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The rise of banking as a service (BaaS): overcoming legacy issues in the banking sector

Many banks have already innovated in the customer facing front layers, but banking and financial institutions has started to realise that digitally transformation can only happen when innovative technology is used throughout the whole banking architecture to future-proof for the next generation of banking, free from legacy issues. Switching to a digital core banking platform that is based on standard building blocks and configuration editors ensures the required viability and flexibility.

The rise of banking as a service (BaaS)

The introduction of PSD2 is enabling the opportunity for banks and fintechs to explore synergies as never before. The open access to banking customers' financial data and the evolution of cloud services has enabled the development of completely new consumer-oriented products and services. This presents an amazing opportunity for banks and third parties like fintechs to work together. Taking advantage of application programming interfaces (APIs) to innovate, digitise and disrupt the market, they can enhance the customer experience, easily scale the product and service catalogue and lower costs which is much more than banks and fintechs could do on their own.

This new, global API-driven world has created a shared, automated, regulated, data intensive paradigm that is sure to create difficult strategic questions for retail banks worldwide. Banks now face the reality that their legacy mainframe technologies hamper their ability to quickly introduce and scale up new initiatives, and that they need to downsize their traditional brick-and-mortar branches. Issues like regulatory compliance, customer preferences, new technologies, new market incumbents, cyber security, big data, artificial intelligence services, and change costs become crucial for today’s banks in their challenge to keep up with market changes and to protect their future.

The emergence of Banking as a Service (BaaS) technology is providing traditional banks a lifeline with the ability to bridge the gap between back end legacy systems and front-end customer experience.

BaaS offers an end-to-end process to banks and financial institutions that allows full execution of a bank’s financial services over the Web. By adopting a BaaS solution, banks can orchestrate processes and customer journeys in such a way that they are able to completely transform the customer’s experience. End-to-end BaaS platforms offer the best combination of open banking and digitisation with exceptionally low costs when compared with other digital solutions.

BaaS bridges the gap between existing legacy systems and other 3rd party applications and services. More importantly, this means that banks of all sizes can securely and rapidly enhance and escalate their digital offerings by leveraging pre-built banking APIs and other 3rd party applications and services. It allows banks to generate new revenue opportunities by ensuring faster deliveries of tailored and innovative products and services, engaging clients wherever they are in their financial lifecycle.

What is important to note is that banks and financial institutions should not adopt a standard BaaS solution but should strive to adapt an end-to-end BaaS solution that provides a full 360-degree view all the way from consumer to product.

Only with deeper customer insights at every stage of the financial lifecycle will banks be able to anticipate market needs to respond faster and with accuracy. Embracing an end-to-end BaaS strategy quite simply gives customers fewer reasons to shop around because they feel closer to their bank’s products and services, and banks will reap the benefit of greater process efficiencies and cost savings.

It’s clear that end-to-end BaaS is integral to a bank’s long-term growth strategy and it will play a crucial role in taking the banking industry into a fully digital age. BaaS represents a huge opportunity for banks to accelerate their digitisation and provides the flexibility that customers are demanding, without having to engage in heavy and costly solutions.

Peter-Jan Van De Venn, Executive Vice President and IT banking specialist, Five Degrees (opens in new tab)
Image Credit: MK photograp55 / Shutterstock

With 15+ years’ experience in Consulting and Banking Software, Peter-Jan Van De Venn is Executive Vice President of Business Development at Digital Core Banking provider Five Degrees.