Platform Banking 101: What is Platform Banking?

She globally develops co-investment opportunities, joint advisory activities, and knowledge sharing with key partners. She leads DFS Team’s activities and research on digital financial innovation. Unit and featured clients are financial technology companies and not a bank.

• This was a separate process that required applying directly to a bank, which may require significant amounts of money to be raised before beginning their month evaluation process.
• Platform banking requires a foundation based on micro-services architecture.
• For instance, DBS is ramping up its digital efforts for corporate banking customers by relying on APIs.
• Banking services are provided by Unit’s partner banks who are Member FDIC. Visa® Debit Cards are issued by Unit’s partner banks pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.
• But, at the same, the bank wanted to reduce the time required to authenticate the users.
• Using an International Money Transfer APISila’s innovative international money transfer API can expedite international payments and open up global financial systems.

We can pair you with the bank partner, or partners, that match your needs and give you the best terms. White label banking can be an answer to the challenge platform providers face in attaining customers. It can be used to offer banking services in environments where a large group of users already exist, including chains of grocery stores, hypermarkets or existing online portals. While the journey to platform banking is difficult, it provides banks with the capacity to build and penetrate new markets, as well as construct new business models to facilitate growth.

Top 10 Biggest US Banks by Assets in 2023

The traditional banks could rely on the trust of their end users, but not their undying loyalty. According to research by EY,38% of end userswould change their financial services provider for a better digital service. Right now, Banking as a Platform is driving innovation in financial services, forcing traditional banks and credit unions to respond. Here’s how an initial revolution in banking is likely to inspire a long-term evolution in financial services, with the end user front and center. It might be tempting to think that the conventional world built on loyalty and lifetime customer value has been shattered.

Many early fintechs chose to work directly with bank partners; Simple, Current, Uber, and Lyft are just a few examples. In short, the approach to finding and integrating with a bank partner is one of the most important decisions you’ll make. If you’re a founder, product manager, or other decision maker who’s considering how to pick a bank partner, this guide is for you. Humans as a service represents the top layer of the proposed revision of the BaaS stack. While at the onset this layer may not seem especially important, as FinTech services continue to grow as a segment in the financial service market, services performed by Cloudworkers will take on increased importance.

This necessitates the provision of a front-end user interface to the end-customers including user authentication and other features. The bank would appear as any other online bank where all banking services are presented and seamlessly integrated in a single user interface. Another option is that the bank will operate as a white label bank, which will then have a software as a service provider on top of the BaaP operating as the front-end to the end-customer. Despite this, financial institutions are uniquely positioned to use the BaaP model to provide both a network of innovative products and services and the trustworthiness of a long-standing institution. By welcoming open APIs, banks can form a new decision-making framework that caters to their preferred strategy and the realities of the market. Whichever business model you are considering, it is important to have in mind that not all institutions are alike.

And, in the event that challenges persist, it’s relatively easy for us to migrate a customer from one bank partner to another. Furthermore, platform banking necessitates safe data communication via APIs. Platform banking is based on the idea that banks can better service their consumers, build greater trust, and keep the customer connection. Fintech companies who want to provide a banking service should consider a digital banking solution for more customer engagement, improved transaction types, and improved customer insight.

In some cases, the platform will also streamline compliance for you, which reduces the amount of ongoing work that must be handled by your team. You may have heard the horror stories of companies that chose the wrong approach and lived to regret it. Some spent months or years attempting to launch a product or scale up with their chosen bank partner—only to learn, after the fact, that it wouldn’t be possible.

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On the technology side, they will need to update development approaches, pursue process automation, experiment with rapid prototyping and maintain the APIs themselves. All these ingredients ensure the right kind of environment — one where third parties can integrate and test their apps in a sandbox, and then easily move to production. Generally, banks will be best served by reselling on their own marketplaces not only in-house services but vendor services where commission revenue is possible. Once a bank begins demonstrating maturity on delivering its API product set, there are several more specific methods for monetizing APIs worth considering. What is of the utmost importance for startups is that BaaS can shave off a ton of money and at least a couple of years in business and product development. Not to mention they would not need to have the capital for license acquisition.

Most banks will need to significantly reengineer their present core banking application architecture and infrastructure in order to successfully implement platform banking standards. Platform banking is a technologically enabled integration of traditional and digital banking, fintech, and third parties that transforms the traditional banking paradigm into a customer-centric one. JB Financial Group, based in Jeonju-si, South Korea, was the first Asian bank to integrate the banking platforms with the help of a third-party tech firm. FIDOR Bank, headquartered in Munich, Germany, built the banking platform from scratch in 2015. It is one of the first neobanks (100% Digital banks that reach the customers through mobile apps and computer platforms only) with a banking license.

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For example, offering expense cards means managing user verification, ensuring PCI compliance, understanding KYC requirements, and maintaining measures to reduce fraud. You may want to test product/market fit to see if there is demand for the financial services you want to integrate into your product. And depending on how your customers react, you want the ability to iterate or scale quickly.

