Banking-as-a-Service rising competition

Competition in the BaaS layer is cooking! There are now over 20 US providers competing in this category: Column, Wyre, Stripe, Solid, Unit, TreasuryPrime, ModernTreasury, Hydrogen, Synctera, Bond, etc.

Two weeks ago, I unpacked the rise of competition in marketplaces and how embedded finance can help increase customer retention and open new revenue channels. It is interesting to observe the other side of the coin - how all of this is being made possible.

Alex Johnson paints a great picture of the competitive BaaS landscape. As he points out, the BaaS category has been pumped with $18.2 billion in just the last quarter of 2021 alone. While this wave has rapidly lowered the barrier to entry for new fintechs (which is a good thing), we are starting to see the effects of a crowded market. For example, Brex recently announced that they are migrating customers from their existing provider to Column.

What distinguishes Column from other players is the fact that the infrastructure layer is provided as a service by the bank directly. As Hockey put it, “We are both the bank and the technology provider.” In most other cases, infrastructure providers have been an abstraction on top of a bank partner. Column is in many ways a more compelling provider across all key aspects such as fees, support, latency, complexity to integrate, etc. 

Fintechs like Venmo, Revolut, Cash App, Brex, and others have built their own ledger and user management system on top of the BaaS layer. Theoretically, if this architecture measure is in place, the fintech has more negotiating power or simplifies the migration process if push comes to shove. We are using Brex at Rehive and in our case, the migration has little to no effect on our account or operations. Building a decoupled ledger and user management system is also essential if you plan to operate in multiple regions. In most cases, BaaS providers are region-specific. 

SynapseFi and others have been around for a bit longer and support a wider range of features, in particular also supporting cryptocurrencies.

A few streets and zebra crossings from Column’s head office, Stripe is also making leaps in their financial infrastructure business. While Column is focused on helping fintechs, Stripe is arguably winning the game around embedded finance among non-fintechs. It comes down to distribution - Stripe already solves payments for over 3 million online stores which gives them a unique insight into what customers want. If are not using Stripe, then their move into financial services might have gone unnoticed. Stripe is not marketing nearly as aggressively as other players in the space. They seem to just focus on their existing customers. Stripe Capital and Stripe Issuing is a no-brainer add-on for marketplaces to open new revenue streams and improve retention by moving into finance products. As seen in the latest Stripe Sessions episode, John Collison unpacks the topic of “Fintech everywhere” and the team goes through a demo of exactly how easy it is to roll out instant loans and branded debit cards to your customers, with a few clicks and no code. 

Higher up the fintech stack, no-code fintech app builders like Rehive are making it easy to launch your own iOS, Android and web app on top of BaaS providers without code. Marketplaces have to decide whether to launch standalone finance apps, or embrace embedded components in their existing apps. Grab, a food delivery marketplace recently announced their plans to launch a standalone banking app in Singapore. Payfare is also making moves powering white-label standalone debit card apps for Uber Eats, Lyft and Doordash. 

The question is, what will BaaS providers do to distinguish themselves? I will unpack this in another post.