Exploring New Business Models

By April 17, 2020 April 2nd, 2024 No Comments

We had a (virtual) firechat with Jorge Ruiz, FinConecta’s Founder & CEO, about current disruption in the financial landscape -as well as life in general-, and his view about Banking-as-a-Service (or Baas). Here his remarks:

“COVID-19 has added fuel to a process of disruption in the financial system that we were witnessing for a while. What is your perspective on this acceleration on the acceleration of digital transformation?”

Jorge: “The financial sector has increasingly moved to transversal, evolving from the customary vertical framework that lasted several centuries. Traditional banking models are disrupted -now more than ever, and at a faster pace-, and future-forward financial institutions need to become modular and platform-based to effectively integrate and collaborate with other players in the financial services ecosystem. This is of the utmost importance, due to the impending need of clients and clients-to-be to solve for day-to-day matters that are heavily relying on financial services.”

“What are future-forward financial institutions doing differently?”

Jorge: “To face this challenge, future-forward financial institutions are doubling the bet, and moving to a more open way of working, by partnering with external providers and capitalize on new revenue streams while reaching to new customer bases.”

“How does Banking-as-a-Service, or BaaS, play in this environment?”

Jorge: “BaaS has emerged as an innovative and revenue-driving business model that banks can adopt in order to reach new customers and improve the end-to-end customer journey. BaaS is defined as an end-to-end process where third parties – FinTech, non-FinTech, developers, etc. – can access and execute financial services capabilities without having to develop them organically.”

“What is the impact of BaaS in financial institutions?”

Jorge: “BaaS involves banks providing third parties with access to their core systems and functionality, so they can integrate digital banking and payment services into their own products. From a bank’s perspective, it implies embracing a modular approach to business and technology, by allowing an ecosystem of FinTechs and software providers to connect to the bank through APIs. These third-party providers can offer products and services that drastically improve customers’ experience with the bank and the service provider. By partnering with FinTechs and third party solutions in general, banks provide access to licensing, regulatory support and other functionality that would traditionally be difficult to get access to and would usually involve time-consuming processes.”

“Is Open Banking the same as BaaS?”

Jorge: “Open Banking is different from BaaS: while in the former the financial institution provides access to third party providers to its existing customer data through open APIs, in the latter the financial institution provides access to specific banking capabilities such as payments, onboarding, and lending, allowing non-bank companies to connect users outside of the bank’s customer base to access its banking services.”

“What are the benefits of BaaS for the financial institutions?”

Jorge: “There are certainly many, such as: New Revenue Streams -including recurring fees, setup charges or revenue sharing agreements; Access to very large customer bases -a low cost;Improve customer experience -without building new products.”

“And what about the benefits for Third Party Providers?”

Jorge: “There are important benefits for them as well: Faster time-to-market -bypassing some big development hurdles; Overcome regulatory complexities -by leveraging a bank’s licensing agreement.”

“What is FinConecta doing about BaaS?”

Jorge: “FinConecta recently signed a strategic partnership with Hydrogen to offer non-financial institutions a seamless process to expand their offering to include financial services. We are also working with financial institutions to design their platform strategy, including BaaS as a key component of it.”

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