More and more advisors and also banks are talking about the topic of contextualized / verticalized financial services. But what exactly is it? And what role do Banking as a Service – BaaS – and Banking as a Platform – BaaP – play in this?
In discussions, unfortunately, buzzword often lines up with buzzword and we need to clean up so we can all discuss and talk about the same thing. Or to put it another way: the theme is out of its infancy and the nursery needs a new order. There have been and still are attempts to find a suitable definition. From my point of view, however, these are either already outdated or still unclear.
We’ve also talked a lot about BaaS or even BaaP on the blog and podcast. In retrospect, these concepts are not always clearly enough defined and delimited. One thing is clear: Features such as “openness”, “API”, “technology”, “cloud” play an important role in the topic.
Which terms do we hear again and again and are used in parts synonymously or as a delimitation?
- banking as a service
- Banking as a Platform
- Contextual banking
- Verticalized banking
- open banking
And new additions now include more “…as a Services”, including.
- trading as a service
- Crypto as a Service
In order to bring light into the darkness, I have picked out a few examples of definitions that can be found on the net as an impulse:
- Chris Skinner
But since I’m not happy with the above, I ventured to come up with a definition myself and additionally asked around among my colleagues at Payment and Banking and experts in the industry.
How does the Payment and Banking team define banking as a service?
Before we get into the definition of “BaaS” we need to agree on the term “banking”. “Banking” means banking and thus “As a Service”, offering it as a service. Some definition at Gabler
Does this beg the question, “Offer to whom?” To put it somewhat “naively”, every bank offers its customers – whether B2C or B2B – “banking as a service”. If we now bridge to reality, the definition is probably more in the B2B segment. “As a Service” suggests that one offers “parts”. Thus, one does not offer products, but cuts the “banking” into processes (from the term service is very close to the process – less to the product).
The distinction between “BaaS” (as a Service) and “BaaP” (as a Platform) lies in the depth of value creation and focus. “BaaP” is pure technology business and the regulatory component does not matter. Technological platforms are provided to do “banking”. “BaaS” is the complete service – which usually also requires a license.
“BaaP” ==> Target group: banks or regulated institutions
“BaaS” ==> Target group: B2B companies. This can, but must be banks, but even end customers or very “small B’S”.
It is likely that the boundaries between Banking as a Service and Banking as a Platform are blurred in practice. I would draw the line as follows: In the case of a Banking as a Service solution, the provider provides services/applications for different application areas (e.g. core banking functions, payments, credit/securities/deposit business, KYC, crypto trading, etc.), which can be used by the provider’s customers (e.g. other financial institutions or fintechs) from a modular system and put together individually. I see Solarisbank as a prominent Banking as a Service provider.
It is likely that the boundaries between Banking as a Service and Banking as a Platform are blurred in practice. I would draw the line as follows: In the case of a Banking as a Service solution, the provider provides services/applications for different application areas (e.g. core banking functions, payments, credit/securities/deposit business, KYC, crypto trading, etc.), which can be used by the provider’s customers (e.g. other financial institutions or fintechs) from a modular system and put together individually.
“The lines between banking as a service and banking as a platform are likely to be blurred in practice.”
I see Solarisbank as a prominent Banking as a Service provider.
In contrast, the Banking as a Platform solution includes a development, runtime and management environment that enables third parties to develop and run their own financial applications on the platform/OS. The degree of customization and complexity here is higher for the provider’s customer than with a Banking as a Service solution. In German-speaking countries, Fidor Bank sees itself as a platform provider with its FidorOS.
Open Banking includes the ability for third-party providers to access banking data and initiate banking transactions via APIs. The prerequisite for this is always the consent of the end customer concerned.
With contextual banking, a suitable banking offer is entered for the current context in which the customer finds himself. This could be, for example, a tailor-made financing offer for a car purchase or, if the current account balance is not sufficient for the purchase of the new MacBook, a spontaneous increase of the overdraft facility.
Verticalized banking aims to provide a tailored offering to specific communities, such as specialized/optimized/enhanced banking features for the self-employed, specific professions or age groups. In addition, one can also find banks that do not differentiate themselves by their actual banking offering, but rather by their values, e.g. special environmental awareness or ethical principles.
A type of white label banking in which a bank makes its banking products and processes available to third parties – usually unregulated partners. These third parties build their own products for customers based on this foundation – usually based on APIs. Examples of these customer products are Penta, TOMORROW or Kontist.
The actual bank itself stands in the background and is almost invisible. BaaS providers are e.g. Solaris, Sutor Bank or Baader Bank.
Banks bring their own banking products into third party processes / interfaces. This is also API based. However, the bank itself remains a visible product supplier and uses the third party more as a further distribution channel. Examples are e.g. credits directly in the purchase process or accounts and cards that are integrated in the process. Examples are the EasyCredit or the Goldman Sachs credit card at Apple. The bank itself therefore acts as a platform.
Another view of BaaP is that a front-end provider (licensed or unlicensed) aggregates different financial products from different providers onto one platform. N26 can be considered an example, as offers from Raisin or auxmoney are integrated. Another example could be Google Plex or getting better.
Existing banking products (account, card) are displayed in third-party offers or used to carry out processes. Examples are multi banking or accounting solutions where both accounts are displayed or transfers are executed.
Special target groups receive their own frontends and features that are made exactly for them. BaaS providers are often used as a basis for this. Examples are insha or once again Kontist. Another example of verticalised banking, however, is apobank.
Is often used synonymously with open banking and banking as a platform. Customers are shown the appropriate financial service offer at the right moment and can use it directly. Providers are banks and not banks.
And also the esteemed Harmut Giesen has tried it with a definition:
Banking-as-a-Service = B2B offering for companies that want to offer/integrate financial products,
Banking-as-a-platform = B2C offering that bundles financial products from various providers (marketplace, financial Amazon), boundaries can be fluid if platform layer is “fat “. https://twitter.com/hartmut_giesen/status/1375756969433300995?s=21
Here you can find a Twitter dialogue on the topic: https://twitter.com/ambajorat/status/1375754403509047301?s=21.
Again, it’s clear we don’t have the one right definition for every term. When it comes to banking as a service, we and everyone else are still largely in agreement. On the topic of banking as a platform, however, we disagree. One view is a very technical one, where the platform provides more or less “tech” – another view is that banks are platforms themselves and provide their products in other channels – and a third view is that the platform acts as an aggregator and brings together the banking products from different banks and providers on one front end / platform. Look for the right one ;-)