BaaP & BaaS Boomer – FinTech or Financial technology is an industry combining and grouping companies that are making financial services greate again. This wave is also making insurance services more efficient and advanced. With the use of technology in financial services on top of the blockchain, machine learning, big data and data science rail, FinTech business becoming the first choice for every startup. Even big brothers like Facebook, Apple, Google etc cant keep them self away from this temptation.
- FinTech 1.0 (1865 – 1966) – Finance and technology came together to produce the first analogue financial technologies such as first transatlantic telegraphic cable.
- FinTech 2.0 (1967 – 2008) – This era saw digitalisation and globalisation of almost all traditional financial services and institutions i.e banks.
- FinTech 3.0 & FinTech 3.5 (2008 – Now) – Global financial crisis of 2008 challenged the dominance of traditional financial institutions and brought technology-driven start-ups Finance, Investments, Risk management, digital payments and data security.
- 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).
FinTech in Indian Market
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.
FinTech or Financial technology, is an industry combining and grouping companies that are making financial services including insurance services more efficient and advanced
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 the 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 the idea on the table but takes longer to make it a reality.
Technical companies entering the 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.
Who are the leaders of FinTech
Most of the innovations in financial services including Insurance are coming through leaders who are very new to the industry or come from outside 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 mainstream banking system & support through central banks relaxed regulatory frameworks i.e self-regulation up to an extent 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
Days are not far when one can get independent license or permission to run banking services without a being titled or registered as Bank. BaaS providers will provide limited services to ensure customer service at an optimum level, round the clock access, access from where ever you are in a very safe and secure environment. So in nutshell, I am claiming divorce of bank and banking (What is needed Bank or Banking).
Actually, if my calculation and understanding are correct then in India payment banks phenomena is actually a BaaS with help of BaaP at the backend. Hundreds of companies came up and want to come up. Few got a license but that does not discourage rest of the companies to pursue their dreams.
The beauty of technology is it changes every day so finding means and ways to fulfil the dream to be FinTech company is getting easy. The insurance sector is moving along the same lines and not so different when it comes to disruption. BaaP and BaaS come a long way to support financial services including insurance services. Micro Insurance by many MNO’s across Africa is a great example of this.
How does FinTech fit or absorb BaaP and BaaS, who is who and what could be the 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 a 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 an interesting space to be in for a very long time. If I recall the view was that there were such strong monopolies there in terms of the existing banks & insurance companies and no one built a successful payment 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.
Banking is not Bank
I hope we can differentiate between services offered by Bank as a primary partner and 3rd party dragging banking services on their risk and support out of banks. So my view and argument are there is a 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 anyone. So who is a real hero is it Bank, Payment Service Provider as FinTech company or MNO.
I guess little more thought process is needed for a deeper perspective. 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 the back seat as banks were unable to do so. I am happy to have any further elaborated discussion.
Banking (Services) and Insurance as FinTech is in existence since early 2000 and got stronger and stronger with rising of mobile money and mobile payment services. MNO was the first to pick up the opportunity and started giving banks a hard time. The idea of BaaS got rocket speed in the 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 employ 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 forever. 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.
Banking to move away from Banks
Unfortunately, most bankers are still not convinced that these scenarios will play out. These bankers are hoping that their retirements hit 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 too late.
BaaS came as a 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 Finalists (Financial Scientists), a 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 the 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 the start but over the time it gets into the lifestyle.
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 the same time when BaaS came to life as BaaS came from companies other than 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 behaviour. 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 the 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 the fintech gravy train. FinTech services include account, insurance policies and transaction services, compliance and trust solutions, working capital financing, and online loans.
Technology Solutions and Financial Services
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 to Fintech’s to carry out business by riding on its license.
FinTech start-ups, when faced with the requirement to piggybank on existing banking license, leads to frustration. Financial Services and Technical entrepreneur coming together to marry experience and innovation to offer various innovative financial services. This actually establishes what modular-based banking toolkit consisting of and in modern-day’s banking. One FinTech is able to offer other FinTech businesses numerous services that, in turn, they can provide to their own consumers.
Analysing – 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 available in kind of pool where hosting will make easier to use any service by any consumer of any service provider. Adding the flavour of Finclusion on top of BaaS will really help to exit 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 the focus is on BaaP and Baas.
BaaP-FinTech is not an easy route or option as to me it’s 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 sees 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 faces and will always face, as the traditional model is far easier. Banks and Insurers at large risk of losing their dominant position in the African market up to some extent it’s 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 the pocket is the item, which got targeted and linking of all funding source i.e bank account, mobile wallet, plastic cards etc got into the way. In all of this BaaS and BaaP have a very big role to play and somehow to 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.
Digital banking or digitalisation of current banking services by a few banks to call them self as the digital bank is not enough. Bringing distribution channels to the digital kingdom, sustaining it and making it a process is needed, a 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.
Moreover, all reports and real facts on the ground have shown that cross border remittance gives high economic growth. AILabPage’s research indicating that it can have a greater impact than ODA and FDI as well. This might suggest that remittances serve as a social safety net for those people who are not the poorest but who would be in need of targeted social assistance without remittances.
Books + Other readings Referred
- Research through Open Internet – NewsPortals, Economic development report papers and conferences.
- Personal experience of @AILabPage members.
Conclusion- The financial services including insurance industry is facing a long pending wave of digital disruption. This disruption has started to reshape the entire banking/payments sector. The payment as a Service – (PYaaS) kind of services is really needed in the industry. By looking at current issues like high cost, slow speed and bundles of papers for KYC this new concept of BaaS will revolutionise the market. We have too many payment companies in the market with zero or no experience but still doing good on gratitude basis as talent and education may not need here. Banks have platforms, but it’s probably fair to say it’s more like yesterday’s platform or stone age.
Do we really need this new BaaP or BaaS; I think it’s very easy to answer or has the answer already “Yes”. How long has it been staying the same?.
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