Insight & Analysis

Traditional banking model unlikely to disappear

Published: Feb 2023

Banking-as-a-Service may be gaining traction, but even non-banks are reluctant to suggest that this marks the beginning of the end for conventional financial services.

Online banking on mobile with digital images

A survey of more than 1,000 European business leaders published last month by Banking-as-a-Service (BaaS) platform developer Vodeno and Aion Bank found that just over half of respondents expected BaaS to make traditional banking obsolete.

However, Colin Swain, Global Head of Platform and Product Transformation at Bottomline Technologies suggests traditional banking services will continue to be in demand and BaaS will simply create greater competition, improved experiences and data access, and more innovative solutions and partners for corporates.

“Fintechs and banks can both work as financial intermediaries,” explains John Stuckey, Senior Director Product – Retail Solutions at FIS. “Fintechs have the potential to give users more advanced features and almost all the services traditional banks provide. Banks inspire loyalty because of their established networks and are embracing fintech features to improve user experience.”

With platforms becoming the front-end through which customers consume financial services, BaaS may mean the universal bank is no longer as relevant, but it in no way means an end to traditional banking suggests Jonathan McPhail, Lead Client Partner BaaS at Finastra.

Two-thirds of respondents to the Vodeno/Aion Bank survey expect to see more consumers using banking services via non-financial brands enabled by BaaS, rather than traditional banking.

But (unsurprisingly) the big banks are confident of their continued relevance. “Demand remains strong for the traditional direct to bank model so we see BaaS as a complimentary channel, not the sole new channel,” observes Brian Tomkins, Global Head of Commercial Cards, Global Payments Solutions at HSBC.

Embedded banking brings banks closer to their customers who prefer digital-only solutions in particular contexts and value the safety, security and service of a bank according to Brian O’Connor, Global Head of Embedded Banking at J.P. Morgan Payments.

“Banking services have to be consumable via API and contextualised into the journeys that are being provided to customers or suppliers,” says Scott Southall, Global Head of Banking as a Service at Citi.

Carl Slabicki, Co-Head of Global Payments at BNY Mellon suggests the concept of BaaS has been around for decades in the form of white labelling.

“Traditional banks are evolving to offer more innovative and competitive financial services to their clients,” he says. “But it is important to maintain a suite of solutions that meets the spectrum of client needs and that means enhancing traditional solutions as well as investing in entirely new technologies.”

For a growing number of SMEs, BaaS blurs the lines between e-commerce platforms and traditional banking services. They are typically an underserved segment in banking where customer-friendly payment services provided by platforms or payment service providers (PSPs) can be very attractive.

“While e-commerce platforms are increasingly looking to offer a range of payment options to consumers – often in a branded front-end – traditional banks still play a crucial role in making those services available and extendable onto those platforms so the benefits reach the end-user seamlessly,” says Slabicki.

Platform businesses don’t blur the lines with traditional banking; they completely change where and when banking services will be provided.

That is the view of McPhail, who expects these financial products to be hyper-personalised based on the data available in the platforms and provided by niche players who understand the full lifecycle of their target customer base for a specific product.

Bottomline believes BaaS will, for corporates, blur the lines between traditional banking services and all other payment and financial systems that CFOs depend on – whether this is their e-commerce or billing platform, ERP, payment or treasury platform.

“The ability to embed and more simply connect the data and services between these applications and platforms will inevitably create new partnerships and innovations,” concludes Swain.

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