The Growth of Banking Software as a Service and the Pi1 Case: Building Bank of the Future Today

Up until more recently, traditional banks and reputable financial institutions were the only way for individuals to gain access to any type of financial services, either payments, transfers, or loans. Monopoly and lack of relentless competition almost completely excluded the terms like ‘value-added’ or ‘customer-focused’ from the typical banking practice.

Fintech firms and non-banking businesses have added a whole new wrinkle into the financial industry that used to be rather reticent to emerging technologies. They have streamlined and simplified operations, diversified a service variety, and complemented it all with convenience and friendliness. Consequently, they’ve started to encroach on a piece of the financial pie — the industry that had always been distributed between the same organizations.

Even though more often, innovations tend to go ahead and push the regulatory changes, these days, the situation is far different. The experiences created by such companies as Amazon, Facebook, and Apple, in combination with newly-introduced Open Banking API and PSD2 regulations, bring people up to speed on the type of relationship they want to have with their banks. And as we all know, demand is the best trigger for the competition.

The API-Driven Evolution and the Introduction of Banking as a Service

These days banks make much investment in creating a robust infrastructure and modernizing their legacy systems to meet customer needs and protect their market share. However, it’s not an easy and straightforward way that is also encumbered with the need to promote and maintain tough compliance measures, as well as take out licenses. Non-bank institutions, together with fintech firms, find it easier for banks to partner with external companies instead of building new services from scratch. Meanwhile, this is the key goal of the Open Banking initiative and the central functionality of the banking software as a service. But first things first, let’s start by answering a simple question: “what is banking-as-a-service?”

BaaS or Banking as a Service is a full-fledged technology that enables fintech startups and other firms to link to core banking systems software through APIs and create financial offerings on the basis of the providers’ well-regulated infrastructure.

In fact, end-to-end BaaS platforms allow banks to bridge the gap between their obsolete back-end software and modern customer-facing experiences. Financial incumbents of all sizes get an opportunity to improve and broaden the range of their digital products quickly and securely, thus generating innovative revenue streams, launching ground-breaking services tailored-made to the needs of their clients and employees, and attracting new audiences.

It’s Not the Same: Open Banking, Open API, Banking as a Platform, Whitelabel Banking, and Banking as a Service platform

Being aware of all the new developments and achievements in online banking services, it comes as no surprise that most people still become confused about the terms and definitions. To help you avoid ambiguity, we’ve created a short glossary explaining the differences between the main buzzwords in the banking service industry.

• Open banking is the standard of sharing consumers’ financial information safely, electronically, and under the conditions that are determined by those customers. It implies stringent requirements for structuring APIs, adding third-party providers (TPPs), and sharing data.
• Open API (Application Programming Interface) is a free-to-use set of protocols and codes that provides software engineers with programmatic access to a proprietary system. In fact, it is a middleware that permits third parties to tap into customers’ banking data efficiently and boosts the development of new mobile banking services.
• Banking as a platform definition is as follows: it’s an approach where technology companies provide operating systems, development kit, middleware, applications, servers, storage, and other tools to financial service providers and banks. These platforms can also be utilized to deliver tailored services and products to customers.
• White label banking meaning is quite similar to the meaning of BaaS, and they are often called synonyms. This practice enables new firms to render financial services and diversify their offerings by employing apps from a white label supplier, thus preventing legal, regulatory, and technical impediments.
• We’ve already spelled out the BaaS definition above, explained what is open banking and public API in simple terms, and on first reading, they may sound similar since both grant access to the banking system software. However, the difference lies in the fact that open banking forces financial institutions to share customers’ financial data with third parties; meanwhile, BaaS software gives non-banking firms access to bank functionality and allows them to connect individuals outside of the bank’s actual footprint to banking facilities. Moreover, banking as a service is more flexible, and companies can choose a way to share information, while with open banking, you’re provided with the sharing rules that should be strictly followed.

As you can see, despite formal resemblance between banking as a service and banking as a platform, these terms imply a different type of cooperation between parties. Meanwhile, all these concepts have common goals of facilitating collaboration between banks and third-party providers, encouraging the development of new services, and taking customer experience to the next level.

How Does Open Banking as a Service Work?

The BaaS as a service process is rather straightforward, and it starts with a financial service provider or fintech firm paying an installment to gain admittance to the banking platform as a service. The bank opens up its API to the third party, and so gives access to the systems, functionality, and information needed to create innovative banking products or tender white-label online banking software as well as services.

Consequently, incumbent institutions with obsolete systems can not only thrive on open banking solutions software and head the evolution of digital banking, but also unleash new revenue sources as they introduce their own open-source BaaS platforms. In essence, there are two principal monetization strategies for banking as a service APIs that involve withdrawing a monthly commission for access to the BaaS software or charging only when a particular service is utilized.

The BaaS Market Size and the Most Prominent Banking-as-a-Service Examples

In 2018, the size of the digital banking platform market was estimated at over $3 billion globally, and it is projected to exceed $8 billion by 2027. The two driving forces that contribute to such growth are the ever-increasing customer expectations and the fundamental digital transformation of the entire sector. Consequently, all these factors push banks to not only share information or open services but also to develop their own ecosystems, namely BaaS.

