Building on modern technological infrastructure is a necessity for digital innovation and becoming part of digital ecosystems, i.e. for the future of any financial services provider. That’s why BaaS is a very attractive future growth segment, however a specialised cloud service leader for financial institutions hasn’t emerged yet.
By spinning off its own core technologies and selling it as a service to other firms, Goldman Sachs could fill this niche and add another lucrative layer on top of its revenue stack. The company already has extensive experience in running complex trading platforms at scale, thus it has the competitive advantage to create the Amazon Web Services (AWS) of finance.
In a nutshell, Goldman Sachs is shedding the heavy reliance on its trading and investment banking legacy focus. It never managed to generate pre-crisis profits and its stock performs poorly compared to major rivals. Thus, continuing business as usual is not an option anymore, a fate that many traditional financial services firms face.
The success factors for Goldman Sachs are clear:
- Leveraging existing global brand equity to branch out into new consumer banking services
- Building these new services in a legacy-free, greenfield environment (new division, new technology, new incentives)
Building consumer trust remains a challenge for mobile-first banking services
The Telegraph: Revolut could face lawsuit from customers locked out of their accounts
The aggressive growth of Europe’s mobile-first banks, such as Revolut and Monzo, is a heavy stress-test for their customer success and compliance departments. Monzo adds around 200 000 active users every month, which is necessary to keep investors happy, however it also requires to scale operational processes and structures.
Most fintech companies are pushed to the edge of their capabilities, such as N26, which has been probed by the German regulators about fraudulent transactions and shortcomings in customer communications last year. This month, the Telegraph broke a story about several (ex-)customers that have teamed up to potentially sue Revolut over its account freezing practices. Apparently, some users have been waiting up to eight months to get their money back that was stuck in their Revolut accounts.
This incident shows how hard it is to scale a consumer-facing financial service when regulatory and risk requirements (anti money laundering, security checks), investor expectations (hyper-growth), and end-customer expectations (transparent service, fast response times) clash together.
Increasingly, neobanks need to prove that they can not only acquire a lot of customers, but also turn a profit. This can only work if they can give customers enough reasons to use their digital accounts as primary accounts and become highly active users. Building trust plays a crucial role here, as no one wants to deal with the false negatives described above. Not reaching a real person on the other end of the phone, when a timely solution is needed, definitely destroys any trust in new neobanks.
Visa acquires Plaid in a smart bet on banking-as-a-service
TechCrunch: Visa is acquiring Plaid for $5.3 billion, 2x its final private valuation
Visa is the world’s leader in digital payments, processing around 65 000 transaction messages per second around the world. By connecting issuing banks to acquiring banks it ensures that e.g. a Chase merchant gets paid when a customer pays for a coffee with a credit card.
Plaid in contrast is one of the biggest networks enabling the open era of banking. The service lets third party developers and fintech companies connect to bank accounts. In the absence of a regulatory-driven open banking agenda as in Europe, the banking landscape in the US is highly fragmented. Any new service that builds on top of banking data needs to go through Plaid. Visa explained this model based on Plaid’s current numbers in the post-acquisition event presentation: