Podcast April 26, 2022

Finding Opportunity in Banking as a Service

Banking as a Service (BaaS) is too often seen as a threat by traditional banking institutions.

In reality, it’s an opportunity — it’s a new channel for banks to deliver more services and a better customer experience.

And the banks who realize this stand to win big.

So says Ron Shevlin, Chief Research Officer at Cornerstone Advisors, who joined the show to discuss the many opportunities BaaS offers brands and banks alike.

Ron covers:

  • What’s behind the meteoric rise of BaaS
  • The opportunities BaaS provides
  • How to take advantage of BaaS

The rise of BaaS

Banking as a service has exploded in popularity in recent years — and there are several good reasons for this innovation’s meteoric rise.

In order to understand why this trend continues to thrive, let’s first be clear on what BaaS is…

What is banking as a service?

BaaS is an end-to-end model that allows 3rd parties to directly connect (via APIs) to a bank’s systems.

This means that other organizations can build on top of the bank’s ordinary infrastructure, which allows them to create additional financial offerings.

Why is BaaS so successful?

There are two main advantages for companies wishing to offer financial services — whether it’s a brand wishing to offer some financial services alongside their traditional products or a Fintech looking to solve a neglected customer pain point.

The first one is simple:


From a regulatory point of view, getting a bank charter or license can be a major headache — one that, for many companies, simply isn’t worth it. Yet, without a charter, companies aren’t legally allowed to offer many of the financial services they’re looking to provide.

Luckily, since BaaS allows companies to layer their own financial offerings on top of existing bank infrastructure, the core banking systems they are building upon are already kosher from a regulatory standpoint — which, of course, frees them from the onerous task of compliance and ensures those resources can be used to keep customers happy.

Beyond the regulatory component, the other main advantage for brands comes down to one thing:


Being compliant doesn’t mean being free from risk, of course — and the risks in financial offerings can be daunting for newcomers. There is a level of financial and business acumen traditional banks can bring to the table that, once again, helps free up resources for organizations looking to

Brands and, often, even Fintechs simply don’t have the business know-how. They don’t do underwriting, risk management, or accounting at the account level.

Essentially, there is plenty of banking and financial services functionality that a brand, if they were to attempt alone, would have to either buy a bank or hire a ton of people to pull off.

What’s in it for the banks?

If BaaS seemed to take a while to ramp up to its current widespread use, it’s because, initially, many banks asked themselves this very question and came to the conclusion that Fintechs and brands dabbling in banking were a threat to their business.

Yet, many banks have since caught on to the fact that these sorts of partnerships are a win-win — companies utilizing BaaS bring with them hitherto-untapped customer segments.

Some banks see BaaS as a threat. In reality, banking as a service are the companies — the brands and Fintechs looking to embed finance and need the services — are simply new distribution channels for banks.” — Ron Shevlin

And with banks onboard, opportunity abounds for them and brands alike.

Opportunities in BaaS

For brands:

A lot of brands, across a wide range of industries recognize two things:

First off, in many cases, what they’re providing to their existing customer base involves things like payments, financing, insurance — even investing. But telling the customer, “You’re done with our part, now go off and get the financing, do the payment portion, or go get your insurance and come back when you’re done” is not a recipe for a great experience.

By embedding finance into their user or customer experience, they’re providing a better experience to their customers.

Secondly, they’re providing better economics — they can make more money while providing financial institutions an opportunity to reach more customers as well.

What this does for the brand or Fintech is it creates a flywheel effect: They make the customer experience better, therefore developing a stickier, more loyal customer through their product relationship and, to some extent, their financial relationship by improving the experience.

For banks:

Banks are currently facing a revenue recession from the stiff competition in today’s financial landscape  — and BaaS may help them mitigate its severity through the revenue it generates and, more importantly…

The customers it attracts.

Consumers, based on their interests and behaviors, are finding benefits in getting financial services from other providers that they do business with. These are, often niche, consumers that come along for the ride with BaaS.

“A number of banks are very focused on the BaaS opportunity.” — Ron Shevlin

How to make BaaS pay for banks

“In today’s banking world, you need both a business and technology capability to quickly define, develop, rollout and deploy many different types of niche services.” — Ron Shevlin

Banks need to keep a few things in mind if they want to reap the BaaS rewards:

  • A repeatable process for partnering is vital
  • It’s not enough to have the capabilities, you need to provide expertise
  • Community and mid-sized banks need nimbleness to counter the money of their larger counterparts

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Until next time! 

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