Banking as a Service (BaaS), a Spanish success story
Banking as a service is certainly a transformational setup, where API technology and a banking license provided by regulators can help brands bring financial products and services to their end customers. Our recent relationship with Finextra,’The future of embedded finance 2022: which European players will be winners or losers?‘ illustrates how brands can hire or license the services of contextual finance providers to integrate financial tools into their value proposition.
Due to the efficiency of legal regulations, AFC compliance, product development, speed to market and cost effectiveness, this approach is very attractive for brands. The integration of financial services capabilities into existing platforms and applications means brands are now better equipped than ever to seamlessly bring the full range of banking services to the customer.
While BaaS is the answer to making integrated finance a reality, the following questions should be considered:
- Do customers trust the brand enough to interact in a financial context?
- Will customers feel comfortable sharing their financial data with my brand and will they be confident that their privacy will be protected?
- Does the financial solution make sense in the context of the customer experience?
- Can the solution provide enough value to the customer, so that it drives adoption and usage?
- What value does this generate for the company?
- Will it make sense for the business?
These considerations define what we would call contextual finance – offering financial products and services to individuals when and where they want to buy them. Consequently, it changes the way customers buy, have better access to the financial services they demand and, consequently, improve their financial inclusion. Banking as a service helps with this, enabling more people to do business with the brands they trust, which may also have better customer profile data and therefore provide a more personalized experience.
Does this mean that traditional financial providers have failed?
Traditional banks are locked into legacy, monolithic platforms. Legacy platforms are either provided by traditional players or integrated and therefore lack the flexibility, scalability and speed to market to adapt to developments related to digital transformation. When we look at incumbent banks, they are progressing, but they must become totally omnichannel to keep pace with neobanks or create full-fledged spin-offs: greenfield banks.
Neobanks and/or greenfield banks are building their architecture with new technologies provided by and collaborating with new industry players. While traditional banks and large financial institutions can leverage this opportunity to do the same, the cost of migrating from a legacy platform to a whole new technology stack can be too expensive and time-consuming. With banking as a service, organizations can make a tangible difference, accelerate time to market, and ensure end users receive services tailored to their digital behavior.
A good Spanish success story would be the neobank Vivid Money which landed here last year under the passport scheme and is now fully operational with ES IBANs under the branch scheme. With Solarisbank’s API – cloud-based technology and our full banking license (supervised by the BoE) and our AFC regulation compliant model, they have had tremendous success with their business case.
But how can these organizations – both fintechs and non-banks – be sure that the integrated financing supply will reach the volume necessary to justify the construction expenses, so all they do? How can they be sure they will hit the volume they would like to somehow justify the expense or changes they had to make? The answer again lies with organizations sticking to what they do best.
When we enter into conversations with anyone interested in providing banking services or wanting to use our various modules to create an integrated financial value proposition, we assess their go-to-market strategy and provide the necessary architecture. Therefore, they can focus on their value proposition and create the best possible experience for their customers.