The payoff for banks offering banking as a service to tech companies, e-commerce platforms and other third parties can be substantial, according to a new report on the growing sector.
Capgemini reviewed the experience of a number of BaaS providers in its World Retail Banking Report 2021 and found that using third parties reduces the customer acquisition cost to a fraction of the cost of conventional bank marketing.
US Customers Bank offers white label products through its digital subsidiary BankMobile, enabling a new customer acquisition cost of less than US$10 per account versus US$100 per new account using conventional marketing and distribution.
Customer acquisition numbers can also be impressive. In India, Amazon Pay’s credit card is provided by ICICI Bank. In October 2020, 20 months after its launch, Amazon Pay became the first credit card to acquire more than a million customers in India in under two years.
Apple’s credit card, which is supported by Goldman Sachs, has 3.1 million sign-ups within a year.
Standard launched a BaaS platform called Nexus last year, targeting Asian countries where there are high e-commerce adoption rates and a high proportion of unbanked people.
Nexus has partnered with an Indonesian e-commerce platform, “which gives it a low-cost opportunity to reach unbanked populations and attract customers in a high population markets,” the report said.
Capgemini said the success of BaaS depends on customers’ willingness to trust non-banking entities to fulfil their banking needs.
When asked who they would bank with, apart from banks, consumers rated big tech companies, retailers, and travel and hospitality companies highly for payment and card services. Businesses that did not rate as highly included telcos, healthcare providers and education institutions.
Almost all of types of businesses rated poorly when consumers were asked if they would turn to them for loan or deposit products.
BaaS has been around in one form or another for a long time, taking such forms as agency or white label banking services.
Capgemini said there is greater focus on BaaS now because it allows banks to reduce front office costs but maintain business growth. It said that in 2020 there were more than 80,000 banking industry layoffs worldwide, the most significant retrenchment in five years.
Thirty-eight per cent of banks reported that they have an in-house BaaS platform, 28 per cent use a third-party platform and 16 per cent have one under development.