Mash-up! How Banking-as-a-Service is remixing finance

Published on 13. June 2018

Mash-up! How Banking-as-a-Service is remixing finance

Greater flexibility, faster to market, a better customer experience - is BaaS the new banking gold standard?


We all know how Spotify has transformed the experience of enjoying music, without having to store MP3s. Amazon Web Services and Microsoft Azure remove the need to own expensive, dedicated servers. Salesforce, GoogleApps, WebEx and more have replaced on device software.


The “as-a-service” business model has already transformed the software (S), platform (P), transportation (T), music (M) and other industries. Just look at SaaS revenue projection figures for evidence of that. [1]


But the  real relevance of “as-a-service” is that it empowers anyone, given enough customer traction, to launch their own version of what, previously, might have required unthinkable levels of investment in specialist systems.


Where does banking (B) come in to this picture? In 2018, the sad truth is that many customers want to break up with their banks. It’s not that they no longer trust them - an Accenture survey in May 2018  found UK consumers’ trust in their banks is at its highest since 2012. But the diminishing role of the physical branch has loosened consumers’ bonds with their provider.


This is a big challenge for traditional banks - and a huge opportunity for other companies which continue to enjoy a strong customer relationship.


As a result, in recent years, we have seen the likes of supermarkets and telecoms providers get into banking. In 2016, O2 in Germany launched O2 Banking. O2 is not really a “bank” in the traditional sense, but the availability of the underlying infrastructure in an off-the-shelf fashion has allowed the provider to capitalise on its 42 million customers, putting the brakes on churn, and to function, to all intents and purposes, just like a financial institution.


Developing software used to be hard. Today, however, developers have ready access to libraries of components that are already built and available to plug in to their projects, making it simpler and easier to launch and to focus on what differentiates an offering. Software development is becoming a case of assembling the building blocks of available parts in a better order.


And the same is now happening in banking. BaaS allows new providers to offer new kinds of services - not just B2C, but B2B, B2B2C, B2-anyone. We are staring at the prospect of a total mash-up in the traditionally conservative world of finance.


Turning this into reality is going to require some new ways of thinking. For any company, mashing-up today requires fusing technologies, data streams and ways of working. APIs, which allow one service to connect to an underlying infrastructure and make it available through its own dashboard, are the secret sauce.


With Banking-as-a-Service companies partner with an infrastructure provider to whip up a bank in a fraction of the time, then spend their effort pushing it as a value-add to the customer base.


This idea will undoubtedly bring more innovation and power and more business changes in future with both banks and their customers seeing clear benefits.


New ecosystems are likely to emerge in place of many traditional industries by 2025. See below image. Estimated total sales through Ecosystems in 2025, 1$ trillion


The “As-a-Service” mash-up is likely to create combinations of strange bedfellows in new and interesting configurations, as businesses from distinct industries realise they can be valuable partners to each other. Banking is no exception.

New ecosystems

  • New ecosystems are likely to emerge in place of many traditional industries by 2025.


  • Estimated total sales through Ecosystems in 2025,
    1$ trillion


  • Box sizes show approximate revenue pool sizes.
    Additional ecosystems are expected to emerge
    in addition to those shown; not all industries or
    subcategories are displayed.


Source: IHS World Industry Service; Panorama by McKinsey; McKinsey analysis