Reimagine the future of financial services with BaaS at TechSparks 2021
The advent of digitisation has made our life much easier. We certainly don’t know how to live without technology anymore. From e-commerce websites to online banking, digitisation has helped bring the business to customers’ fingertips, and this has led to the introduction of Application Programming Interface (APIs), where organisations outsource the development of their digital assets to a third party.
One sector that has risen noticeably as a result of digitisation is banking, with several banks having opened APIs, allowing third parties to innovate on existing services while also providing new products and services.
APIs have brought in the next phase of digitisation after the initial internet-driven changes to banking, discussed Amit Goel, Country Head and VP of Prove, and Reeju Datta, Co-founder of Cashfree Payments during a whitepaper launch titled ‘Banking-as-a-service: The transformative potential of unbundled banking services’ at YourStory’s TechSparks 2021.
This has eventually led to a reimagination of financial products and services, and a change in the core role played by each player in the resulting ecosystem.
Innovations in BaaS
BaaS involves extracting a lot of complex data present in banks such as governance, compliance, license, and among others, Amit said. Noting that the fintech and tech companies need everything in the form of APIs, he said that it is important to extract all complexity and make it available.
“I think there are a few things we’ve seen in terms of innovation in this field - one is speed, second is the reliability of APIs and thirdly, the data you expect,” he said. Amit added that a lot of future innovations will depend on retaining customers who have grown with the company.
Quoting the example of DriveWealth LLC, Amit highlighted how they extracted the complexities of the system, thus allowing anyone from anywhere in the world to invest in stocks. Citing another example, he said that an option to choose insurance while buying certain products is also a classic example of this service.
While private and partner APIs have allowed banks to streamline and optimise internal processes, public APIs have allowed them to unlock the potential of their services and their data, resulting in the unbundling of banking services. API-based banking places the customer at the centre of all decision-making, enabling seamless and direct access to any one or more of these services from any customer touchpoint.
What makes BaaS promising?
A multitude of banking services, Reeju said, will be offered by a third party app that consumers or businesses use regularly.
Citing the example of UPI and how seamlessly it has been embedded in third-party apps, he explained, “The most critical thing is the actual creation of the account, access to the account statement, and managing the account. That means making payouts, making transactions as well as managing the wealth,” said Reeju. He further said that there’s an option to either go for pure-play neobanks or to go for existing apps that provide neobank services.
He added that the creation and management of bank accounts outside the ecosystem of a bank is promising and isn’t talked about as much as account aggregation or open credit. “That is something we are working on with platforms, on how to enable neobanking outside the bank,” he said.
Business models and policies are the two potential impediments to the growth of BaaS in India. Reeju believes the cooperation between fintech companies and banks has drastically improved over the last five years.
“Since we are doing more complex things, there are questions on how contracts are defined, how APIs access controls are defined, and reliability of service,” he said. Adding that BaaS is being used to help fintech companies scale faster, Reeju said that the challenge was to try and enable some other banking services to scale even faster.
Another challenge for growth would be to determine if non-fintech companies are able to become fintech companies easily. “It is the promise of BaaS to enable any company to become a fintech company, and rocket the revenue. We are yet to see any evidence of reasonable success in India, but there is a lot of promise on that front,” he added.
Coming to policies, Reeju highlighted how European banks have clear open banking guidelines. “It’s still early, but we expect the RBI to have clearer policies, licenses, or a well-defined set of do’s and don’ts over the next five years, and that kind of a regulator push will be a major driving force,” he said.
While banks continue to provide the regulated architecture forming the foundation of all these services, regulatory steps and the building of public digital infrastructure like IndiaStack are playing a crucial role.
There is an explosion of services and entities in the BaaSecosystem, from neobanks, embedded finance, account aggregators, API aggregators and so on. A range of players from tech companies, marketplace models, platforms/aggregators, fintech companies, and startups are tapping into bank APIs today to reimagine the way financial products and services are accessed and provided.
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