Is the rise of Neobanks another case of out with the old, in with the new? Not necessarily.
Traditional community banks have the opportunity to leverage their funds and connections in the new world of Banking as a Service (BaaS). Not to mention, there’s still plenty of space for Fintechs to partner up with established players and go to market.
In this episode of Payments Innovation, host Chris D’Antuono catches up with Founder & CEO of the only BaaS consultancy in the U.S., Cokie Hasiotis. The two discuss…
- 3 key insights for Fintechs in Banking as a Service
- Why American BaaS providers should go more niche
- The future of customized banking
Key BaaS insights for Fintechs
Contrary to popular belief, banks and Fintechs don’t have to be enemies. In fact, there are several reasons why a community bank and a fintech should actually team-up.
Cokie shares the following insights ongoing to market and what that means for fintech/bank partnerships.
1. It’s easier to go to market.
Plain and simple. For an easier road to market, a fintech should absolutely partner with a more established banking counterpart.
Indeed, it’s hard for a traditional bank to see past its own vertical integration. It’s the conventional way of looking at business: Keep things in-house. However, like in any vertical, collaboration is key to innovation and driving the industry forward.
It’s difficult to do that on your own.
But partnering with a bank isn’t just a one-way street. The fintech benefits from the bank’s funds, connections, and established brand.
Cokie points out that traditional banks aren’t necessarily against the adoption of new technologies or new investments — it’s the mentality shift towards collaboration that’s holding up the process.
2. There’s still a ton of room in BaaS.
Another key insight Cokie shares is that there is still ample room in the BaaS space for new Fintechs to claim.
Although the market may seem crowded, there’s a lot of hype around BaaS right now. The excitement and coverage of new and established Fintechs have created hyperbole greater than the actual number of BaaS players.
In reality, BaaS has been around for a few decades. Obviously not in the form of Fintechs, but Banking as a Service all the same.
“We’re going to see a ton of compression in the community bank sector in the next year or two.” — Cokie Hasiotis
Plus, with the concentration of traditional banks, the underbanked and unbanked population holds steady, ready for the taking.
3. Niche banking is the future.
The U.S. has the most diverse population in the world — why aren’t there more banking options reflecting those diversities?
Historically, the community aspect has been a major element in the success of banks. They’ve played to people’s socioeconomic statuses and the fact that everyone wants to be a part of something bigger than themselves.
But, as with many industries nowadays, there’s a demand for more customized services. People — particularly Americans — have become accustomed to specialized customer care. Diversity and customization have both contributed to the need for niche banking.
This doesn’t mean, though, that traditional community banks are out and Fintechs are in. By partnering together, each side benefits from the resources and brand of the bank, as well as the innovation, data, and insights of the fintech.
“We don’t need another Chase. We need a bank just for us.” — Cokie Hasiotis
In other words, thanks to the demand in customized experiences, banks and Fintechs can successfully target smaller segments of Americans. Community banks have already locked down the general population — now is the time to segment the banked and unbanked populations and deliver tailored, personalized experiences to all.
BaaS: Go farther together
Banking as a Service isn’t about boxing traditional banks out of the market to make way for new Fintechs. It’s wildly more effective to bring the two (and their resources) together.
“As much as we say we all want to plug and play, we really want a specialist.” — Cokie Hasiotis
Niche banking is trending up. Generalized banking is plateauing. And there’s plenty of room in the BaaS space for new fintech/bank hybrids.
As an old African proverb says: If you want to go faster, go alone. If you want to go farther, go together.
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Until next time!