Abstract : Fintech or Financial technology, is an industry combining and grouping companies that are making financial services including insurance services more efficient and advanced; with use of technology. Companies coming in FinTech domain are startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software but more on Banking as a Platform(Baap) and Banking as a Service(BaaS). Indian market between 2014 to 2016 till date have seen hundreds of thousand companies claiming to be FinTech and if you check profile for people every 3rd person as on date is an expert and doing payments or variation of payment services. More details about my posts, subjects and relevance please read the disclaimer.
For FinTech its an opportunity to pick services to push through BaaP and BaaS model and owning an entire business paradigm is neither feasible nor desirable anymore. Almost all players who entered into payments and insurance in arena of FinTech domain are actually coming out of this game park with zero or no knowledge. This is giving too much innovation to put idea on table but takes longer to make it reality. Technical companies entering financial domain and making it interesting by doing technical integration, or “fintegration”, of fintech services, the latter interfacing directly to bank customers for banking services including insurance.
Introduction : Most of the innovations in financial services including Insurance are coming through leaders who are very new to the industry or come from out side the industry. Saas (Software as a Service), IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) might give birth to industry specific services and platform in future such as Baas and BaaP (Banking as a Platform). The correlation between income and access to formal financial services is still very strong; however, this landscape is now changing with incumbents and mobile/internet innovators now integrating with the main-stream banking system & support through central banks relaxed regulatory frameworks i.e self regulation upto an extend by FinTech service providers really pushing hard to change the world; entrepreneurs are leading a pack of disrupters, most of them raised in the shadow of companies like PayPal, who wants to change business relationship to money forever.
Banking as a Service (BaaS) – Days are not far when one can get independent license or permission to run banking services without a beaning titled or registered as Bank. BaaS providers will provide limited services to ensure customer service at optimum level, round the clock access, access from where ever ever you are in a very safe and secured environment. So in nutshell I am claiming divorce of bank and banking (What is needed Bank or Banking). Actually if my calculation and understanding is correct then in India payment banks phenomena is actually a BaaS with help of BaaP at backend. Hundreds of companies came up and wants to come up. Few got license but that does not discourage rest of the companies to pursue their dreams. Beauty of technology is it changes every day so finding means and ways to fulfil the dream to be FinTech company is getting easy. Insurance sector is moving along the same lines and not so different when it comes to disruption. BaaP and BaaS comes long way to support financial services including insurance services. Micro Insurance by many MNO’s across Africa is an great example for this.
Main Story : How does FinTech fits or absorb BaaP and BaaS, who is who and what could be relationship between FinTech and BaaP & BaaS. Well in my eyes (I would like to be corrected) FinTech can sit on top and BaaS and BaaP becomes type of FinTech company so either a company can be BaaP FinTech company or BaaS FinTech company or depending upon funding and dreams a single company can be both. This domain was not opened and was not interesting space to be in for very long time. If I recall the view was that there was such strong monopolies there in terms of the existing banks & insurance companies and no one built a successful payments and insurance company with exception of 1 or 2 names that too limited to very few advanced and developed markets. Micro Payments and Micro Insurance market size almost as equal as the macro market in terms of value but yes volume is almost 2 to 3 folds higher.
I hope we can differentiate between services offered by Bank as primary partner and 3rd party dragging banking services on their risk and support out of banks. So my view and argument is there is huge difference in Bank and Banking and Banking is needed , Banking not necessarily provided by banks Banking as a Service (BaaS) on Banking as a Platform(BaaP) can be provided by any one. So who is real hero is it Bank, Payment Service Provider as FinTech company or MNO …. I guess little more thought process is needed for deeper prospective. All Digital Payment initiatives in India are not caused by banks , this domain of market in India is disrupted by FinTech companies by putting banks on back seat as banks were unable to do so. I am happy to have any further elaborated discussion.
BaaS FinTech – Banking (Services) and Insurance as FinTech is in existence since early 2000 and got stronger and stronger with rise of mobile money and mobile payment services. MNO were the first to pick up the opportunity and started giving banks hard time. Idea of BaaS got rocket speed in market where banking penetration was almost non existence and banks were not interested to penetrate the market due to many reasons. The Fintegration (financial services integration) and delivery of fin-services are changing and coming out as service and platform which can house new channels, products, partnerships and opportunities . Banking as a Platform (BaaP) and Banking as a Service(BaaS) are new alternatives. Strategies around BaaP and Baas require a different approach to architect business and services.
It was taken for granted that Banking (beautiful and useful phenomena) and Bank (long long ago; a big building use to employe lots of people and consume too much space, money, power, and IT machines but use to works very slow and for very limited time of day and weeks) are very tightly coupled and married for ever. MNO and few other companies (Later known as Mobile Financial Service Providers) saw the difference and jumped in between banking and bank and successfully got them divorce or at-least manage to find their relationship with banking. Unfortunately most bankers are still not convinced that these scenarios will play out. These bankers are hoping that their retirements hits before they have to make a decision. The board of directors of a lot of community banks feel that they are the pillar of the community and the relationship will continue to be the answer. Bankers must face facts and learn what is going on outside of their four walls. They may wake up to late.
BaaS came as friend for all such companies to break Banks attitude as they were long seen as a highly technical, highly complex with rocket science technology using industry, employing Finantists (Financial Scientists), highly regulated industry dominated by giant banks that were only doing one thing that was to resist disruption.