In most cases where traditional banks unveiled a mobile app or new platform, it was often little more than a reskinned feature that offered the same core banking functionality. Without the budget or resources to invest in big software development projects, banks and credit unions could offer little to get the end user excited. Banks can no longer afford to merely design products and services that meet today’s customer needs; they must radically innovate and transform for the future. Customers have become accustomed and are increasingly loyal to service providers that solve a broader spectrum of their needs.

The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms. Asia has a strong disadvantage because of its high fragmentation of jurisdiction areas compared to Europe. FinTechs can plug into the national Banking-as-a-Service hub to provide their specific regulated and licensed face to their customers. “Banking as a service” stack based on the cloud stack by Scholten, derived from Lenk et al. The storage may be used for marketing, analytics, and personalization of the site, such as storing your preferences.

How the banking-as-a-service industry works and BaaS market outlook for 2023

First and foremost, selecting the right marketplace, customers, and partners is the most important consideration. Identification of partners should happen on multiple dimensions, including their product selection and quality, ability to serve customers seamlessly, risk profile, financial strength, and brand reputation. Other factors, such as revenue-sharing models and allocation of risk ownership between the platform operator and the service provider, are also important. The consequence of having a decomposed stack is that there are multiple ways that the customer’s front-end could be presented. One way would allow the BaaP provider to appear directly as a bank to its customers.

As fintech companies became known for lower friction and an enhanced customer experience, financial institutions and companies from other industries began exploring how to offer financial services virtually. Regional banks and credit unions found it hard to keep their main depositors and offer similar services because of product silos, infrastructure that was built decades ago, and traditional business models. Collaboration with fintechs became a viable and tested option for leveraging the most innovative tech solutions that consumers were using, as well as a path to remaining relevant within the industry. A platform strategy improves traditional banking by allowing financial institutions to utilize only the products and services they need, when they need them.

Historically, a customer would worry about the route and how to pay the driver at the end of the journey. Uber translated this challenge into an opportunity by ensuring that once a customer books a cab, he doesn’t have to worry about other aspects, such as navigation or payment—the Uber platform does all that. Partner – Join us to unlock the true potential of our products and solutions for an unparalleled and engaging proposition. PlatformsPlatforms Overview – Built for customer-centricity, efficiency, and security.Xelerate – Increase customer lifetime value and manage revenue effectively.

The future of platform banking

If you’re a fintech or startup interested in onboarding with a BaaS, Flagright’s Launchpad offers a great solution that can help your business get up and running quickly and easily. We help fintechs get the licenses they need to open businesses in the UK, Singapore, and other global markets. Our team of experts can help you make custom AML policiesand get through the complicated licensing process, making sure that you meet all the regulatory requirements in these growing markets. But, as the benefits become more clear, it’s likely that we’ll see a lot more adoption of this model in the years to come. People often confuse the BaaS idea with open bankingbecause both require APIs for banks and fintech companies to interact with each other. Providing more flexible paymentsolutions, allowing fintech companies to increase sales by making their offerings more accessible.

Banking as a service vs. banking as a platform: what’s the difference?

Clients benefit from customized card programs, while the business creates an additional stream of revenue. Some may say that Banking as a Service is white-label banking and they would be right. You do not need to develop or own specific infrastructure – all you need is a brand and a business development team. Get business insights banking-as-a-service on the latest tech innovations, market trends, and your competitors with data-driven research. With our German banking license and additional EMI licenses, we can operate in all EU countries and the UK. We always take care of all regulatory complexities so you can focus on creating the best product for your customers.

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BaaS is a clear opportunity for financial institutions to capture new revenue growth at a low cost. Also, a BaaS business is scalable and agile, making it particularly suitable for entering new markets and then expanding. For distributors, it is an opportunity to open new revenue lines at attractive margins and gain a much deeper understanding of consumer behavior through financial data. There is a lot more room for fintech companies to customize their financial products to the market and empower customers by allowing them to manage their payments or subscriptions through a more digitalized platform. Businesses today are experiencing a financial revolution and have changed how they handle their finances and receive payments.

With the proliferation of banking-as-a-service tools, it’s easier than ever for platforms to integrate financial services—such as business expense cards, monetary accounts, and loan access—directly into their product. With these tailored financial services, platforms become a one-stop destination, enabling customers to manage all aspects of their business in a single place. The BaaS model begins with a fintech, digital bank, or other third-party provider paying a fee to access the BaaS platform. The financial institution opens its APIs to the TPP, thereby granting access to the systems and information necessary to build new banking products or offer white label banking services. Digitization of banking has opened up a Pandora’s Box of challenges and opportunities for traditional banks and credit unions. They were able to build on our existing trust —8 out of 10 customers trusttheir primary bank — with in-house digital banking solutions that appeared to chime with the times.