How the Banking as a Service (BaaS) model is set to reshape the sector

- By Collaborative Media & Publishing
The rise of smartphone technology has paved the way for banks to rent their services out to companies hoping to form deeper relationships with their customers.

New banks such as Volt are leading the charge as companies look to create more personalised services to improve customer retention and boost revenue.

"Companies can now offer their customers the ability to open bank accounts, to make payments and share data and all that good stuff, but through the technology environment of the company – not the bank," says Volt CEO Steve Weston.

Volt has already struck a deal with mortgage broker Australian Finance Group (AFG) to launch an AFG digital mortgage product, as well as other products such as bank accounts and a banking app containing a host of budgeting tools.

“AFG has about 3000 mortgage brokers in its network. About one in eleven mortgages each month in Australia are going through their group,” Weston says.

But the deal, which also saw AFG take a 7.6% stake in Volt for $15 million, will not just provide new revenue streams.

“Rather than just referring customers to a bank – and then the customer becomes that bank’s customer – now they remain an AFG customer.”

A new take on an old concept

The BaaS model is tapping into rising consumer demand for seamless experiences, according to McKinsey & Co research.

But the concept isn't new.

Supermarket giant Woolworths worked with the Commonwealth Bank to launch ‘Ezy Banking’ products in the late 1990s, allowing customers to effectively bank through Woolworth’s extensive network of stores. However, the venture only lasted six years, with customers remaining loyal to established banking branches.

“Things have changed," Weston says. "Technology has evolved significantly since those days, particularly the use of smartphones that didn’t exist back then, and loyalty programs weren’t as commonplace as they are now.”

BaaS also shares some similarities with white labelling, where an organisation rebadges an existing product, although the BaaS offering is more deeply embedded.

"Sometimes it'll be white labelled, other times it'll be branded Volt, but the most important thing is you access the product in the app of your retailer or airline or whatever type of business you’re dealing with – you don't need to log out and go and open an account at a bank."

The global trend picks up pace

With customer retention evolving to a fine art and many non-banking services industries digitising their business models, the stage is set for BaaS.

"BaaS may well be a land grab," according to a recent report by McKinsey[1]. "If so, banks will need to develop a BaaS strategy today, with a realistic understanding of their cost structure and the path to transformation. They should also clearly see the impact that a significant increase in customer demand for integrated banking experiences will have on their businesses."

Westpac is the strongest backer of the model among the big four Australian banks. It has rolled out its own digital BaaS platform, leveraging cloud-native technology from UK-based 10x Future Technologies[2]. It has already signed on buy-now-pay-later firm Afterpay (now set to be acquired by Square) and digital lender SocietyOne[3].

It will allow SocietyOne to offer its customers banking products, such as transaction accounts, alongside its existing personal loan offerings.

Some of the world’s largest companies are driving demand. For example, US retail giant Walmart has collaborated with FinTech start-up Ribbit to develop financial services offering for its millions of customers[4].

Meanwhile, Ingka Group, parent company of Swedish furniture brand IKEA, has become part-owner of Ikano Bank as it seeks to expand its product offering[5].

APIs power connections

The BaaS model is reliant on APIs, which allow a wide range of organisations to connect technology and seamlessly embed banking services.

BPAY Group is also using APIs to bring its BPAY billing service to a new range of FinTechs and startups. There are more than 60 companies that have used BPAY's APIs, which were launched just two years ago.

“It’s well underway,” says Weston. “We need to back ourselves that our solutions are better than the next person, and it's the same for BPAY.”

While Volt will use BPAY as a trusted payments method through its own products, it will also be extended through its partners, creating an integrated network of companies.

BPAY Group’s Developer Portal offers several APIs, allowing developers to build new payment services using the BPAY billing service.

“What the BPAY team are doing with some of those safeguards now is to check that you put in the right customer number and your money doesn't go walkabout. That's smart. And it's going to improve our customer experience, whether through Volt directly or via a BaaS partner,” Weston says.

Learn more about BPAY Group’s Developer Portal and BPAY APIs here.
 

[1] What the embedded-finance and banking-as-a-service trends mean for financial services. (2021, August 17). Retrieved from https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/what-the-embedded-finance-and-banking-as-a-service-trends-mean-for-financial-services
[2] Westpac enters into ‘banking-as-a-service’ with 10x Future Technologies. (2021, August 17). Retrieved from https://www.westpac.com.au/news/making-news/2019/11/westpac-enters-banking-as-a-service
[3] SocietyOne on board Westpac’s "banking as a service" platform. (2021, August 17). Retrieved from https://www.westpac.com.au/news/making-news/2021/02/societyone-on-board-westpacs-baas-platform
[4] Walmart Announces Creation of New Fintech Startup. (2021, August 17). Retrieved from https://corporate.walmart.com/newsroom/2021/01/11/walmart-announces-creation-of-new-fintech-startup
[5] Ingka Group and Ikano Bank to deliver more accessible financial services for IKEA customers | Ingka Group. (2021, July 07). Retrieved from https://www.ingka.com/news/ingka-group-and-ikano-bank-to-deliver-more-accessible-financial-services-for-ikea-customers

Published by BPAY Pty Ltd (ABN 69 079 137 518) email: marketing@bpay.com.au. The BPAY Scheme is managed by BPAY Pty Limited.  When you use BPAY payment products, the BPAY Scheme is paid fees relating to processing costs and BPAY Scheme membership.  Contact your financial institution to see if it offers BPAY payment products and to get the Product Disclosure Statement.  Any financial product advice provided by BPAY Pty Limited in relation to BPAY payment products is general advice only and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on such advice, you should review the Product Disclosure.

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