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Why BaaS makes sense in 2020

When non-bank businesses embed banking features, opportunities unfold that boost revenue and lead to much deeper customer relationships 🤝

Sarah Wachter
November 10, 2020
6 min read

A decade ago Chris Skinner, thought leader in the Fintech space, predicted Banking-as-a-Service before it was even a thing:

“You’re probably all familiar with SaaS — it’s basically paying for applications as you use them, rather than buying them. These services used to cost you a fortune, but are now free or near enough. That’s where banking is going. Banking becomes plug and play apps you stitch together to suit your business or lifestyle. There’s no logical reason why Banking shouldn’t be delivered as SaaS.”

BaaS, or Banking-as-a-Service, allows companies to embed white-labeled banking features into their products and customer experiences by API. Non-bank businesses get to piggyback on an existing banking license and regulated infrastructure, unlocking stunning opportunities to take their products and services to the next level.

Today, BaaS has become a reality, making it possible for companies of all types to enhance their customers’ experience by adding banking features to their products. Companies of all kinds are essentially becoming their customers’ banks thanks to notable BaaS providers such as solarisBank, Bankable, Treezor, Starling, Fidor, Green Dot, and more.

And now we (Swan) have also joined the party.

This fall, we announced the launch of our very own Banking-as-a-Service; a BaaS that stands out for a number of reasons. Swan’s BaaS is being built to allow any company to embed banking capabilities into their product in just 5 minutes. We’re serious when we say you will be able to get started that fast. And we’re serious when we say any company can embed banking services with Swan (even an ambitious lemonade stand could do it).

Back up! When did just any company start embedding banking services? 🧐

Just to set the scene, the retail banking landscape has been changing for a while. The days of queuing in an interminable line to talk to your local bank teller are over. With Neobanks on the scene, all types of customer segments now have access to specialized banking services - exclusively online. Today, there are Neobanks for freelancers (Shine), for teenagers (Kard, Go Henry) for the “unbanked” (Nickel), and now this specialization is going even further.

Specialized banking is no longer limited to wanna-be Neobanks.

Non-bank companies are already taking the leap. We’re seeing banking for chauffeurs (Uber, Lyft) and e-merchants (Shopify). This new wave is becoming ubiquitous.

SaaS are particularly well suited to embedded banking: vertical SaaS in niche markets, and horizontal SaaS who take care of their clients’ administration and finances. SaaS companies’ well established customer relationships mean they’re intimately acquainted with customer pain-points; this makes them well positioned to identify opportunities to simplify their clients’ lives. Not only will clients’ lives be simplified by embedding banking, but the SaaS companies themselves will also enjoy considerable benefits. Higher revenue, higher retention, or faster acquisition are all big perks for companies that work with BaaS like Swan. It’s a huge differentiator. SaaS becoming their clients’ bank is one of our favourite use cases, but there are plenty of other ways to use Swan!

Swan is just a simple, clean API that lets you provide accounts, cards, and IBANs → companies have total freedom in deciding how to exploit those capabilities.

Imagine how your company could embed banking features into its customer experience. You could become the bank of your existing clients. Manage outgoing and incoming payments. Advance employee salaries, or provide cards: gift cards, cash-back cards, expense cards. Of course, you can become a Neo-bank if that’s your ambition. The list of things you can do with Swan’s API goes on and on.

When non-bank businesses embed banking features, opportunities unfold that boost revenue and lead to much deeper customer relationships 🤝

In Every Company Will Be a Fintech Company, Angela Strange at Venture capital firm Andreessen Horowitz said:

“Take Shopify, for example, which provides website services for any merchant for a monthly subscription fee. Or Mindbody, a company that helps fitness studios like yoga studios manage their businesses, also for a monthly fee. Turns out both of these companies make nearly 50 percent of their revenue through financial services.” 👀

If you’re thinking of making banking features a part of your product, here’s why Swan is such a stand-out BaaS:

  1. We obtained an e-money license so your company doesn’t have to. Effectively every government in the world requires you to own a special license if you wish to offer banking services. We obtained our own license and became an Electronic money institution. Any company that partners with Swan to provide banking services gets to piggyback on that license.🤗 So you don’t have to go through the tedious and costly process of overcoming hefty compliance and regulatory requirements.
  2. Implementation time is 10X shorter. Traditionally, it can take companies up to 6 months to integrate a BaaS into their own product. Our entire platform was specifically designed to reduce this time. With Swan, our partners will be able to start embedding banking features in just 5 minutes.
  3. Authentication, fraud detection, and Identity Verification (KYC) is built directly into Swan’s product. You don’t have to worry about finding suppliers for any of that, we’ve got it covered. It’s simply part of our product, at no extra cost.

It’s been a thrilling couple of months since we launched.

We love how our lead investor expressed their support for us.

Simon Schmincke, General Partner at Creandum said:

“For startups and incumbents, capturing larger chunks of the value chain is oftentimes only possible with the integration of banking services into their core product. Swan is in the best position to enable companies of all industries transitioning into this new reality. While capturing this trend perfectly, its product simplicity and its rigorous focus on design and UX meet the increasing demand for convenience in a B2B world at the same time. We are thrilled to accompany the team on their journey to become the leading BaaS company.”

Here at Swan, we’re continuing to build and polish our own trusty BaaS, hiring new talent, and sorting through tons of client requests (sorry to the startup in the Caribbean, we’re not ready to bust out of Europe just yet🌴).

What BaaS means for businesses beyond 2020

BaaS is democratizing access to banking

While traditional bank branches used to have the monopoly on banking services, young BaaS companies are now breaking down barriers to access (Banking is no longer somewhere you go, but something you do). Small- and medium-sized companies are particularly fortunate that BaaS has become a real possibility for them in 2020, because any company that makes banking features an intimate part of their customer experience will have an edge coming out of the Covid-19 era.

When businesses come out of Covid-19 hibernation, those who have embedded banking services will prove more useful than more traditional players

The nightmare that is 2020 has presented businesses with unforeseen logistical and operational challenges. The silver lining is that this has provoked a massive acceleration in digitalization across the board, actually making 2020 a fruitful time for Fintechs. When the pandemic is over, and business comes back — as we know it will — it’s going to look different.

BaaS is like a brick that enables entrepreneurs to build beautiful, ground breaking businesses. Companies who embrace the switch to a digital economy and build with BaaS, will be empowered to compete with the more traditional, old-school players that previously dominated their sector.

Now, all types of companies can service all types of clients with banking features without knocking on the door of their traditional bank branch to do so. It will be interesting to see which companies come out ahead in their sector as the BaaS revolution progresses!

Next time, we’ll get into the thick of it and explain how BaaS is not the same thing as Open Banking.

Sarah Wachter
November 10, 2020
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