BaaP: A Rose by Any Other Name?

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Editor's Note: In this blog, we dive even further into the concept of Banking as a Platform (BaaP) and what it can mean for banks and credit unions alike. As FinTech continues to grow and new offerings continue to pop up, navigating the appropriate offerings and providing the best solution for users can be tricky for financial institutions.

What does Banking as a Platform (BaaP) mean? As it turns out, there is not a single definition but rather a range of interpretations across a spectrum that on one end supports the world view of FinTech companies and on the other end another that supports the worldview of financial institutions. One could hardly have expected anything different. After all, successful FinTechs and financial institutions ultimately align their interest with the interests of those they serve; i.e. consumers. Add to this the fact that these two camps have very different origins and perspectives when it comes to satisfying consumers and it is easy to understand the polarity of their views on what exactly BaaP is.

Typically, FinTech visionaries describe BaaP as a foundation provided by banks and credit unions on which FinTechs can deploy their front-end solutions. The foundation, or platform, mitigates all the back-end nastiness common to providing financial services, making it easier for FinTech apps to do their jobs. The same visionaries that the bank or credit union should let consumers choose the FinTech app they want to use. While this part of the plan is short on details, it could include, if taken literally, putting competing apps on the same platform.

Financial institutions, on the other hand, tend to think of BaaP more along the lines of the "new digital core" strategy being discussed by Jost Hoppermann and others. In this case, the bank or credit union deploys a digital platform built on a modern tech stack that utilizes APIs. This digital platform should be able to deliver a comprehensive set of the services expected by today's consumers to any digital access points they want to use. The API-driven architecture of the platform would allow the bank or credit union to quickly introduce new services and accommodate new devices as consumers begin to adopt them widely. In addition, the APIs would allow for the bank or credit union to deliver a configurable, intuitive and consistent UX to any endpoint. In this approach, even though many banks and credit unions would purchase the platform as well as other incremental applications from third-parties, they would control the branding and positioning of all aspects of these offerings.

These different perspectives do not have to be mutually exclusive though that approach would be rightly questioned by most brand strategists. A hybrid approach of a kind is already happening as can be seen at some banks and credit unions that have acquiesced to third-parties who insist their brand remain on the offering. In these instances, there is no "platform" as such being used. These services are being deployed as add-ons within existing online and mobile banking silos. Even if an institution is not concerned about brand erosion, in this case, the inconsistent user experience, and, in many cases, the lost access to data about a consumer's activities increase the negatives of this approach.

This is, inherently, the problem with the BaaP model as seen through the eyes of many FinTechs. User experience and access to the valuable data banks and credit unions required to anticipate customer and member needs and then provide personalized services that address these needs is compromised. Still, some regional, mid-sized and community financial institutions are tempted to consider this option as a way of making themselves more competitive. Unfortunately, this approach is much more likely to have the opposite effect, especially as other banks and credit unions execute a BaaP strategy that better preserves the primary role of financial institutions as seen through the eyes of consumers. 

Lastly, the FinTech vision's egalitarian idea of letting the consumer choose, even amongst competing options on the same platform, is quaint and ill-informed. In fact, the consumer often does not know what they want until they see it. This has been confirmed by so uses as distinct in terms of history and the industries they serve as Henry Ford and Steve Jobs. To paraphrase Jobs, it is the financial institution's job to understand what the consumer need and then provide it in a fashion that makes their access to it as convenient as possible. Granted, this is a change from the "old days' when bankers called the shots and consumers took what was offered, but smart bankers (those who stand a decent chance of having a career in this profession) already know this and is a fact of life and are leading the transformation of this way of thinking in their institutions. 

Increasingly, there are emerging technology providers who are offering robust digital banking platforms that fulfill the requirements described in reports from Forrester and others.These providers are gradually building a list of financial institutions that are moving hundreds of thousands of users over to these platforms in a wave of replacement projects that are larger than any seen in the industry previously. These platforms not only offer a full range of digital banking services but also fully embrace the API strategy and offer unprecedented configurability. Even some analysts at the big brand firms that serve the industry are still having trouble identifying these platforms, but as critical mass is achieved, particularly in the regional and mid-sized banking segments, the competitive advantage of those implementing this version of BaaP will make things more obvious.