At the time of this writing, the most popular banking-as-a-service companies that are purely focused on providing BaaS services are:

• SolarisBank markets itself as a “tech company with a banking license,” and in 2018, the company received over $56 million in Series B funding from Visa, BBVA, Lakestar, and SBI Group. Holding a German banking license, this Berlin-based firm empowers its clients to render compliant and digitized white-labeled banking services to their end-users. This BaaS provider collaborates with about 60 companies globally, including Smava, Trade Republic, Al Baraka Bank, Tomorrow, and others.
• ClearBank is a UK-based BaaS provider founded by Nick Ogden (WorldPay) and focused on “powering banking innovation.” The firm doesn’t work with consumers but provides fintechs and FCA-regulated companies with an opportunity to develop their own services and products. Its offerings include safe access to key banking apps, payment systems, and schemes to guarantee the better end-user experience and financial inclusion. Among the ClearBank clients, you can see Tide, OakNorth, Nationwide, and Dozens company.
• Bankable is a London-based company that calls itself a “global architect of innovative payment solutions.” Its banking as a service (BaaS) platform covers digital banking services, online wallets, payment card programs, and a virtual ledger manager. The firm helps partners satisfy the regulatory and technological requirements since its core banking-as-a-service platform is PCI-DSS certified and allocated in Tier-4 data centers to guarantee exceptional security. The list of clients contains Spendesk, Royale Oceanic, and Moneyou, but soon it is expected to grow since, in 2019, Bankable declared its partnership with Visa.
• Treezor bills itself as a “one-stop-shop payment solution” since it covers the entire payment scope. Using this API-based white label banking software, companies can set up their own digital banks with IBANs, e-wallets, payment card programs, KYC compliance, SEPA payments, and more. In 2019 this Paris-based firm was purchased by the Societe Generale group to speed up Treezor’s expansion in Europe. Today they collaborate with Lydia, Compte CO2, Qonto, and others.
• Cambr banking was generated from a partnership between StoneCastle and Q2, and currently, it offers a comprehensive financial solution “built for scale.” Even though it doesn’t provide fully turn-key BaaS apps like the aforecited banking-as-a-service providers, it comes with the fundamental infrastructure, including compliance, debit cards, elementary deposit accounts, and payments. The Cambr bank encapsulates Q2’s CorePro operational technology and StoneCastle’s Distributed Deposit Network with 800+ indigenous banks, as well as vast industry experience of both. Some of the clients are Qapital, MoneyLion, and Joust.

These are just a few of the banking-as-a-service examples that are purely focused on BaaS. However, there are also companies that, except for BaaS services, also maintain B2C operations.

• Pi1 by Project Imagine is a powerful platform that runs one of the most popular UK-based fintech startups, namely the Dozens app. It comes with all the necessary financial solutions and progressive analytics software to help fintechs and banks build future banking services in three months. This BaaS cloud-based solution makes it possible for partners to utilize machine learning and KYC users in 90 seconds or see an end-to-end customer journey with all the milestones.
• In late 2018 Starling Bank taped into the BaaS and PaaS (Payments-as-a-Service) niche to assist fintechs and retailers with building and scaling their unique financial products, avoiding time-consuming development and complicated legal arrangements. Some of its clients include Ditto, Raisin UK, Xero, Telleroo, UK Department for Work and Pension, and others.
• Green Dot fell into the ranks of BaaS providers at the beginning of 2019 and noted a six-percent increase in operating earnings compared to the Q1 2018. It offers an exhaustive infrastructure for running payments and banking programs at scale. The firm collaborates with Uber, Stash, TurboTax (Intuit), and others.
• Fidor Bank is a Munich-based digital-only bank that offers fully-ready white label banking apps covering compliance, risk management, technology, customer service, and bank license across Europe. Its operating system, fidorOS, allows launching a bank in just a few months, still ensuring superior user experience. The company works with Van Lanschot, O2 Telefonica Deutschland, ADIB, and more.

The Introduction of Pi1 Platform and the Role of Dashdevs

Dozens, a London fintech disruptor, is one of many projects that the Dashdevs team is working on, but it’s worth noting that it is one of the most ambitious and pervasive projects. At that time, the Dozens (Project Imagine) team was turned down by nearly 99 percent of software development companies since they were far apart on the timeline. Building marketable solutions for three different platforms in nine months was perceived as insanity, and that’s where the Dashdevs team didn’t go back on words. The product has already been named among the best fintech applications and has been highly recommended by customers.

One year after the initial release of the Dozens app, we’ve shaken up the banking-as-a-service UK market with the launch of Pi1 — a robust BaaS platform that currently runs Dozens and empowers banks and fintech startups to create their own financial solutions. The DashDevs team has been fully responsible for the technical implementation of the product.

Opting for Pi1 companies can significantly shorten time-to-market and reduce resources required to modernize their systems or build new ones from scratch, all while focusing on what matters most — value for customers and capital raising. Unlike some other solutions in the banking-as-a-service sector, Pi1 platform not only covers the functional part of the fintech app development but the marketing side as well. It comes with a cutting-edge analytics system that allows firms to monitor the entire customer journey, from the ad and onboarding to the actual use, and so make improvements only where they are needed, enhancing user experience.

Traditional Banking vs Modern Banking: Industry Outlook and Expectations

A number of regions, including but not limited to Europe, the United States, Australia & New Zealand, and Asia, have already started implementing changes to comply with open banking requirements. Such a shift symbolizes that the financial services field is making a way to the age where shared infrastructure and data will become the new normal. One of the latest researches shows that banks in 87 percent of countries globally are actively working on public APIs. Meanwhile, solely in the UK, open banking regulations are expected to create a £7.2 billion revenue opportunity by 2022.

Banks used to be a one-stop shop for their consumers, offering a wide range of services, and trying to foster their loyalty. Individuals also preferred to stick with one particular bank since managing multiple accounts and dealing with several providers was time-consuming and overcomplicated. However, the increase of banking software providers allows companies to create their own custom set of financial solutions from different providers, smoothly plugging into the regulated bank infrastructure. This is another way how the traditional banking business model is being transformed to bring tangible benefits for customers.

If you want to know how Dashdevs can help you, please contact us, and we’ll get back to you shortly.