowing fintechs to position themselves as an invaluable asset to their customers.

The Embracing of Platform Banking

While at the onset this layer may not seem especially important, as FinTech services continue to grow as a segment in the financial service market, services performed by Cloudworkers will take on increased importance. This is a behind the scenes component that end-users will be unable to discern between a complete automated service and one that includes HuaaS. Furthermore, this integration with Plaid has helped the bank to improve the customer experience tremendously and also made the banking easier for its customers. The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless.