Banking-as-a-Service Brings Agility and Flexibility to Financial Services

The pace of innovation and disruption is rapid in financial services, with start-ups giving traditional financial firms strong competition. To embrace the growth of financial technology (Fintech), to follow regulation and to stay relevant in the market, banks are now opening up their customer databases for third-party application developers to build applications and provide innovative services.

By allowing third-party application programming interface (API) providers to access their data, banks are able to form successful partnerships with developers and increase their customer servicing, resulting in higher customer satisfaction and retention rates.

Frost & Sullivan’s research, Banking-as-a-Service to Bring Agility and Flexibility to Financial Services, Forecast to 2023, finds that API transactions in banking are expected to reach 1.7 billion by 2023 at a CAGR of 22.4 percent between 2016 and 2023.

The research provides an overview of Banking-as-a-Service (Baas) market dynamics, including technology trends in BaaS, and drivers and challenges for adoption. Case studies and profiles of key players as well as API companies globally, including Braintree, OANDA, Currency Cloud, Intuit, Gemalto, Finexra, BOKU, Invoicera, and Coinbase, are provided.

"The use of APIs within banking has given rise to new business models and innovative processes that increase the customer centricity quotient in their offerings. Incumbents from banking and financial service sectors are looking beyond legacy systems and analytics to drive customer satisfaction and retention," stated Digital Transformation Global Programme Director Jean-Noël Georges.

"Fintech start-up companies such as SolarisBank and Fidor have launched core banking platforms, enabling plug-and-play models. These platforms will enable banks to launch APIs at a quicker and rampant pace."

BaaS provides financial service providers and start-ups with tremendous growth opportunities, such as effective payments enablement, improved internal efficiency, increased customer retention, and quicker servicing.

BaaS regional trends for open banking include:
* Germany has the highest number of banks in the European Union;
* The European Union’s PSDII (Payments Services Directive) makes it mandatory for banks to make their data open to third-party services;
* North America is slow to adopt open banking when compared to Europe;
* M-Pesa in Kenya has 19 million users and processes 15 billion Kenyan shillings worth of payments every day;
* The Indian government launched a national API-based payment application for accepting and remittance;
* Orange Money Web Payment API boosts eCommerce in Africa;
* WeChat’s wide use in China for payments;
* Fintonic, a Madrid-based mobile payments company, plans to enter the Chile market through its API stack;
* Saudi Arabia, United Arab Emirate, and Egypt have the highest rates of mobile banking;
* India and China lead the way for open banking and API adoption; and
* Banco Original in Latin America signed a partnership with CA technology to build an API platform.

"By opening up databases to third-party developers/API providers, banks must be in a position to provide the best data security management," noted Georges. "Financial organisations store a lot of customer data, such as addresses, account information and card details, attracting cyber-attacks and data thefts. Loss of this data would directly result in the loss of goodwill for the financial organization specifically with the GDPR to take place in Europe in 2018."