Powered by ubiquitous online accessibility and technological improvements, the banking industry is experiencing a massive transformation. Traditional financial institutions are falling from grace as individuals find neobanks more convenient for business payments or money transfers, as well as more cost-efficient since service rates can be lower by almost seventy percent. Therefore, it comes as no surprise that incumbents are troubled about their product-focused business models, limited underlying architectures, and the comparatively sluggish pace of change.  

The Rise of Banking as a Service to Mitigate Banking Legacy Issues

Although brick-and-mortar financial institutions can hook into the same cloud-first technology stacks, efficient frameworks, and agile methodologies as fintech disruptors, they have fallen behind in leveraging these approaches. However, instead of intensifying the competition, the introduction of PSD2 and Open Banking regulations empowers banks and fintechs to unlock synergies. This innovative API-driven era and the emergence of BaaS technology enable obsolete banks to preclude significant investments, all while better serving their mobile-first customers and subsequently staying in the game. 

Recently IBM has found that around seventy-nine percent of bank executives believe that the adoption of platform-based business concepts will help them obtain a viable competitive edge and ensure better innovation, profitability, and expansion to new markets. Overall, the value of the global digital banking platform market is projected to hit $8.67 billion by 2027. It's becoming clear that banking software as a service is integral to sustained growth strategies of global banks, and it's already proving its relevance in bringing the whole financial sector into the digital age. 

Six Best Banking as a Service Companies That Dominate the Market

Today the rapid adoption of platform-based banking results in notable benefits to both consumers and banks. Seventy-nine percent of bankers state that the banking platform as a service contributes to the greater personalization of financial services and products. Meanwhile, for seventy-seven percent of institutions, BaaS technology streamlines connection to other industries, improves collaboration between partners, and enhances confidence. The top companies that are actively pioneering BaaS strategies and have already experienced all the advantages first-hand are:

solarisBank is a Berlin-based technology firm with a banking license that offers a completely digital BaaS platform. It holds a full German banking license and has the right to collaborate with business partners in almost any European country. Its solution comes with a modular structure to ensure seamless and selective integration of financial services customized to particular business needs. Therefore, such functions as bank accounts, transactions, KYC checks, or payment cards are easily accessible through APIs. The solarisBank platform is set to shorten time-to-market and release from any regulatory burden, thus allowing partners to focus on the best value for users.

Bankable is a London-based company that offers a holistic range of financial solutions under banking as a service model. It empowers fintechs and reputed financial organizations to roll out new payment solutions time- and cost-efficiently, assisting them with regulatory and technological challenges. The BaaS platform consists of e-wallets, payment card programs, virtual ledge managers, and digital banking solutions. The PCI-DSS certification and hosting in Tier-4 data centers for high-level security are the features that make Bankable stand out in the competitive market. 

Starling Bank is not a pure BaaS provider as the ones listed above, but it is a retail bank with BaaS functionality. The company enables fintechs, banks, and corporates to use its license and offer their consumers FSCS-protected accounts to keep, transfer, and receive funds in real-time. Starling banking as a service platform takes charge of streamlined account opening, automated AML and KYC services, as well as all regulatory considerations, allowing partners to launch and scale their tailored products rapidly and efficiently. 

Pi1 is a cloud-based platform that stands behind one of the most popular fintech startups in the UK — Dozens app. Introduced by Project Imagine and Dashdevs in 2019, it allows fintechs and banks to launch innovative financial solutions in just three months. What is more, with the Pi1 platform, third parties can perform KYC checks in 90 seconds and get access to advanced analytics to see the entire customer journey and adjust their marketing strategies accordingly. 

Green Dot is a branchless bank that has started off its BaaS path with a Walmart partnership to help the unbanked gain access to banking services. Today it provides a comprehensive infrastructure for running payment and banking programs at scale, even including marketing and branding services. The company takes on account opening, card issuing, payment processing, fraud prevention, and regulatory aspects allowing partners to innovate and launch groundbreaking financial solutions.

BBVA is the first bank in the United States to release a holistic suite of BaaS products and so provide third parties with an opportunity to implement their bold financial ideas, supported by the agile and scalable infrastructure of BBVA. The open banking-as-a-service platform comes with various payment capabilities, KYC and KYB assessment processes, account origination and management, card issuance, and other functions. 

The Challenges of Platform Banking and How Should Banks Prepare for the Changes

There's no doubt that embracing the platform-based banking model brings about numerous benefits for financial institutions to the same extent as challenges. Currently, the greatest challenge is associated with existing and prospective privacy regulations. Platforms and recent initiatives are heavily reliant on data use and sharing, so we expect to see a growing number of regulations and standards associated with customer information. Incumbents are better grounded than newcomers or non-banking firms in handling similar challenges, but redundant rules may either encourage or encumber the actual industry journey. Finding a balance to promote the development of innovative business models, instead of prescribing how technologies should be applied, is a tough call for regulatory bodies.

Except for regulations, banking executives should be ready to build trusting and transparent relationships with their partners, as well as find talent to move digital transformation along. To compete in the age of platform-based economy more successfully, banks should:

• Redefine their strategic objectives and put more emphasis on consumer experience. Utilize data-based insights and individualized customer services to improve profitability and boost solid revenue growth. Create additional value by employing on-demand technologies and cooperating with partners and suppliers to carefully embed and source their data and solutions.
• Elaborate a clear and flexible governance framework that will easily adapt to the dynamic business environment. Opt for a component-based model and work on corporate standards to ensure consistency, adaptability, speed, and confidence across the entire ecosystem. In this way, banks can transform business components into interchangeable and reusable assembly units of processes or services that can be quickly modified without affecting other blocks.
• Determine what value is important for the organization, measure it regularly, and report effectively. The problem is that in most cases, the value for platform-based banking relates to the active management of business relationships, data, and other intangibles. Financial executives solve that by assessing and mixing fixed and variable expenses, revenue, and profitability ratios. Analyzing how well platforms perform and how much value is generated from investments, banks can enhance their digital processes and thus stay competitive in the market.