Detailed Analysis of Banking as a Service
& Its Potential in Africa
Banking as a service or BaaS is a broad concept that is getting popular nowadays.
Organizations that use BaaS models experience remarkable advantages. They can collect all of their customers’ financial data under one roof from banks and other financial service providers. This helps those organizations keep an eye on the customers’ spending habits and face the competitor’s challenges.
By unlocking access to financial services provided via third-party APIs, BaaS providers and Fintechs worldwide are enabling businesses to give their customers better financial services, innovation, and a professional experience. This is a significant reassessment of the role of financial services in our society. Now let us learn more about the BaaS platform and its potential for the upcoming days.
What is Banking as a Service?
In the BaaS industry, API serves a crucial role. Without understanding what API is, acquired knowledge of BaaS will be incomplete.
BaaS is also dubbed banking as a platform (BaaP) or banking software as a service (Banking SaaS). BaaS refers to some banking services which are digitally available for the customers. Fintech, Neo-banks, or challenger banks merge with BaaS models through APIs. One can avail of core financial services such as loans, cross-border payments, deposits, etc., under BaaS.
White level banking or BaaS allows non-banking entities to embed financial services while dealing with customers. To illustrate, companies that don’t have a license to offer loans or payment services to customers can provide so by integrating digital banking services into their system. Authorized banks can connect with third-party providers offering BaaS solutions.
For example, Apple is not a financial company but offers Apple Credit Cards. Although a computer-based company, Apple can provide credit facilities to its consumers using some BaaS platforms.
Types of BaaS
Mainly there are 2 types of BaaS models: API-based and Cloud-based.
The API-based White Level BaaS refers to a symbiotic financial relationship. Worldwide, Fintech companies rely on this symbiotic relationship. Banks enable third parties to access their proprietary application programming interfaces in this process. Banks let third parties create custom financial products like Buy Now Pay Later (BNPL), etc.
On the other hand, Cloud-based BaaS platforms offer content stability, data protection, and scalability of services. The data can be managed by a cloud provider, which is cost-effective and productive. With cloud computing, the BaaS model users can increase their cyber security.
Difference between Banking and Banking as a Service
Banking and banking as a service are not the same though they may be used interchangeably. The main difference between these two concepts lies in the usage of API.
An Application Programming Interface, aka API, is a tech-enabled way to communicate between two or more computers. This technology is an intermediary between two applications to exchange data by maintaining rules.
API banking uses XML or JSON code language to interact between banks and their consumers’ systems. Banks use API software to aid their partners, such as Visa and MasterCards.
On the other hand, API in banking provides all the traditional banking requirements such as opening an account, retrieving metadata, securing a loan, and more. APIs in BaaS allow maintenance of autonomy, working in an encrypted environment, etc.
6 Features of Banking as a Service
Fintechs, Neo-banks, and challenger banks are leveraging the BaaS industry. Here are a few features that a BaaS platform may have:
1. Intelligible API
The BaaS platform supports API and various banking functionalities. Fintech companies can easily connect with the best-in-class BaaS platform and provide core banking applications.
2. Account Flexibility
Some BaaS platforms can manage multiple banks or business-based accounts. They also aggregate funds among various versions and manage multiple expense cards from a single account.
3. Digital Workflow
BaaS platforms offer a digital workflow to channel money based on predefined business norms.
4. Real-Time Payments
Fintech companies that merge with BaaS platforms focus on real-time payments. These payments include instant payment, low-value Automated Clearing House transactions, cross-border payments, etc.
5. Cost-Effective Infrastructure
Conventional banking systems are costlier than digital banking. To ease the cost, BaaS models are adapted across the world.
6. Integration of AI
BaaS platforms incorporate AI to perform tasks like customer feedback, available payment options, etc. It also helps to figure out any fraudulent activities involved in the transaction.
Main Components of BaaS
There are three significant components of BaaS platforms: Authorized Banks, BaaS Providers, and Fintechs. Here’s how Banking as a Service works.
An authorized bank license can legally grant third-party access to its financial products. A BaaS provider interacts with the licensed bank’s infrastructure using an API and then delivers Fintech companies some financial solutions. Finally, Fintech companies can offer banking facilities to their end consumers.
In this entire procedure, banks ensure an encrypted and well-organized financial structure. They are also responsible for essential customer data and compliance with the current laws. On the other hand, BaaS platforms provide their customers with all-encompassing financial services such as user interface design, risk management tools, account management, and more. The role of Fintech is to provide an end-to-end customer journey.
3 Importance of BaaS in the Modern World
Worldwide banking as a service market size was around $2.41 billion in 2020 and is expected to grow to $11.34 billion by 2030. In many countries, BaaS has become an integral expansion of financial services, especially after the pandemic. Let us check its varied advantages keeping in mind the modernization of the transaction sector. These are:
BaaS Provides Healthy Competition
BaaS encourages healthy competition in the financial sector by enabling non-banking entities to offer core banking facilities. As a result, third-party players focus on innovations to provide customers with the best services to address their pain points. From the leverage of BaaS, Neo-banks try to simplify the lending process to customers. In contrast, Fintechs focus on providing payouts to business individuals. Overall, BaaS provides customized financial support to tech-savvy customers.
Improved Customer Experience
Per a report, 69% of the world’s population is an active internet user, and each year the number increases at an annual rate of 4%. The banking system needs to integrate with BaaS models to satiate this massive number of internet users. Today’s generation need instant financial services. But reaching this many customers requires high data protection, which is possible only with the BaaS model.
It is Beneficial for the Fintech
BaaS has been showing remarkable growth in recent years. Behind BaaS’s incredible success is Fintech companies. Fintechs get adequate help from the BaaS model and vice versa. It can help Fintechs and non-Fintechs verify their beneficiary’s bank account before conducting a payment process.
BaaS in Africa
BaaS is acknowledged in various countries for its straightforward applications. Currently, world-leading BaaS players are BBVA, Fidor Bank, MatchMove, BitFlyer, etc.
Banking as a service is highly influenced by technology. However, the markets in Asia-Pacific, South America, Africa and the Middle East lack technological efficiency. That is why their BFSI industry can not fully leverage the benefits of the BaaS market. On the other hand, Africa is anticipated to lead the market because of its extensive adoption of high technology in banks and financial sectors.
Now, suppose we shift our focus to the regional level. In that case, African countries have ample opportunities to stand the global digital banking revolution. Many online retailers now provide their customer’s loans, payments, and faster transaction facilities on the continent. This has become possible because of banking as a service technology.
The BaaS model enables non-licensed entities to tap the benefits of digital banking facilities, which were limited to traditional banking organizations. For example, Skaleet is a Paris-based company that offers core banking services in Africa, Europe, and Latin America. The company has a presence in 22 African markets. It inspires African Fintech companies to adopt BaaS for the inclusive and local digital ecosystem.
Moreover, many Agritech companies in Africa are coming to the fore to help traders with easy and faster transactions. Banks in Africa are keen on taking this opportunity for BaaS model expansion. This will help them to build a tech ecosystem within the continent in the future and help people get their banking issues resolved quickly.
M-Pesa is another popular BaaS service in Africa. M-PESA, an offering of mobile network provider Vodafone, is the preferred payment method on the African continent for both banked and unbanked individuals due to its safety and unparalleled simplicity. It also offers financial services to millions of mobile phone owners who lack bank accounts or have limited access to banking services. M-PESA now serves over 51 million clients in seven African nations with a safe, secure, and economical means to send and receive money, pay bills, get wages, and obtain short-term loans, among other services.
The Provision of One Seamless Ecosystem for both the Service Provider and the Customer
With all the above said, the ultimate goal at th end is how BaaS platforms will provide an end-end digital ecosystem from the customer touch point all the way to all the different backend financial service provider’s operations. How that platform streamlines all the workflow processes and hence delivering a unique customer experience is what it all comes to in today’s modern day of financial services. How I merge all the different traditional backoffice operations into one smooth process and in the process significantly reduce customer acquisition costs and increase ARPU with a much enhanced OPEX cost effectiveness and efficiency.
In today’s world the front end facing applications become meshed into the backoffice operations and we are seeing a huge transition in the business model designs where functions like credit scoring and risk assessment, product personalization, and instant credit services approvals are all shifting to the front end of things and not being handled at the backoffice, all managed in real-time made possible with technologies such AI/ML, data analytics and cloud computing.
CIT VERICASH has been a clear example of a technology provider that has enabled a lot of the smaller commercial banks, microfinance banks and incstiutions, and other Fintechs to adopt a quick, relevant and cost effective platform with the agility and seamlessness that gives a decent standing chance in the African markets to compete against the mammoth Pan-African banks and other large financial institutions or with the very nimble variety of Fintechs out there. Using the Fintech enablement platform these financial service providers whether it be banks, FIs, Fintechs, Tech companies or other enterprises, they are easily able to digital transform their financial product delivery or embed new innovative financial added value services to their business stakeholders, from end-user customers, staff, partners and vendors.
Final words
To conclude, faster transaction with data security is in great demand nowadays, which is why the BaaS market is flourishing. At Vericash, we offer all sorts of banking services through BaaS models. Be it a small or a large company, we ensure digitized financial services using APIs. Our guidance can help you have scalability and a leg up with your competitors by addressing your customers’ needs and pain points. To propel your business growth to tenfolds, consult our team about the latest technologies.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.