An Uber driver wishes his fare goodnight, taps his smartphone, and finds first gear. Before he’s up to second, his app has passed his latest fee into a back-end bristling with financial plug-ins. By the time he’s cruising in fifth, his tax dues are recalculated, his monthly earnings forecast is adjusted, and the cash he’s setting aside for his children has found its way into his savings account. Across town, a weary video editor presses send on a project, closes her laptop, and picks up her smartphone. It’s already shining with a notification: her invoice, automatically generated, has been sent. She scrolls down to see which bar her friends are at. Another ping: her work platform is running a discount with a popular ride-hailing firm. She’ll just need to pay using the platform’s in-house current account – which is perfect, because that’s where part of her day’s payment will shortly be split between pots labelled ‘savings’ and ‘nights out’. Digital innovation is often presented to us in terms of a future full of seamless experiences such as these. But with the rise of so-called ‘embedded banking’, we might finally be on the cusp of finding out what that world will look like. It’s the next generation of banking – the new revolution in the fintech space.
The R-word was once a source of much hand-wringing for incumbent banks, who have spent a decade outmanoeuvred and outpaced by an emergent fintech vanguard. But this revolution’s different. Coalescing around the term banking-as-a-service (BaaS), it’s a trend that takes the best of the new fintech ecosystem, and fuses it with the one quality that has sustained the traditional bank up until now: their banking licence, and all the regulation and trust imbued with it.
We’re only just starting to dip our toe into the water of what this [BaaS] world could look like Tom Bentley, Vodeno
This exciting financial fusion is exemplified by Vodeno, the cutting-edge, Cloud-native BaaS provider. Via a partnership with Aion Bank, which has a banking licence spanning the EU, Vodeno’s banking and non-banking customers not only have access to the usual array of retail and business banking solutions – they can also plug in to sophisticated, regulated banking services. It’s via brand partnerships with firms like Vodeno that our taxi driver and video editor will soon be able to access essential
banking services through the platforms and brands they love – without ever touching an established bank. That doesn’t mean banks are set to fade into irrelevancy. On the contrary, banks reap the benefits of cheap access to many more customers. Research from the VC firm Andreessen ‘software is eating the world’ Horowitz has already found that early adopter banks enjoy up to three times above-market return on equity after embracing BaaS. “We’re only just starting to dip our toe into the water of what this world could look like,” explains Vodeno’s CCO, Tom Bentley. Martin Häring, chief marketing officer at composable banking provider Temenos, agrees we’re approaching an inflection point in a game-changing model. “I think BaaS is the mega-trend in the next decade to come,” he says, citing some gigantic figures. “Cornerstone estimates $25billion in annual revenue by 2026; Bain is even going further, at $3.6trillion by 2030.” Finastra recently estimated a $7trillion market by 2030, and, while the variance in valuations suggests a trend in its undefined infancy, it’s clear that institutions across the board ought to sit up and take notice. But first, what exactly sets banking-as-a-service apart?
Service with a smile Tom Bentley from platform player Vodeno and Martin Häring of banking technology provider Temenos on how the next megatrend in banking is likely to shape up
europe.money2020.com
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