Unbinding of Banking and Banks – In today’s dynamic business environment, the notion of exclusive ownership of an entire business paradigm is increasingly seen as impractical and undesirable.
As such, the banking industry is no exception to this evolving mindset, prompting the question: why should banking remain tightly intertwined with banks? FinTech has emerged as a definitive agent of change, effectively acting as a permanent divorce lawyer for banks and banking. In the FinTech landscape, there is an opportunity to strategically select services to be propelled through the Banking-as-a-Platform (BaaP) and Banking-as-a-Service (BaaS) models. In this blog post, let’s dive into the technological aspects of the same.
Banking Services Providers – FinTech and Bank
It is crucial to distinguish between the services provided by banks as primary partners and the involvement of third-party entities that offer banking services while operating outside the conventional banking framework. My perspective and argument revolve around the distinction between banks and banking, asserting that banking is a necessity but not exclusively limited to traditional banks.
The emergence of Banking as a Service (BaaS) and Banking as a Platform (BaaP) has opened the door for diverse providers to deliver these services. Consequently, the question arises as to who assumes the role of the true hero in this context – is it a bank, a payment service or payment intelligence service provider, a FinTech company, or a mobile network operator (MNO)?
By embracing new innovative approaches, banks can unlock new avenues for growth, collaboration, and service delivery, fundamentally have chance for reshaping the conventional boundaries of the banking industry. This transformative shift not only offers enhanced flexibility and scalability but also empowers financial institutions to swiftly adapt to evolving customer expectations and technological advancements.
As banking becomes liberated from the constraints of traditional banks, the financial landscape undergoes a profound transformation, generating fresh possibilities and redefining the conceptualization, development, and delivery of banking services.
Awakening to the Evolving Banking Landscape
Regrettably, many bankers still live in the illusion that fintech will die and that the potential realization of fintech services has a short life. Many bankers are relying on the hope that their retirements will occur before they are forced to make critical decisions. Furthermore, numerous community bank boards of directors firmly believe that they are the steadfast pillars of their communities and that the power of relationships will continue to be the solution.
However, it is imperative for bankers to confront reality and gain a comprehensive understanding of external developments beyond the confines of their institutions. Failure to do so may result in awakening to the consequences too late.
Adopting a more comprehensive perspective necessitates deep contemplation. It is vital to acknowledge that not all digital payment initiatives in India have been instigated by banks themselves. In fact, the market segment has been significantly disrupted by dynamic FinTech companies, causing traditional banks to assume a secondary role. These agile FinTech entities have successfully overcome the limitations of banks in driving such initiatives. We welcome further discussion to delve into this topic with greater detail.
Mere self-identification as digital banks or limited efforts to digitize existing banking services fall short of the requirements for banks to keep pace with the rapidly evolving landscape. Genuine digital transformation entails migrating distribution channels into the digital realm, establishing sustainable processes, and effectively integrating them. Isolated projects within this domain do not meet the criteria for success.
Presently, the availability of banking services from traditional banks significantly lags behind the capabilities offered by modern infrastructure and the innovative potential of the e-commerce landscape. The financial sector is already grappling with substantial competition in the electronic and online spheres.
Technology Solutions and Financial Services
Technology’s perpetual evolution presents an array of opportunities for fintech companies to fulfill their ambitions. Adapting to the dynamic nature of technology facilitates the realization of their aspirations as true fintech entities. The insurance sector follows a similar trajectory, as it too experiences disruptive changes. BaaP and Banking-as-a-Service (BaaS) have evolved significantly to support a broad spectrum of financial services, including insurance-related offerings.
A notable example of this is the prevalence of micro-insurance services provided by mobile network operators (MNOs) throughout Africa, demonstrating the application of BaaP and BaaS in the insurance sector.
Fintech startups encounter significant challenges when attempting to leverage pre-existing banking licenses, leading to frustration. To address this, entrepreneurs in the financial services and technical realms are collaboratively merging experience and innovation to provide a diverse range of cutting-edge financial services. This paves the way for the establishment of modular-based banking toolkits within modern banking frameworks. By utilizing this toolkit, one fintech company can offer a multitude of services to other fintech businesses, who can then integrate these offerings into their own consumer-facing platforms.
These services necessitate not only a technological solution but also, in many cases, the acquisition of a banking or e-money license. Therefore, the concept of Banking-as-a-Platform (BaaP) emerges as a comprehensive solution, enabling fintech companies to conduct business by leveraging existing licenses.
Transforming Banking Paradigms
Banking-as-a-Service (BaaS) emerged as a valuable ally, shattering the traditional attitudes of banks. The banking industry, long perceived as highly technical, complex, and reliant on rocket science-like technologies, has historically been dominated by large banks resistant to disruption. Interestingly, most BaaS experts emerged from the payments and banking domains with little to no prior knowledge of the subject. The FinTech sector is currently experiencing a surge in entrepreneurial activity, driven by strong demand for BaaS services fueled by widespread frustration with large banks.
Wallet and payment service providers have taken a step further by developing products that facilitate streamlined one-touch solutions, eliminating the need for users to navigate through multiple steps to complete transactions. For instance, on mobile payment apps, users are presented with the convenience of choosing from various payment methods such as credit cards, debit cards, mobile wallets, bank accounts, cash coupons available for redemption, and loyalty points. While initially daunting for regular users, these options gradually become ingrained in their lifestyles.
This demand is complemented by a growing supply, as financial professionals seek alternatives to extensive manual work within these mega-corporations. Low-interest rates have made the capital, the essential raw material for many money-related startups, cheap and abundant. African banks can grow a lot by following global rules, coming up with new ideas to succeed in the future, and gaining the trust of customers. Right now, many banks in Africa don’t have that trust.
Books Referred & Other material referred
- Open Internet research, news portals and white papers reading
- Lab and hands-on experience of @AILabPage (Self-taught learners group) members.
- Self-Learning through Live Webinars, Conferences, Lectures, and Seminars, and AI Talkshows
Points to Note:
it’s time to figure out when to use which tech—a tricky decision that can really only be tackled with a combination of experience and the type of problem in hand. So if you think you’ve got the right answer, take a bow and collect your credits! And don’t worry if you don’t get it right.
Feedback & Further Question
Do you need more details or have any questions on topics such as technology (including conventional architecture, machine learning, and deep learning), advanced data analysis (such as data science or big data), blockchain, theoretical physics, or photography? Please feel free to ask your question either by leaving a comment or by sending us an via email. I will do my utmost to offer a response that meets your needs and expectations.
Conclusion – In short banking services is with FinTech’s who are empowered with payment Intelligence which is highly dependent upon the fusion of payments, physics, blockchain, and artificial intelligence. And its revolutionizing digital money usage. It enhances our understanding, safety, and efficiency, yielding impressive outcomes. This approach significantly advances digital payments by leveraging science and technology to improve security and efficiency. Through blockchain and AI, payment processes become simpler and more secure, ensuring transparency and tamper-proof transactions. Smart contracts further simplify transactions and unlock new opportunities for creative ideas across industries.
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