BaaS - Banking as a Service
Download as PPTX, PDF0 likes815 views
The document discusses the transformative impact of Banking as a Service (BaaS) on traditional banking, emphasizing the need for banks to adopt new technologies to enhance customer service and remain competitive. It explains how BaaS enables businesses to access and integrate various financial services through APIs, effectively unbundling banking infrastructure and allowing for greater innovation and customer satisfaction. The presentation also highlights the rising importance of fintech, open banking, and the necessity for traditional banks to collaborate with fintechs to leverage emerging opportunities in financial services.
BaaS - Banking as a Service
- 1. Ramesh Kumar Nanjundaiya July 2021 Bengaluru, INDIA 1 NRK
- 2. The objective of this non technical presentation is to provide a bird eye view of how new transformational and impact technology is influencing all financial activities at a speed. The presentation is a wakeup call for Traditional Banking organization to imbibe new technology to make “customer service” a very top priority going forward otherwise they could be left behind. This presentation should also give new ideas to graduate students in Commerce, Business Administration, Data Analytics, Market Research to explore and seek new non technical employment with organizations in the Fintech, Neo Bank and lately BaaS sector which is growing fast and evolving at a rapid pace and expanding across the length and breadth of India. 2 NRK
- 3. The origin goes back to Digital Financial Inclusion (DFI) which is of the recent decade. It can broadly be defined as digital access to and use of financial services by all sections of the country's population including remote and rural India. This initiative gave rise to Fintech activities as Payment Banks, Mobile banking, then Neo Banks and now Banking as a Service (BaaS) platform is coming up at a good pace. This will bring “customer service” to an entirely new height across the country. While today Traditional banks have worked hard to improve customer service and experience both online and offline, any deficiency will be addressed by BaaS platform. This will be in a separate sophisticated playing ground by addressing end-to-end customer needs like starting a business or purchasing an asset where a bank account or mortgage will be an embedded enabler. 3 NRK
- 4. In a non technical way, BaaS (Banking as a service) is a rather new technological system in financial services and may be described as an advanced fintech ecosystem which will greatly directly assist customers, traditional banks and licensed financial institution by connecting with them via APIs by way of an end-to-end secured process. It removes many of the barriers that businesses and banks have faced when trying to launch or integrate financial products, including complex regulation, slow-moving legacy institutions. It means that financial services are more open than ever before. To remain competitive and improve their equity and bottom line, traditional banks will do well by collaborating into the BaaS space to share their data and infrastructure. 4 NRK
- 5. An API is a connection between computers or between computer programs. It is a type of software interface, offering a service to other pieces of software. A document or standard that describes how to build such a connection or interface is called an API specification. The term API may refer either to the specification or to the implementation. In contrast to a user interface, which connects a computer to a person, an application programming interface connects computers or pieces of software to each other. It is not intended to be used directly by a person other than a computer programmer who is incorporating it into software. An API is often made up of different parts which act as tools or services that are available to the programmer. 5 NRK
- 6. Every decade has seen ongoing new innovation in the banking sector for the benefit of its customers. This decade we are into Fintech era. Fintech - Financial technology (Fintech) is a new technology that tries to improve and automate the delivery and use of financial services. A combination of finance and technology helps consumers, businesses and companies to better manage their timely financial operations by depending on specialized software and algorithms on computers, laptops, smart phones and mobiles. 6 NRK
- 7. Traditional banks with a banking license have always been known to do two main important activities: take customer deposits and on lend these deposits. Banks offering financial products and services undertake significant regulatory obligations. It is a well known fact that Traditional Banks do face ongoing technical challenges with cumbersome and old proprietary software run by the legacy institutions and have been slow to adopt Fintech. 7 NRK
- 8. BaaS changes all that. It allows businesses to pick and choose the services they need from a range of dedicated service providers. By taking advantage of cost effective and accurate services through APIs, businesses (big and small) can easily compare and access all parts of the banking products and all services (including evolved ones) they may require. It is good not only for emerging markets and industries, but also unbanked locations for banks. As well as lagging behind on the tech front, the legacy or traditional banks have become extremely risk-averse, what with rising NPAs and large scale frauds. This has meant that many, banks are unable to spread risk and good businesses, especially those in new or untested markets, have been struggling to get proper banking services. 8 NRK
- 9. BaaS describes the individual products or capabilities that are created via unbundling of banking infrastructure and allow access via their APIs to facilitate specific banking functions (loans, working capital, cards, deposits, insurance, payments, managing payables and receivables, assistance in economic order quantities for malls, payment gateways, etc, etc.) in a marketplace model. 9 NRK
- 10. BaaS unlocks banking. It allows businesses to pick and choose the services they need from a range of dedicated service providers. By plugging into those services through APIs, businesses can easily access the parts of the banking ‘stack’ they require, in a developer-friendly manner - allowing them to concentrate on building great products. It is going to be a new source of income for traditional banks if they open up and partner with BaaS technology and platform provider. 10 NRK
- 11. Open banking is the system of allowing access and control of consumer banking and financial accounts through third-party applications. Open banking has the potential to reshape the competitive landscape and consumer experience of the banking industry. Open banking functions through APIs. API-banking is a technology service provided by banks to all third-party firms, provided they meet the banks’ standards and guidelines. APIs for open banking platforms are tailor-made and restricted to a fintechs that form partnerships with banks. Open Banking APIs increase the appeal of a bank and enable them to meet the changing demands of existing customers as well as appeal to prospective customers. These APIs can also serve as a unique way to increase customer engagement and attend to customer needs in a secure, agile, and future-proof method. Open banking will become a major source of innovation that is poised to reshape the banking industry. 11 NRK
- 12. Consumers and businesses will increasingly use these platforms to access varied services as e- commerce, telecom, retail business activities, inventory management, all travel related issues and medical issues. The Service will also enable customers to avail loans, buy white goods, get loan for airticket purchase, children education, etc. BaaS is enabled by the seamless integration of financial services and products into all kinds of customer activities on non-financial digital platforms as well. 12 NRK
- 13. A financial institution that wants to offer BaaS via a distributor can set up a platform for this purpose based on the latest low-cost, cloud- native, scalable technology, which will reduce its cost to serve customers. For a traditional bank or financial institution, it is an opportunity to reach a greater number of customers at a lower cost at a fast pace and also reach unbanked but potential growth areas. 13 NRK
- 14. The process basically starts with a Fintech organization or a third-party provider by paying a fee to access the BaaS platform. Essentially a traditional Bank or a financial institution will open its APIs to the third parties/fintech and will grant necessary access to the systems and information needed to build new banking products or offer white label banking services. How will this help? This will provide a new revenue stream. In addition, developing a BaaS solution will also allow traditional Banks to establish relationships and forge partnerships with emerging Fintechs. This will help them keep themselves ahead of the fintech trends once BaaS becomes popular vehicles. 14 NRK
- 15. Platform banking is quite the opposite of BaaS and open banking. In this case, the bank do not share its infrastructure but integrates other firms’ services in its own app. The traditional bank model is rather outdated now. It is inferior to advanced fintech services in terms of innovation and a variety of in-app perks. There is a risk for traditional banks in losing customers. They will have to invest in technology and adopt external tools to enhance their offerings.. Examples of platform banking: One would have noticed a few if you open a banking app installed on your smartphone. Here are typical use cases: buying tickets for a bus, train, plane buying tickets for various events (concerts, sports matches, etc.) online games payments charitable contributions gift certificates etc NRK 15
- 16. Neobanks are not stand-alone organizations but add-ins on top of traditional banks. Neobanks use standard traditional Banks (who have a licence to operate) to provide an upgraded finance experience. They USP with each and every client is personal touch, superior service, and lower fees. Neobanks do not usually issue big loans or participate in large financial operations; instead, they operate in other areas as short-term loans, MSME financing, quick deposits, payments, and partnerships with well-known retailers. So some overlapping between BaaS platform and NeoBanks. BaaS is way superior in providing total customer satisfaction. NRK 16
- 17. Baas – Banking as a service is the frontrunner to “open banking” where traditional banks open up their systems and allow third parties to access their data to enhance their own services. The wave of digitization is here to say and customers are becoming tech savvy. This growing market is transforming retail banking, reshaping relationships with customers and paving a way for fintechs. AI, IoT, and cloud solutions for customer-facing operations (e.g., CRM software) will be on the rise. The financial service sector will look forward to virtual call centers, online account opening procedures, loan automation, and automated/chat-based customer support. BaaS with their tech-expertise, can eventually function as a digital front-end to the entire core banking operations, customised products and solutions. NRK 17
- 18. While the concept of BaaS is based on SaaS (software as a service) which allows users to subscribe to function specific service over the internet instead of installing applications on their computers, BaaS on the other hand enables users to access all financial services over the internet. As stated earlier on, it does this via traditional banks offering their infrastructure to third party service providers as Fintechs who offer the entire gamut of retail banking services via use of application programming interfaces (APIs). NRK 18
- 19. This would be the start of immense possibilities for embedded finance in every customer journey. It may be remembered that Fintechs provide various banking offerings to their customers by building their services on top of the existing regulated infrastructure of licensed banks. This enables service providers to embed a wide range of financial services into their package of offerings for their customers. The customers are not themselves account holders in the supporting bank. The most essential aspect of BaaS is that they enable what is termed, pay-for-service banking. Fintech companies can easily pick from a range of financial products and then customise them to the needs of their customers. By this way, they can create new financial platforms of their own. The scale of opportunities is immense. There is a huge and growing business potential via BaaS platform. NRK 19
- 20. Thank You NRK 20