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Banking enablers and banking-as-a-service

Written by Headline Asia Published on     3 mins read

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Banking enablers provide groundbreaking yet simple banking services to businesses.

Previously, we introduced the concept of fintech enablers. To follow up, we are diving straight into the world of banking enablers. This emerging field of banking-as-a-service (BaaS) accounted for USD 105 billion in fintech investments in 2020, and it is just the beginning. Just as there are e-commerce enablers such as Shopify, Shopee, PayPal, and Wix.com, there are a growing number of banking enablers in the finance world. Banking enablers focus on providing the technological aspect of banking services, so their clients can concentrate on acquiring and serving customers.

The appeal of providing your own banking services

There are three main reasons why companies are looking into providing their own banking services.

  1. Many of the early adopters of BaaS are actually challenger banks hoping to improve banking services through innovation.
  2. Platforms with ample online traffic can monetize their user base by offering banking and other fintech services.
  3. Companies that have good monetization models can add value through banking services and improve the retention rate of their users.

Many incumbent banks today fall short because they don’t have the technological capability to provide BaaS. Many institutions still operate using decades-old, on-premise systems with scattered data collection and databases that need updating, and they certainly don’t have an open API. However, there are some outliers such as BBVAThe Bancorp, and Goldman Sachs. These incumbent banks have managed to stay on top of the changing tides.

Different types of banking enablers and banking-as-a-service

Two things are required to provide banking services—technology and a license. There is a wide range of banking enablers, each providing a different scope of BaaS.

Some banking enablers only provide the middleware required to connect users to the data, banking licenses, and banking products. One notable banking enabler of this kind is Railsbank, founded in 2016 in the UK, which later expanded to North America and Asia. Railsbank has raised over USD 120 million in funding to date. There are also several incumbent banks that are fintech-friendly in this field, such as Cross River and Celtic Bank.

However, some banking enablers provide both the banking system and the banking license. These can be broken down into three types:

  1. Incumbent financial institutions that are flexible and fast enough to catch up with new trends. We previously mentioned BBVA, Goldman Sachs, and The Bancorp. Other examples include GreenDotSumishin SBI Net Bank, and GMO Aozora Net Bank.
  2. Startups that provide both B2C banking services and B2B banking-as-a-service, such as Starling Bank and Fidor Bank.
  3. Startups that only provide B2B banking-as-a-service. Examples are SolarisbankClearBank, and Treezor. Solarisbank, established in Germany in 2016, has raised more than USD 350 million in funding and is arguably the largest banking-as-a-service company in Europe, maybe even in the world.

Finally, there is another type of banking enabler that provides not only the banking system in the backend, but also helps clients design the UI/UX. Essentially, they provide a white-glove, end-to-end banking service. Notable companies are Moven, founded by author Brett King, and Solid, in which Headline is a lead investor.

Comparing Europe, the US, and Asia

In Europe, most banking enablers are startups that either acquire their banking license or work with a sponsor bank. The top players in the US are financial institutions such as The Bancorp, Goldman Sachs, and Green Dot.

In Asia, it’s still anyone’s game. Startups are acquiring virtual bank licenses, while incumbent banks are building their APIs. So far, the first movers in Asia are incumbent banks such as Sumishin SBI Net Bank in Japan and Ping An Insurance in China, whose banking enabler subsidiary OneConnect has gone public on the New York Stock Exchange.

This article was authored by Jonathan M. Hayashi, senior associate at Headline Asia. It is reposted here with permission from Headline Asia.

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