When Stripe announced earlier this month that it was
collaborating with the likes of Citigroup, Goldman Sachs and Barclays to embed
a range of financial services within its Stripe Treasury offering, it was a big
step forward for the Banking-as-a-Service (BaaS) landscape. Increasingly, consumer
and corporate end users of various platforms are seeking a more seamless
experience, and the owners of those platforms are finding a big opportunity to
integrate a range of financial products and services, from payments to
financing.
While it has accelerated this year, the evolution of BaaS
hasn’t always been a smooth one. As the landscape evolves beyond integrated
card issuing, solution providers are continuing to figure out the best path
forward to widen the scope of their financial products. Though it’s with good
intentions, Transcard CEO Greg Bloh says hiccups have emerged along the way.
“There have been some stumbles where the solutions, with
disbursements in particular, became very problematic,” he recently told Karen
Webster, noting that the friction was the result of the sudden introduction of
a third party into a service like disbursements. It created an experience of
confusion, and sometimes even distrust, from the end user’s vantage point.
As the market heads into 2021, however, there are opportunities
to learn from those missteps and discover how platforms can capture the
low-hanging fruit by wielding BaaS to empower, not complicate, the user
experience.
A Phased Approach
The concept of Banking-as-a-Service is broad – and today,
confusion remains about what exactly it means. At this point in its evolution,
Bloh said it may not be appropriate to box BaaS into a single meaning.
“For right now, I think it makes sense to have multiple
definitions, because it is a convergence from many different angles,” he
explained. “There are many types of companies out there that are focused on
different types of payments. I think we’ll continue to see confusion, but also
a convergence into one common definition over the next year or so.”
The evolution of BaaS is unfolding in phases, the first
being a testing-of-the-waters approach. But the market is quickly moving ahead,
as early adopters learn from past mistakes to achieve what Bloh described as
the third phase of achieving a solution that is fully integrated into existing
user experiences and interfaces.
As non-bank entities consider the possible value in
Banking-as-a-Service, Bloh also noted that different companies will have
different goals for themselves and their end users. Smaller businesses are
seeking straightforward plug-and-play solutions, for instance. Larger
organizations, meanwhile, have far more complex needs and data integration
requirements that go beyond a simple API plugin.
But across use cases, Bloh said two key themes are emerging.
The first is the need to achieve a seamless experience in
how the end user interacts with an embedded counterparty. The second, he noted,
involves the pursuit of an efficient underlying settlement process with that
counterparty.
“Having those simple and direct interactions is super
important to companies like ours, and others like Stripe, in order to achieve
success in this marketplace,” Bloh said.
The Corporate Use Case
While initial Banking-as-a-Service adoption focused on the
consumer end user, the company’s debut of Stripe Treasury showcases the model’s
opportunity to enhance the experience of corporate end users with integrated
payments and other financial offerings.
According to Bloh, any customer segment that still struggles
with the pain of paper checks in B2B payments represents an opportunity for
BaaS to address friction. With COVID-19 accelerating the digitization process
for the enterprise, there is also significant value in wielding BaaS to not
just eliminate checks, but to also facilitate the movement of data along with
an electronic transaction like ACH – and to support a deep integration of that
data within existing platforms.
Today, corporates often continue to rely on manual processes
to aggregate and move transaction data from one platform to another. BaaS
presents an opportunity to support the flow of information within a platform
itself.
In corporate finance, often the most vital source of
financial data is the ERP (enterprise resource planning) system. But
historically, Bloh said, there has been a disconnect between ERPs and the act
of payments.
“Payments is not necessarily something that’s built into the
DNA of the ERP system,” he noted. “And coming from transaction systems, the ERP
is a bit foreign.”
Once again, Bloh continued, this pain point is an example of
how BaaS supports the convergence of two worlds. In corporate treasury, that
means bridging the gap between payments and data, which will be increasingly
important as real-time payment capabilities emerge with enhanced support for
the movement of information along with money.
While Banking-as-a-Service is still an emerging and evolving
model, Bloh sees significant opportunity for it to become a bridge that drives
value for both platforms and their end users.
“From a business standpoint, there is a lot of value in
combining the disbursement of funds, data and documents in a single
transaction,” he said.
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