BaaS, social payment applications are gaining ground

Banking as a service (BaaS), where licensed banks integrate digital banking services directly into the products of other non-banking companies, gives consumers more options and empowers them.

This challenges the industry to keep up with the rapid pace of innovation driven by unique consumer preferences, circumstances, and demand for better cash flow and convenience.

BaaS works directly with banks, financial technology (fintech) startups, and enterprises to advance outdated technology and tangled code in a patchwork patchwork by providing API software that connects all parties.

A recent report
IT research firm Gartner predicts that 30% of banks with over $1 billion in assets will launch BaaS offerings within two years as part of a digital transformation that will also leverage chatbots, public cloud for banks and social messaging payment apps.

Chris Dean, CEO of Treasury Prime, says fintechs and banks are looking for new ways to reach customers, collect deposits and open up revenue streams.

“Banks provide safe service in a heavily regulated space, and fintechs can discover new ways to innovate,” he explains. “A multi-bank BaaS system can create a network effect – banks on one side and FinTechs on the other, BaaS at the center of what is essentially a market.”

He says this setup helps drive innovation, new product offerings and partnerships in a responsible way, while meeting regulatory and business needs.

Dean explains that the network effect begins to gain momentum once you have a critical mass of connected entities using it from all sides.

“It becomes fertile ground for innovation, allowing banks to be more profitable and businesses more nimble, while providing consumer convenience,” he says.

BaaS helps develop the financial sector

BaaS is also dramatically expanding the financial sector, enabling businesses in a wide variety of industries to meet their customers where they are with integrated banking and payment solutions that fuel deeper engagement, value and loyalty.

This brings more diverse competition to the industry and leads to increased complexity related to security and compliance to ensure companies protect their customers.

Amit Parikh, Executive Vice President of Banking Platform Services at Green Dot, explains that BaaS allows consumers and businesses to transfer their money in a contextual experience, giving them more convenience and better visibility into their cash flow.

“Consumers and businesses can now have 10, 20 or more apps, platforms or accounts to manage their money and it’s easier than ever for them to switch if they’re not getting the experience they want. wish,” he said.

He emphasizes that the end user’s experience with their money and cash is now their priority and it’s all about providing them with the right tool at the right time.

Dean says expanded access to banking services through this new wave of BaaS technology is bringing financial services to a larger community of business owners, who can now build a payment ecosystem on their platform to reduce friction. payment methods, create new revenue streams and increase product rigidity and consumer loyalty.

“For the consumer, banking options are increasing and it is becoming much easier to transact, send and receive payments, and earn more savings and rewards from the businesses they frequent,” adds- he. “It will also make it easier for them to start businesses and access capital, including in underserved markets.”

Chatbots boost the CX experience

“Creating an exceptional customer experience is about meeting customers on their terms, and chatbots are just one part of a growing ecosystem of technologies that enhance that customer experience,” says Parikh.

Beyond 24/7 support and efficient, personalized customer service, chatbots give customers the ability to multitask and free them from waiting times. on the phone.

“For businesses, major reductions in operational costs and faster resolution of customer service issues through the chatbot can be extremely valuable,” notes Parikh.

Adopting the public cloud has risks and rewards

Parikh says adopting the public cloud is a transformative experience across the enterprise, and not just for the IT team, because the cloud is an enabler and accelerator that accelerates time to market, drives innovation, amplifies collaboration, etc.

“These benefits of the cloud have been well known for years, but particularly in financial services where banks are responsible for keeping so much sensitive data safe and critical systems secure, the potential risks have historically slowed the rate of adoption,” he says.

However, public clouds have advanced so far at this point that the benefits now far outweigh the risks, although it is still essential that companies exercise due diligence when vetting cloud partners to ensure safety, the security and availability of their systems.

“Cloud savings can also be reinvested in strengthening enterprise-wide security, risk management and more,” Parikh says.

Dean adds that it is now common for US banks to use the public cloud, an initiative started by Capital One, which migrated all of its data centers to Amazon Web Services in November 2020 – many other banks have followed suit. .

“That’s part of the reason why there’s been a fintech revolution, because companies no longer have to operate in their own private banking data centers, which are much more labor and capital intensive to be built and scaled,” he says. “If you can run data processes in the cloud, it becomes much easier for the bank to scale up capacity.”

Social messaging makes payments easier

Dean explains that payments have not yet taken hold on social platforms like Twitter or Facebook in the United States, but new products made by Apple and other companies will significantly change the way the end consumer handles payments. .

“They will be able to set up bank accounts on these platforms and bypass credit cards at the point of sale,” he says.

It points to Apple Cash, which allows users to pay another person in the Mail app on any iOS device.

“It’s like a digital bank account that you can add money to and store money when you receive funds from someone, like Venmo,” he says. “You pay yourself directly, account-to-account, and when you go to the store, you can use your phone to pay for goods and services from your Apple Cash account.”

He says if this type of account-to-account payment method becomes widespread, then businesses can completely bypass card networks and fees – Chinese consumers are already tapping into this option through apps like WeChat.

“We are seeing consumer appetite for more transparent ways of moving money through social and messaging platforms growing, as consumers are social creatures who want financial services to be seamless and integrated into the world. flow of their daily lives,” adds Parikh.

He agrees that an experience like transferring money in a text thread through Apple Cash is a prime example of truly integrated financial services.

“Consumers will continue to demand that these experiences increasingly span all the channels, apps and more they use every day,” he said.