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Banking As a Service, Explained | Deloitte Digital Banking as a Service, Explained: What it is, Why it’s Important and How to Play Banking as a Service is reconfiguring the banking value chain, enabling new propositions This Document Will: What is the BaaS Opportunity? 1 Introduce you on Deloitte’s • Banking as a Service (BaaS) is the provision of banking perspective on the BaaS value products and services through third-party distributors chain and the specific configurations creating value from it • By integrating non-banking businesses with regulated financial infrastructure, BaaS offerings are enabling new, 2 Highlight the opportunity space specialized propositions and bringing them to market created by BaaS, including: faster • New propositions being enabled • These new propositions, built on specificity and agility are in the market to meet customer displacing existing offerings, disaggregating many needs profitable elements of the traditional banking value chain • Differentiating capabilities enabling in the process market participants to win business • While smaller banks and FinTechs initially dominated the • Returns to market participants market, incumbent banks are now beginning to wake up 3 Help you understand how to get its potential with recent entrants including BBVA and started with launching your own Goldman Sachs1, 2 BaaS propositions Evolution of Banking as a Service YESTERDAY TODAY TOMORROW CO-BRAND & WHITE LABEL EMBEDDED PRODUCTS TAILORED PROPOSITIONS Established, consumer-facing A broad variety of distributors Distributors are starting to distributors partnered with are now embedding simple develop increasingly sophisticated banks to launch co-branded or deposits, lending and payments propositions crossing product white labeled credit cards (and products directly within their lines to meet unmet money other products). own offerings. management needs. Enabling Factors CLOUD & DIGITAL OPEN BANKING + API-FICATION RISING CUSTOMER EXPECTATIONS Enable automation and rapid scaling Allow distributors to natively embed their Drive demand for new FinTech (allowing for consumption-based pricing) BaaS proposition into their experiences and embedded finance experiences 2 | Copyright © 2021 Deloitte Consulting LLP. All rights reserved. BANKING AS A SERVICE, EXPLAINED Banks are taking an outside-in approach to develop enhanced propositions using BaaS WITH BaaS Accounting software Bob the Baker provided by FinTech Bob has access to native Bob owns a small bakery on Main accounting tools within Street. Bob never set out to own online banking. a business, but his passion for baking led him to quit his day job, go to culinary school, and (after a few years) open his own bakery. Current Pain Points: Uses comparative analytics from a FinTech • Bob was never formally trained Bob learns about his in how to run a business let business’s performance alone the minutiae of finance; relative to other bakeries. he manages to make do (poorly) using a mix of different software products • Bob struggles to access credit as new bakeries are considered Embeds FinTech-developed high risk businesses robo-advisor Bob receives actionable insights on how he can make his business stronger financially. Product developed by another bank BUSINESS Bob is offered a new GROWTH segment-specific deposits product. Risk analysis from FinTech A lower risk score (based on non- traditional data points) enables the bank to safely offer Bob’s business a low-interest loan. Bob’s business grows and he decides to open a second location. 3 | Copyright © 2021 Deloitte Consulting LLP. All rights reserved. BANKING AS A SERVICE, EXPLAINED And BaaS is becoming ubiquitous, as non-banks embed financial services into their experience ILLUSTRATIVE BAAS-ENABLED EMBEDDED FINANCE OFFERINGS Convenience Stores as Bundled Renters Point-of-Sale Loans Bank Branches Insurance Customers are able to obtain Retail deposits accepted in- New apartment leases include credit for purchases in-store, store by other distributors, renter's insurance provided by during the checkout process. expanding the bank’s a bank partner of the property physical footprint. management company. ERP-Facilitated Banking Cashier-Less Shopping Store sites open accounts A digital wallet enables the and add on additional bank customer to use an app to services through their checkout (with funds withdraw Enterprise Resource directly from their bank Planning (ERP) system. account) without interacting with a cashier. 