While the pandemic has hampered traditional banking, it has aided in the rapid adoption of digital banking. FinTech companies in India thrive and touch almost every facet of banking. BaaS has a bright future.
Traditional banks are losing clients to digital competitors while investing in infrastructure. However, traditional and fintech collaboration has had several success stories:
Snapdeal’s partnership with Yes Bank for “rapid reimbursements” and State Bank of India’s partnership with Uber for driver-vehicle finance.
Understanding BaaS involves knowing its crucial need of it in the Indian Financial Services.
The majority of these types of collaborations are only possible because banks let external companies access their technology and data. Banking-as-a-Service is the prevalent term for this phenomenon (BaaS).
1. What exactly is BaaS?
Individual goods or capabilities established through the unbundling of banking infrastructure and accessible via APIs to provide specialized banking services (loans, cards, deposits, insurance, payments, and so on) in a marketplace model are referred to as BaaS. Fintechs or any other third party running a digital platform can use these APIs and the data they provide access to create new and innovative financial solutions that target specific client demands.
The bank’s system communicates with your website and app through APIs and webhooks, enabling your customers to access banking services directly from your website or app.
2. Why is BaaS not a fad?
BaaS isn’t a new phenomenon that arose as a result of COVID. This platform has its roots in the 2012 launch of Credit Agricole’s app store. Yes, Bank and RBL Bank were the first to introduce BaaS in India in 2013, by providing many APIs to developers. Many big banks, including Citibank, JPMC, Wells Fargo, and Barclays, followed suit and created their API developer portals or hubs. API offers are currently available from all major private banks in India, including HDFC, ICICI, and Kotak, and several BaaS FinTech businesses are fast emerging as a result of increasing financing. While traditional banks were opening up their APIs, a new wave of Challengers and Neo banks emerged, with digital at the heart of their operations.
Customer intimacy is undergoing a paradigm shift as a result of BaaS
The benefits of using a BaaS paradigm go beyond making money from existing infrastructure and reaching more clients. Everything is about meeting the ultimate customer need, which means that banking services must be used. Traditional banks have spent a lot of money to make their customers’ online and offline experiences better, both at home and at the bank. When they started working in the bank, they wanted to make it easier for customers to open accounts and apply for loans, among other things. If customers want to start a business or buy an asset in the future, they will need a bank account or mortgage to help them, which will make them more likely to have a good relationship with them.
Here are some examples of how well-known Indian banks are using BaaS to better serve their customers:
RBL and Bajaj Finance are working to provide car loans across India, leveraging RBL’s safe and compliant digital infrastructure and Bajaj Finance’s pan-India reach to assist consumers with finance and purchases in one location.
This is only the beginning of the endless possibilities for integrating finance into every client’s journey. Customer expectations are rapidly shifting. Banks must think beyond categorising clients into classic, gold, or platinum segments and offer financial services tailored to each segment.
3. Why are public-sector major banks so slow to implement BaaS?
A bank’s infrastructure must be designed like a Lego set, with each piece representing a banking function received via an API.
To achieve this level of technical flexibility, banks must modernise their core banking systems, a lengthy and costly process. It’s important to pick the right partner, even if many system integrators have the abilities and solution accelerators.
Each banking function requires a product-centric strategy at the organisational level, rather than separate teams controlling the front end, back end, data, and infrastructure.
Finally, the government plays a critical role in facilitating BaaS adoption from a regulatory standpoint. In Europe, PDS2 and open banking rules are already the norms. BIAN (Banking Industry Architecture Network) is a non-profit organisation created by large banks like HSBC and JPMC, as well as solution suppliers like Salesforce, to develop standard banking designs.
Regulating data privacy and software as a service (BaaS) is still a work in progress in India. Regulatory frameworks are critical for increasing customer trust and exchanging best practices. It will also aid in the de-risking of innovation by ensuring the safety of smaller players.
4. What are the threats and opportunities in the future of BaaS?
Banks will need to focus on preventing commoditisation as BaaS adoption grows. Consider a world in which a marketplace of open APIs from various institutions exists. End-users will never know whose banking API is being used in the backend, and as a result, customer loyalty will be formed with the service provider rather than the financial institution that enabled it.
To start, you need to build an open banking API environment.
Products for BaaS should be made to meet the needs of each bank. This is how it should work:
In this case, RBL-Bajaj Finserv Credit is an example of how banks can work together to make financial solutions, like this. By making end-to-end financial solutions with their own name on them, they can do this.
When BaaS comes out, banks will have to think about how to best use their partner ecosystems. How budgets and sales goals should be set up is this way, too.
To be the greatest in the banking industry, executives must have a strong grasp of technology, as well as a strong network of strategic partners.
It’s exciting to see how technology-enabled ecosystems are reshaping the traditional banking industry.
A variety of backend services, comprise BaaS. Examples include cloud storage, push notifications, server code, user management, social networking integration, and location services. APIs are available for these services, making integration relatively straightforward. Creating apps with a standardised backend data management method saves developers time and effort. It is comparable to SaaS, IaaS, and PaaS in some ways, but it focuses on web and mobile apps. As a developer, it’s a good idea to have a look at the design of the user interface (UI). There are many advantages to using BaaS. BaaS has a lot of advantages. Interfaces connect the program with third-party APIs or proprietary backend components.