In a very similar fashion, Banking-as-a-Platform providers are the cloud kitchens of finance. These providers offer end-to-end banking capabilities, such as current accounts, cards, loans, payments via modern APIs to other third parties. Thus, they enable any brand to either launch a modern financial services offering, or to complement their existing services with banking by building on the infrastructure provided by the Banking-as-a-Platform provider.
The embedded finance revolution
In the past, companies that wanted to integrate financial services via whitelabel partners still had to deal with tremendous operational coordination and technological plumbing in the background. Major obstacles included high upfront costs, figuring out regulatory requirements, as well as long integration times. Thus, non-banking players that embedded banking into their own offerings have usually been big brands with deep pockets that justified the setup complexities, such as credit cards by Mercedes-Benz or more recently by Apple. Their backend banking partners are usually traditional banks, such as Goldman Sachs’ new Banking-as-a-Platform business in Apple’s case.
Now, the cloud kitchens of finance have lowered the entry barrier for smaller brands as well. By offering banking services as a platform they essentially take care of the backend of banking, i.e. a combination of services required by regulations, such as compliance, customer identity checks or anti-money-laundering services, with the technological infrastructure that makes it possible for their clients to offer banking products.
So far, the established providers, e.g. solarisBank and Railsbank, enable challengers to launch banks. They supplied companies that predominantly offered banking-related services as their core value proposition, such as Penta or Niyah respectively. These challengers built their own brand and frontend on top of the whitelabel banking stack, while their Banking-as-a-Platform provider stayed mostly invisible in the background as ingredient brand.
This first phase of Banking-as-a-Platform is just a small inkling of what’s to come. The next generation of such platforms, such as Hubuc, enable brands of any industry vertical to launch banking services and tailor them for their specific target group. Thus, specifically non-bank players that want to add banking services next to their core business now have a tailored supplier to do so. This is called embedded finance.
The venture capital firm a16z predicts that, by embedding banking into their own existing offerings, software companies can grow revenue per user by up to 5x, compared to a standalone software subscription. Adding a fintech layer can thus add substantial new revenue lines, such as capturing interchange revenue or revenue share agreements. Consequently, new software verticals can be served profitably by using fintech features as core monetisation drivers.
Read more about how Hubuc and Ross Republic now enable brands to embed banking into their own offerings.