As the digital financial space welcomes more transformations, Banking as a Solution (BaaS) is easing the way for an increasing number of new services and products. Digital currencies and crypto are also driving change as demand for customer choice increases. We caught up with Adrian Cannon, CEO of Omnio, to discuss the latest changes in the BaaS space taking new technologies, marketplace demands and changes in the financial landscape into consideration.
What is BaaS’s current positioning in the marketplace?
BaaS is developing into a significant component of the consumer market for financial services. The opportunity to get good quality financial services through channels and brand that you trust, such as retailers, football clubs and airlines, is one the consumers value. Inherently this distribution model allows BaaS providers such as Omnio to deliver their services at very low-cost and helps the distribution partner extend their service proposition with the customers. However, the next step is to more deeply integrate the service into a channel partners product set so that the service is not seen as being provided by a third party but is embedded in the partner’s digital ecosystem. This deep integration requires technologies that makes this easily possible at modest cost and little time to market.
What new developments are happening in the space?
As the BaaS model moves more in the direction of Embedded Financial Services were beginning to a move towards self-service platforms that allow partners to on-board themselves and integrate the relevant API’s without the need for platform providers to sell their services. The pioneer sin this space were Stripe in the merchant acquiring sector and their primary focus was merchants selling digital products through websites and apps. Others have built similar capabilities in buy-now-pay-later that can be absorbed into a retailers systems with relatively little effort.
Expect this trend to develop further especially as those providers like Omnio are keen to be a secret ingredient for the businesses it supports and not a consumer brand in its own right. Those BaaS providers that also want their brand recognised by consumers must resolve the possible conflict this creates with their channel partners.
A key component of BaaS is that the partner channel does not have to be concerned about regulation and compliance. This is another area where we can expect developments over the coming years where RegTech platforms will be combined or integrated in BaaS platforms that allow for deeply integrated on-boarding, transaction monitoring and other compliance related activities delivered in a manner consistent with a channel partner’s relationship with their customers.
BaaS that treats a retailers customers as fraud suspects or in an aggressive and challenging manner will alienate the partner. These are of course vital but they must be delivered through a platform that can reflect the partners brand values where possible. This Customer Relationship Management (CRM) capability is going to be fundamental to a successful BaaS platform and is a core component of Omnio’s approach.
How does BaaS fit into new plans and developments for Central Bank digital currencies and decentralised finance?
BaaS can be used to deliver any regulated financial services and typically the platforms that do it, such as OmniCore, are designed for that purpose alone. Since cryptocurrencies have been outside of regulatory scope until recently the BaaS providers have often treated crypto as something outside of the core remit and delivered solutions on no-core platforms. Some have been able to adapt their platforms to support the holding and movement of crypto. However, regulatory pressure is mounting to control the way crypto is handled and central banks are experimenting with digital currencies of their own.
These currencies offer some advantages when a government and its tax authorities wish to know through whose hands value has flowed on its journey to a bank account and in many other ways. However they are likely to be limited to large-scale movements of value in the short to medium term and are unlikely to displace fiat currency, even in its form as represented by the ones and zeros of digital transactions that we work with today. It is certain that has these digital currency technologies are deployed by banks that BaaS platforms will adapt to use them and take advantage of the value they offer.
Outline three main trends currently re-shaping the BaaS space
Reducing cost – the use of public cloud technology, light touch regulatory structures such a E-money Institutions, and platforms achieving economic scale will cause costs to fall. Fully regulated banks offering BaaS will need to reconsider their business models and cost base in this environment.
Liberation of financial services – as the cost base falls the economics of offering financial services by non-banks becomes more attractive and we should expect to see greater consumer choice as to where they get their everyday banking services from. There will always be a regulated entity involved of course but that will be far less prominent that current BaaS solutions offer today.
More deeply embedded services – the boundaries between non-regulated services such as loyalty and rewards and regulated financial services will become less clear and interchange of values between them will become easier. This will liberate large scale retailers with established loyalty schemes to reinvigorate moribund loyalty programmes, reduce their balance sheet exposure and ironically increase their customer knowledge.
What does the future of BaaS look like to you?
It looks like choice. Choice of where we bank, what brands we would like to have provide our banking services and the freedom to choose small, local banks and building societies able to partner with BaaS providers to complete their product set and the return of the retailer to retail banking.