Why BaaS is leading the transformation of digital finance

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As the digital financial space welcomes more and more transformations, Banking as a Solution (BaaS) is paving the way for a growing number of new services and products. Digital currencies and crypto are also driving change as demand for customer choice increases. We caught up with Adrian Cannon, CEO of Omnioto discuss the latest changes in the BaaS space considering new technologies, market demands and changes in the financial landscape.

What is the current positioning of BaaS in the market?

BaaS is becoming an important component of the financial services consumer market. The ability to obtain good quality financial services through channels and brands you trust, such as retailers, football clubs and airlines, is one of the most important values ​​for consumers. Inherently, this distribution model allows BaaS providers such as Omnio to deliver their services at very low cost and helps the channel partner extend their service proposition to customers. However, the next step is to integrate the service more deeply into a set of channel partner products so that the service is not considered to be provided by a third party, but is integrated into the partner’s digital ecosystem. This deep integration requires technologies that make it easily possible at modest cost and little time to market.

What new developments are happening in space?

As the BaaS model moves more towards integrated financial services, there is beginning to move towards self-service platforms that allow partners to onboard and integrate the relevant APIs without the providers of platforms need to sell their services. The pioneer of this space was Stripe in the merchant acquiring industry and their primary focus was merchants selling digital products through websites and apps. Others have built similar capabilities into buy-now and pay-later that can be absorbed into a retailer’s systems with relatively little effort.

Expect this trend to grow further, especially as vendors like Omnio want to be a secret ingredient for the companies they support and not a full-fledged consumer brand. BaaS providers who also want their brand to be recognized by consumers need to resolve the potential conflict this creates with their channel partners.

A key part of BaaS is that the channel partner doesn’t have to worry about regulation and compliance. This is another area where we can expect developments over the next few years where RegTech platforms will be combined or integrated into BaaS platforms that enable deeply integrated integration, transaction monitoring and other compliance-related activities provided in a manner consistent with a channel partner’s relationship. with their customers.

A BaaS that treats a retailer’s customers as fraud suspects or in an aggressive and defiant manner will alienate the partner. These are of course vital, but they should be delivered through a platform that can reflect the brand values ​​of the partners as much as possible. This Customer Relationship Management (CRM) capability will be fundamental to a successful BaaS platform and is a central part of Omnio’s approach.

How does BaaS fit into new plans and developments for Central Bank digital currencies and decentralized finance?

BaaS can be used to provide all regulated financial services and typically platforms that do, like OmniCore, are designed for that purpose only. Since cryptocurrencies were outside the scope of regulation until recently, BaaS providers have often treated crypto as something outside of the core mission and delivered solutions on platforms. heartless forms. Some have been able to adapt their platforms to support the holding and movement of cryptos. However, regulatory pressure is mounting to control how crypto is managed and central banks are experimenting with their own digital currencies.

These currencies offer certain advantages when a government and its tax authorities want to know through whose hands the value passed on its way to a bank account and in many other ways. However, they are likely to be limited to large-scale value movements in the short to medium term and are unlikely to replace fiat money, even in its form represented by the ones and zeros of digital transactions with which we are working today. It is certain that these digital currency technologies are deployed by banks that BaaS platforms will adapt to use them and take advantage of the value they offer.

Describe three main trends currently reshaping the BaaS space

Reduced costs – the use of public cloud technology, lean regulatory structures such as e-money institutions, and platforms reaching economic scale will drive down costs. Fully regulated banks offering BaaS will need to reconsider their business models and cost base in this environment.

Liberalization of financial services – as the cost base declines, the economics of non-bank financial services offering becomes more attractive and we should expect to see greater choice for consumers as to the place where they get their daily banking services. There will still be a regulated entity involved of course, but it will be far less than current BaaS solutions offer today.

More deeply integrated services – the boundaries between unregulated services such as loyalty and rewards and regulated financial services will become less clear and the exchange of value between them will become easier. This will free up large retailers with established loyalty programs to reinvigorate moribund loyalty programs, reduce balance sheet exposure and, ironically, increase customer insight.

What does the future of BaaS look like to you?

It looks like a choice. Choice of where we do our banking, which brands we would like to see provide our banking services, and freedom to choose small local banks and building societies able to partner with BaaS providers to complement their range of products and the return from the retailer to the retail bank.

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