Banking as a Service (BaaS), a Spanish success story

Banking as a Service is certainly a transformational setup, where API technology and a banking licence provided by the regulators, can together help brands offer financial products and services to their end customers. Our recent report with Finextra, ‘The Future of Embedded Finance 2022: Which European stakeholders will win or lose?’ illustrates how brands can lease or license services from contextual finance providers to embed financial tools within their value proposition.

Due to efficiencies across legal regulations, AFC compliance, product development, market speed, and cost efficiency, this approach is highly attractive to brands. The integration of financial services capabilities into existing platforms and applications means that brands are now more equipped than ever before to seamlessly bring the full scope of banking to the customer.

While BaaS is the answer to making embedded finance a reality, the following questions must be considered:

1. Do customers have enough trust in the brand to interact in a financial context?
2. Will customers feel comfortable sharing their financial data with my brand and trust that their privacy will be protected?
3. Does the financial solution make sense in the context of the customer experience?
4. Can the solution provide sufficient value to the customer, such that it incentivises adoption and usage?
5. What is the value that this generates for the business?
6. Will it be meaningful to the business?

Having these considerations defines what we’d call contextual finance – to offer financial products and services to individuals when and where they want to buy them. Therefore, this is changing the way customers purchase, have better access to financial services they demand and in turn, improve their financial inclusion. Banking as a Service contributes to this, by allowing more people to bank with the brands that they trust, that may also have better customer profile data on them and hence offer a more personalised experience.

Does this mean traditional financial providers have failed?

Traditional banks are locked into legacy and monolithic platforms. Legacy platforms are either provided by the traditional players or built-in house and therefore don’t have the flexibility, scalability and speed to market to adapt to the developments around digital transformation. When we look at legacy banks, they are making progress, but they must become fully omnichannel to keep pace with neobanks or create full spin offs: greenfield banks.

Neobanks and/or greenfield banks are building their architecture with new technology provided by and collaborating with new industry players. While traditional banks and large financial institutions can leverage this opportunity to do the same, the cost of migrating from a legacy platform to a completely new technology stack can be too expensive and too lengthy. With banking as a service, organisations can make a tangible difference, accelerate go-to-market, and ensure end users are provided with services that cater to their digital behaviour.

A good Spanish success story would be the neobank Vivid Money that landed here last year under the passporting regime and now they are fully operational with the ES IBANs under the branching regime. With Solarisbank’s API - cloud based technology and our full banking licence (supervised by BoE), and our AFC regulatory compliant model, they have been tremendously successful with their business case.

But how can these organisations - both fintechs and non-banks - be sure that the embedded finance offering will reach the volume necessary to justify the expense of the build so everything they're working towards? How can they ensure that they will achieve the volume that they'd like to kind of justify the expense or the changes that they've had to make? The answer is again down to organisations sticking to what they do best.

When we start conversations with anyone who wants to provide banking services or wants to use our different modules to create an embedded finance value proposition, we evaluate their go-to-market strategy, provide the necessary architecture. Therefore, they can focus on their value proposition and create the best possible experience for their customers.