4 | Copyright © 2021 Deloitte Consulting LLP. All rights reserved. BANKING AS A SERVICE, EXPLAINED There are 4 fundamental pieces to the BaaS value chain Banking as a Service (BaaS) is reconfiguring the banking value chain by enabling third-party distributors to offer banking products and services. Banks in particular are integrating fintech or other financial service vendor products into the banking journey, while non-financial companies are embedding banking products into their own services. Provide Aggregate Distribute Experience … core elements of the … bringing together … through … modernized, banking product and elements into a proprietary customer contextualized operations stack usable solution channels financial offerings Traditional BaaS Platform New (or enhanced) Banks Banks PRODUCTSLICENSE, & OPERATIONS PRODUCTS & OPERATIONS Retail, SMB or Corporate customers DIRECT TO DISTRIBUTION FinTechs, Non-Financial Other FS Vendors Company (NFC) BaaS offerings can span multiple stages of the value chain. 5 | Copyright © 2021 Deloitte Consulting LLP. All rights reserved. BANKING AS A SERVICE, EXPLAINED There are 4 primary configurations creating value in the BaaS ecosystem today TRADITIONAL MODEL Banks have historically owned the entire value chain: • Provide: To acquire core elements of the baking stack, banks build systems in-house (or procure and customize them from FS vendors) • (Direct) Distribute: Products and services are provided through own distribution channels (e.g., branches) EMERGING CONFIGURATIONS Provider-Only Provider-Aggregator • Provide banking license, and products, • Provide banking license, and products, operations and/or technology for use by operations and/or technology for use by aggregators, other banks and NFCs other banks and NFCs • Key product lines include deposits, • Couple their own capabilities with other loans and payments vendors to compose a complete ‘out-of- the-box’ solution for distributors Distributor-Aggregator Distributor-Only • Leverage end-customer relationships and • Leverage end-customer relationships to offer existing own brand to offer unique financial unique financial services propositions, provided services propositions largely ‘out-of-the-box’ by third parties • Create optionality for customers and/or enable • Propositions enabled can be tailored to serve novel features by adding new products or either new (e.g., neobank) or existing (e.g., technology from multiple providers traditional retailer) customers bases 6 | Copyright © 2021 Deloitte Consulting LLP. All rights reserved. BANKING AS A SERVICE, EXPLAINED Here are a few examples of how different configurations are already operating in market Provide Aggregate Distribute Provider- Bank Mobile Wallet Only Direct Distribution Conducts account opening Provides users a way to easily send money checks, holds funds, issues to each other (which can be spent in stores debit cards and enables or transferred to another account) money movement Retailer FinTech Offer deposits (debit card account) and Bank Makes installment loans lending (buy now, pay later) that drive available at Distributor online PoS conversion and increased Customer Underwrites and funds and in-store points of sale (PoS) installment / personal loans Lifetime Value (CLV) Direct Distribution FinTech Offers personal loans to non-traditional customers using a proprietary underwriting model Provider- FinTech Aggregator Core business focused on FinTech eComm. Platform payment processing (also Account opening, money Provides merchants who use its online offers card issuance) movement, and card storefront product with a pre-integrated issuance APIs allow the deposit account, money movement FinTech’s clients to offer capabilities and an intelligent Bank services using their own UI administrative dashboard Provides banking license (and core accounts) Distributor- Aggregator Banks Hold funds, issues debit cards, Mobile Wallet Mobile Wallet enables money movement Offers customers the choice Extends offering from commoditized to open (low-fee) accounts at digital wallet (enabling peer-to-peer, online FinTech 11 banks and to connect to and in-person payments) into a complete their accounts at additional personal finance tool with integrated Enables account data import institutions deposit accounts and offers from multiple banks Distributor- Bank Direct Distribution Only Issues co-branded credit card eComm. Platform Offers a variety of products focused on FSVendor Direct Distribution driving consumer PoS conversion and marketplace scale, including a digital Allows cash to be loaded to accounts wallet, cash collection points and working capital loans / lines of credit Bank Direct Distribution Issues lines of credit to sellers 7 | Copyright © 2021 Deloitte Consulting LLP. All rights reserved. BANKING AS A SERVICE, EXPLAINED Providers are re-purposing existing assets to enable new experiences, driving incremental revenue EXPERIENCES DIFFERENTIATING CAPABILITIES ENABLED FOR PROVIDERS • Modular Delivery and Composition: Separable services enable each distributor to compose a product that meets desired level
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