Banking as a platform (BaaP) refers to opening up banking services and data through application programming interfaces (APIs) to third-party developers. With banks focusing on increasing their revenues through fee-based income, building such an ecosystem with both financial services and products or offerings from third-party providers seems the sensible thing for its customer base.
Offerings
BaaP enables these third-party providers to build innovative financial or non-financial apps and services on top of existing banking infrastructure, fostering a more open, interconnected and collaborative financial ecosystem. Apart from its financial offerings, these third-party providers will offer additional products and services for the bank’s customers.
Here are a few services that might be offered as part of BaaP by said bank:
- Purchase concert or transportation tickets
- Shop for groceries or electronic items
- Pay your taxes
Benefits
As for customers, they wouldn’t be able to distinguish the offerings made by the bank and these third-party providers, when using the banking application to access their account. However, with a wide array of offerings at their fingertips, the customer experience is enhanced as customized recommendations will become the norm. Even if this business model works just as well for the other parties concerned: the bank and these third-party providers.
Banks can also move beyond lending and financing to expand their service offerings and as a result, create new revenue streams by offering these third-party services to their customer base. In addition, by leveraging the expertise of these third-party providers, banks do not have to bear the costs of building or maintaining these services either. Banks can also reach out to unbanked customers through their fintech partners and bring them “into the fold”.
Lastly, by adopting a modular architecture, banks can omit or add services based on customer preferences and needs. Overall, this can strengthen a bank’s position in the market, as it builds its brand by aggregating and offering services that will make their customers come back for more.
Challenges
Implementing Banking as a Platform is anything but easy: with so many ‘moving parts’, there are challenges that come with such an undertaking. Issues pertaining to regulatory compliance and governance, operational complexity and integrating various systems with bank platforms come to mind. Most of all, these platforms, being as large as they are, can prove to be expensive to build from scratch.
Still, even if only a small percentage of banks have adopted this BaaP model, the future looks promising for such a transformation, as it provides a unified, seamless and tailored experience for the customer.
