Why Banking as a Service is a win-win-win
Almost a year and a half ago BBVA launched its first Banking as a Service business - BBVA Open Platform - in the U.S. Abhishek Gupta, Open Platform’s CEO, explains in this article the benefits for all those involved in this new business model.
The move is designed to enable companies to offer their customers a range of financial products and services, without having to secure their own banking license.
Instead, BBVA Open Platform allows these businesses two routes into offering banking products by allowing them access to BBVA’s experience and services.
As one of the first banks in the U.S. to begin to offer this kind of service, BBVA saw the potential this step-change in banking could and would offer - and while the bank won’t be releasing specific figures on our performance, our pipeline is looking healthy.
So what exactly is BaaS, and how does it work and offer value?
Well, to date, digital only challenger banks and personal financial management apps have gained millions of customers with their innovative experiences that make it easier for individuals to manage their financial lives.
These products rely on API driven banking and payments solutions that enable them to embed financial services into their own brand experience. The APIs - which stand for Application Programming Interfaces - allow third parties who meet the bank’s security, legal and compliance requirements to connect directly into BBVA’s real-time core banking systems - the areas of the bank where money is moved around and data held securely.
However, Banking-as-a-Service has become an even more powerful vehicle for innovation as companies across industry verticals, beyond simply digital banking and personal finance, have started infusing banking services into their products and ecosystems.
Innovation beyond banking
The reality is that innovation in financial technology is relevant to any business that deals with money in some part of its operations. That’s basically every business. This is because nearly every company relies on moving money from point A to point B for some part of its operations, whether that’s conducting payroll, managing payables and receivables, running a loyalty program, managing employee expenses, operating a marketplace for buyers and sellers or helping users manage their finances better.
Our clients are building revolutionary new experiences for their customers across aviation, customer loyalty, HR and benefits and business banking and the opportunities are nearly limitless.
Building on the concept that every company is a fintech company, at BBVA we use two primary channels to connect end customers, whether those end customers are consumers or businesses, to innovative experiences across industries:
Firstly, we build partnerships. We leverage our API-driven banking and payments solutions to enable partners to offer their customers a BBVA banking product, such as accounts and loans, directly within their own channel.
Secondly, third parties. We can leverage our API-driven banking and payments solutions to enable companies to embed white label banking and payments services into their customer experience and offer banking services under their own brand.
Technology and processes
Getting this right, though, requires two fundamental capabilities are in place. Firstly, the right technology to enable it, and secondly, the right process for ensuring we maintain the highest levels of security, risk management and compliance with regulations.
On the technology side, our real-time banking core which enables third parties to read from and write to the bank’s core is the backbone of our services. However the true differentiator is our cloud native technology stack. Our partners are technology companies so it’s important that we not only understand how they are built but are designed to match their speed and agility. Being built on the cloud enables us to be nimble and work in lock step with our clients as they scale.
From the process side, banking as a service requires that companies outside of the bank can operate within the regulatory compliance and legal framework established by federal and state governing bodies. Building a process around this is definitely a challenge, however by establishing a robust due diligence and monitoring framework and stronger lines of communication across the bank, we have been able to reduce the time it takes our clients onboard to our services. This means they can start growing their business and offering better banking and payments to their customers faster.
As for the future, we see banking as a service as a win-win-win situation, for customers, our partners and the bank itself.
Companies that integrate banking and payments services into their platforms benefit from streamlining their own operations (increasing speed and reducing cost), increased customer acquisition and retention due to better customer experience, and access to a new revenue stream through deposit incentives and a pass-through on interchange.
Finally, the bank itself benefits from these relationships. Our partnerships strategy in the U.S., largely powered by our banking and payments APIs, is designed to bring exponentially more customers and deposits to the bank by enabling leading companies across tech, fintech and beyond to deliver banking and payments services to their customers, specifically tailored to their needs, that ultimately reside on BBVA’s banking core.