To topup the surprise package all those companies who became BaaS experts almost all of them came out of payments and banking domain with zero or no knowledge on subject. FinTech is now riding an entrepreneurial wave. Baas-FinTech demand for upstart services is strong, piqued by widespread frustration with big banks; supply is growing, fueled in part by financial types itching to do something other than toil inside those same mega corporations. Low interest rates have made capital, the raw material for many money-related startups, cheap and plentiful. Wallet and payments service providers went a step ahead and built products to enable one-touch solutions instead of a user having to go through multiple steps to complete a transaction. For an instance on your mobile; your payment app gives you to option to choose the payment method i.e pay via , credit card, debit card, mobile wallet, bank account, cash coupon available for redemption or even your loyalty points. As a normal user it might be confusing at start but over the time it gets into lifestyle.
BaaP FinTech – Banking as a Platform again is not a new term may be looking it from this angle might be new all platform providers for FinTech services came at same time when BaaS came to life as BaaS came from companies other then Banks. The banking services served by fintech leaders are very innovative, different and easy to use and make use of for benefitting the business. Fintech as the leader of today in global financial services, knows that modern payment solutions need to be able to evolve and adapt, nimbly and securely, with the ever-changing trends in consumer behavior. By the way BaaP-Fintech built infrastructure to enable more merchants to accept payments. Hosting banking services or services giving banking services to end users becoming easy there was an article I wrote on same line on 16-June-2015 “Cloud based Mobile Financial Services & Payments”
Inline of BaaP roadmap there many companies thinking , planning and some are starting or started (Solaris Bank Germany) already, investing and betting on the underlying regulatory and financial technology infrastructure. German based FinTech startup company in partnership with fully Digital licensed bank is going to offer Banking-as-a-Platform so startups can ride fintech gravy train. FinTech services include account, insurance policies and transaction services, compliance and trust solutions, working capital financing, and online loans. Those services not only require a technology solution, but in many instances, a banking or e-money license too so BaaP will take care of this requirement and allow the to carry business and ride on its license. Born out of the frustration experienced by fintech start-ups when faced with the requirement to piggybank an existing banking license and innovation in order to be able to offer various financial services, actually established what is explained as a modular-based banking toolkit, consisting of, and crucially, numerous modern-day banking APIs. This means that it’s able to offer other fintech businesses numerous services that, in turn, they can provide to their own consumers.
Small analysis on for BaaP and BaaS
BaaP-FinTech will actually support all small-scale FinTech companies to come together. With help of BaaS on BaaP; new innovative services to consumers will bring lots of values, new products availability in kind of pool where hosting will make easier to use any service by any consumer of any service provider. Adding flavour of Finclusion on top of BaaS will really help exiting services to reach to segment who are excluded. In IT domain we have three “?aaS” services broadly categories as Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) and all of them are quite useful for FinTech Domain but time is here to extract best out of all “?aas” services to bring BaaP and BaaS. Both Baas & BaaP will be actually a driven version and specialised & designed for financial services including insurance for payments, Finclusion (financial inclusion) and insurance. Defining any of IaaS, PaaS or SaaS or talking about wither advantages and disadvantage is out of scope here as focus is on BaaP and Baas.
BaaP-FinTech is not an easy route or option as to me its still a dream and to many others, BaaP already facing difficulties to come into life and protest from service providers as well as platform providers. Service provider argument is I am the biggest, I am the boss or I am the King, I own the customer; why should I share anything. Platform provider see a value in selling more platforms to many service providers, selling ideas of 1 service provider to other service providers and vice versa, develop one functionality once and sell it multiple times to many and makes huge money out of same. Missing out all small players who have excellent ideas and can make wonderful products which can be very more valuable and beneficial to end consumers. Resistance BaaP face and will always face, as traditional model is far easier. Banks and Insurers at large risk of losing their dominant position in African market up to some extent its lost already.
The reality and status of current availability of services from banks are far it’s behind the capabilities of the modern infrastructures and new e-commerce innovations. The financial sector is already facing significant competitions in the electronic & online space. Today people still keep their money in the banks, because it’s the institution created for money (since ages). Basically what money and economy mean for people as we know, trust study. But wallet from pocket is the item, which got targeted and linking of all funding source i.e bank account, mobile wallet, plastic cards etc got into way. In all of this BaaS and BaaP have very big role to play and some how guarantee to win. Banks and Insurers as primary intermediaries for customer interaction and engagement. Days are not far when we will see a fully licensed digital bank designed to power an array of fintech services running through BaaS on BaaP.
Conclusion- The financial services including insurance industry is facing a wave of digital disruption that is starting to reshape the sector. Payment as a Service – (PYaaS) kind of services is really needed or badly needed by looking at current mess or flood (too many payment companies) seen in market. Banks has (banking platform) a platform, but it’s probably fair to say it’s more like the yesterday’s platform or stone age. How long has it been staying the same?. Do we really need this new BaaP or BaaS; I think its very easy to answer or has the answer already “Yes”. Digital banking or digitalisation of current banking services by few banks to call them self as digital bank is not enough. Bringing distribution channels to the digital kingdom, sustaining it and making it a process is needed, as project on such activity is also not enough. The reality and status of current availability of services from banks are far it’s behind the capabilities of the modern infrastructures and new e-commerce innovations. The financial sector is already facing significant competitions in the electronic & online space.
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