Five drivers for Banking as a Service success

The term Banking-as-a-Service, or BaaS features regularly in today’s financial technology headlines. Each week we’re hearing about new initiatives from banks, fintechs and other ecosystem players. Momentum is clearly building, but key questions remain: who will be the winners in this landscape and how will they succeed in monetizing the opportunity? 

I joined a panel of experts at Sibos, alongside participants from HSBC, Visa and SAP to explore this topic. Here are five key takeaways from the discussion. 

 1. Harness digital transformation 

The increase in digital commerce, developed out of necessity over the past 18 months, has acted as a really powerful catalyst for change observed Valli Ardalan of Visa. The pandemic has exposed industry inefficiencies across the board and forced businesses to re-examine the way they operate.  

It’s really important to harness this momentum and explore how we can do things differently through embedded finance – with an increased focus on the end user, their needs and experience.   

 2. Collaborate to succeed 

There's no single player who holds the key to success in the new BaaS landscape. It’s going to be a push-pull game. The chain starts with the consumer or corporation – paying money for services they receive from a brand. Banks like HSBC, and companies like Visa, are stepping forward to provide new capabilities. And companies like Finastra are acting as enablers, helping in matching and bringing the different sides of the network together in an open finance ecosystem.  

None of us can complete the whole mission on our own. Collaboration is critical. 

3. Use data to optimise the customer experience  

Andy Hirst from SAP shared his thoughts on how we can find new value for customers through data. If we can unlock the data in ERP systems, for example, with parties  permission, then you can look at things in granular detail and offer better optimized supply chain financing to meet the types of challenges firms are facing today in the midst of the pandemic.  

Clearly, both banks and corporates have got to be able to connect almost ERP-to-ERP through APIs to exchange that information and make the most optimised products. 

4. Focus on what you’re good at 

Mark Williamson of HSBC reminded us all about the importance of ‘knowing what you're good at and being good at what you know’. Essentially, if you understand your value within the supply chain and the value that you bring to clients, it allows you to stay focused on delivering those services not only directly to customers, but at scale through collaboration with partners.   

As we transition more to a finance ecosystem that is more decentralized and even distributed in some cases, then you need to understand what your roles and responsibilities are in that new network. From there you can start to ‘daisy chain’ some of the solutions together to provide the best outcomes for clients.  

5. Think big, start small, scale fast 

An agile and ‘fail fast’ mindset is critical. You need to be able to experiment with different use cases and test the market quickly.  

As a brand looking to embed financial capabilities in their customer’s journey, first frame your embedded finance ambition. Next focus on bringing the right solutions, partnerships and talent together to bring it to life. Finastra advocates a 90-day challenge – working in collaboration with partners within the wider value chain to develop a working proof of concept in as little as three months. You must experiment and be prepared to fail, but fail fast. It should all happen in short sprints, not years. 

When you land on a good opportunity, be prepared to make compromises and to change your commercialization or monetization strategy to achieve traction in the marketplace. Monetizing BaaS is the hardest part and a flexible and agile approach is often essential in promoting market adoption.  

Think about Stripe and the rapid pace of growth they’ve achieved. They took the decision to work with Shopify as a distribution channel, and to partner with Goldman, Citi, and Barclays to provide Stripe treasury globally. No doubt there were discussions in the boardroom about whether or not they should try and acquire Shopify customers directly rather than ‘giving away’ access to a partner. But the Stripe example demonstrates the value to be found in partnerships and leveraging existing distribution channels. Channels which can help fuel exponential growth at speed.  

If the future of finance is open, then everything needs to be delivered in collaboration. It can’t be done alone. I’m excited and energized by the opportunities to be a critical enabler to all the participants in that new ecosystem, deliver optimized customer experiences and drive BaaS adoption over the months and years ahead.