Banking as a platform:A business model that benefits everyone

June 13, 2022 09:15
Photo: HKMA

Banking as a Platform is becoming a hot topic, but what exactly does it mean? BaaP refers to a model where a bank integrates services from fintechs and offers these to its own customers. In practice it is the inverse of Banking as a Service (BaaS). Banking as a Platform empowers a bank to adopt a fintech approach and accelerate delivery of products and services that increase customer engagement and build loyalty. This blog explores its benefits and why the time is right to act.

Technology is a transformative component of bank success, and COVID has expedited the need for change throughout the banking industry – advanced tech is shaping a wholly new and improved Customer Experience, and redefining how banks make their money. Innovative business models that employ advanced technologies are evolving rapidly, reflective of a banking landscape that is steadily becoming more open and collaborative. As a result, Banking as a Platform (BaaP) is emerging as a compelling option, one that has moved quickly from theory into practice.

What is Banking as a Platform (BaaP)?

Incumbent banks with legacy technology stacks recognize the need to digitalize to remain competitive. Banks know they need to adopt a fintech approach, and BaaP can accelerate that progress. But there is often confusion about what BaaP means and how it works.

Essentially, BaaP refers to banks that integrate services from fintechs to augment their own offerings. In this model, the bank “owns” the customer relationship and keeps the customer in its own ecosystem; the fintech owns the platform behind the scenes and orchestrates the potentially expansive range of possible commercial arrangements for the ecosystem.

Benefits Abound

A primary appeal of BaaP is that it enables banks to jumpstart innovation. Many incumbent banks welcome this approach – perhaps because they know that technology is not one of their fundamental strengths, or a realization that their in-house tech expertise has become outdated and outmoded.

BaaP can offer significant benefits to banks, fintechs and customers alike. For example:

• Banks are freed from the worry and risk of managing technology and the need for speculative tech investments

• Fintechs have a ready market for their product and – with the right approach – are assured of repeat business

• Customers benefit from a constant stream of service innovations based on modern and intuitive technology

BaaP – Why Now?

Moving to a Banking as a Platform model represents a major shift in mindset for incumbent banks, many of which have designed, built and/or managed their own technology for decades. However, the time is right for banks to consider BaaP as a path forward.

Reasons for the shift to BaaP include:

• Open banking. Around the world, open banking legislation dictates that banks become more open and collaborative. In several major markets participation in open banking is mandatory, so banks must shed their closed “vault” mindset. Over time, open banking will require banks to move toward a more open, horizonal architecture that facilitates collaboration. Banking has become an ecosystem business, and BaaP offers an ideal foundation for collaboration using application program interfaces (APIs).

• Technology. Although APIs have been around for decades, they have recently become mainstream as a prime driver of innovation and growth. Companies like Uber owe their very existence to APIs and modern developers everywhere use APIs to build better software, faster. The benefits of APIs are apparent in almost every industry, and are a building block of open banking and BaaP. At a simple level, they allow disparate systems to be integrated on a single platform and be choreographed in real time.

• Customers. Technology has dramatically raised customers’ expectations. In an age of “mass personalization” customers expect financial services that meet their exact needs. With BaaP, banks can focus on their product and service innovations, while leveraging a technology partner’s expertise, functionality, infrastructure and scale. The bank can deliver more new products to more customers and geographies, all with speed and agility; this ultimately increases customer engagement and builds loyalty.

• Multiple stakeholders. While the need to keep customers happy is obvious, banking in an ecosystem creates a new array of stakeholders, each of whom plays a vital role in delivering seamless customer journeys. Banks must balance the needs of multiple stakeholders and curate an ecosystem which is constantly changing. A platform approach helps ensure that all participants operate in harmony.

Banks need to embrace innovation and transform to a future that will be defined by change. BaaP has come of age and heralds a new era in banking, one that is defined by both collaboration and competition.

In my next article, we’ll explore Banking as a Service (BaaS) to better understand how the BaaP and BaaS models differ as well as what unites them.

-- Contact us at [email protected]


Group Managing Director, APAC, Banking Solutions at FIS