Making the right choice of banking as a service (baas) provider is critical for start up and early stage fintechs, according to Kristen Tyrrell Anderson, founder and COO of Catch.
“Choosing a banking partner as an early stage fintech is probably one of the biggest decisions you’ll make. It can sink your business if you do it wrong, so there’s a lot of pressure,” she said, on a panel at Money 2020 in Las Vegas. “A lot of people talk about tech start-ups needing to move quickly to get customers onboarded but when you rely on banking services there’s only a certain speed that you can move.
“We took a bet to be honest with BBVA as they were launching Open Platform because we thought it was important to sit close to compliance. We thought that there was a bit of an existential risk with providers that offer technologies separate from banks. Technology companies are incentivised to grow. Banks are held to standards, they have regulators who they have to check in with and that accountability banks will often start with a ‘no’ and you have to move them to a ‘yes’”.
A number of banks have begun to offer baas platforms and services, with open banking initiatives creating opportunities to white label capabilities and tools for tech savvy start ups also keen to capitalise in the new payments landscape. That’s particularly pronounced in the UK, where the revenue potential through open banking-enabled small and medium sized business and retail propositions was £500m in 2018, according to consultancy PwC, who predict that figure will rise exponentially.
For fintechs hoping to utilise a bank’s platforms, the due diligence process can be long and arduous – but necessarily so, said Susan French, head of product, BBVA Open Platform.
“To go through that process, it’s not a fun thing to do [for fintechs],” she said. “It’s a challenge. Especially when you’re an early stage firm and you might not even know how to spell compliance, much less have a have a full suite of anti-money laundering and Bank Secrecy Act etc.”
Further, as organisations grow they are less likely to change their banking partner – given how complex the due diligence process can be.
“Our hope is that we can scale with our banking partner, and because they offer so many services and there’s international reach, and the prospect of doing all the initial work to get things off the ground to then switch banks would be a huge amount of work and the end value to the customer are not necessarily that high,” said Anderson.
A host of different industries are harnessing baas: according to BBVA industries as diverse as human resources, aviation, real estate and property management.
“The reason why you would switch a bank would be pretty specific and if you can have enough foresight to choose your partner right will be crucial long term," said Anderson.