Strategic Thinking Exercise – Banking as a Service
June 9, 2021
3 minute read – Banking as a Service (BaaS) is gaining more attention as FinTechs and non-financial companies look for opportunities to provide financial services to their customers without having to become a financial institution.
The Apple Card is a common example of BaaS where the consumer does everything through Apple, and Goldman Sachs handles everything on the backend for compliance, risk management, and so on.
Apple is not alone in this space. Many companies are looking for ways to expand and/or enhance their ecosystems of products and services to keep their customers engaged with them. Providing banking and financial services is one way to do this.
Banks are also seeing opportunity with BaaS. Talking about BaaS, the CEO of BBVA, Javier Rodriguez Soler, stated: As long as this customer receives a good loan, and we are helping, I don’t mind if he believes Target is giving him the loan.
Green Dot is an example of one bank that has been making a push into BaaS by partnering with companies such as Walmart and Intuit. In each case, they provide the banking services that are unique to each company’s objectives and needs. For Walmart, they created MoneyCard with the objective of providing a financial product that integrates with its different delivery channels, encourages saving, and offers tailored rewards to its budget conscious shoppers who often don’t have a lot of savings.
For Intuit, the company behind TurboTax, the objective was finding a way to keep customers more engaged with the brand after tax season. They did this by creating a debit card where tax refunds can be deposited faster than receiving a check and offering a Refund Advance loan so people can use their refund money before they have received it. Both products are hooks to bring customers in and keep them using their debit card throughout the year.
Exploring the impact of BaaS as part of a strategic thinking exercise can be very helpful to consider different futures and possibilities. Below are some scenarios to think through:
- It’s 2025 and BaaS accounts for 50% of consumers’ daily financial interactions. Our institution is successful despite not offering BaaS
- It’s 2025 and BaaS is driving our market expansion, membership growth, loan production, and transactions
- It’s 2025 and 50% of our business is generated through BaaS
While there are many questions you could ask, below are some to get you started:
- To whom does our brand matter in this future and what is our value proposition?
- How are we defining success in this future?
- How has our business model changed to be successful?
- What core competencies did we develop to make this happen?
- What are the risks in this future?
- What obstacles did we overcome?
- What are other questions we should be asking?
The key in this exercise is the thinking and dialogue. This is not about making a decision, but exploring a strategic topic in the environment or on the horizon. This can help you think about your institution’s direction and future business model.