Why Banks Must Embrace End-to-End BaaS As The Invisible Engine of Innovation

Consumers take a somewhat binary view of the features and functions that come packaged as innovative: They either believe they solve a problem and embrace it, or they go somewhere else that offers those features and functions.

They also don’t care about the effort required to make those innovations valuable for them – only that they are, indeed, valuable.

Things aren’t so straightforward for those who create those innovations – which, as NovoPayment CEO Anabel Pérez told Karen Webster in a recent conversation, is a challenge for many banks in the Latin America region to fully grasp.

“The banks [in that region] often are working on the surface, the app layer,” Perez told Webster. “The focus is on the user interface, how to engage the customer through apps, how to improve onboarding and present information so that it is more user-friendly.”

And it’s not enough. Perez said that banks need a way to “connect the dots” to the functionality that lies beneath those user-friendly interfaces in order to create a consistent, seamless consumer experience.

APIs, Perez said, aren’t enough either. Plugging into a series of one-off APIs that connect with their legacy systems can’t optimize the ever-expanding number of consumer interfaces and channels that support the features and functions that consumers and businesses value.

That comes by way of an end-to-end, banking-as-a-service (BaaS) platform that powers these experiences – the “invisible engine” that enables banks to integrate into the expanding digital ecosystem, without having to wholesale redesign their legacy systems.

The problem with mainstream banking in the LATAM region right now, Pérez told Webster, is that bankers both get and don’t get the pressure to modernize their consumer offerings. They acknowledge that they aren’t innovating as fast as FinTechs, they want to stay relevant and they can feel the pressure of moving slowly in a world that is all about speed.

But as they seek guidance on how to move faster, she noted, they are still mostly scratching the surface when it comes to consumers’ changing preferences for touchpoints and interfaces.

“Bankers in LATAM, even those who are mobile and digital contemporaries, still believe the best way to provide the right customer experience is through branches, ATMs, web interfaces or even mobile interfaces,” Perez pointed out.

That way of thinking, she said, lacks an appreciation for what is needed to stay relevant: connecting those individual interfaces on the front end into a single, seamless back-end. That’s how a bank goes from offering a consumer mobile experience that isn’t just beautiful – i.e., in a well-designed app with a smooth UX – but that also functions across all of the channels their customers want to use.

Delving Deeper 

Bank executives, Pérez noted, are waking up to this reality because they have no choice. They understand the experience they want to offer, they see the FinTech partnerships they’d like to make – and they are running up against a reality that they often can’t do what they want to do.

They want to be able to do things like aggregate consumer data across channels, or enter into collaboration models with other players – but they find that their legacy systems just “can’t connect the multiple systems needed to provide services in a unified way.”

And just pointing them vaguely in the direction of a “banking-as-a-service platform” isn’t really helpful, because the definition of that term varies quite widely depending on where one is saying it. The term means something different in Europe, the U.S. and Latin America, Pérez said, “and then regulators in any of those places may use the term differently still.”

NovoPayment, she noted, uses the term to describe themselves, believing that it should entail offering an end-to-end, open platform that can “provide the complete backend of a bank, without being a bank.” She noted that Legos are often used as a metaphor for APIs – how they work in financial services as little pieces that institutions can use to build complete sets of service offerings. Pérez thinks it is a pretty good metaphor, but notes that it often leaves something out: Lego sets come with instruction manuals that tell you how to build a set. Without those manuals, you have a messy pile of Legos and not a lot of direction.

“You need someone to help you assemble the pieces,” she noted.

An end-to-end BaaS solution does that, Perez contended, by pulling out the pieces (APIs) that its banking partner needs and assembling them invisibly on the back-end into something coherent and usable. A lot of things that pass as a BaaS platform, she noted, are actually closer to third-party API networks: The pieces are there, but there is a lack of the building expertise needed to build a functionally robust back-end.

It’s not always a difference that is easy to explain, Pérez told Webster, but it’s one that banks are becoming increasing receptive to understanding, as pressure mounts in the global financial services sector to keep up with rapidly innovating FinTechs.

“We position ourselves as a FinTech and as an enabler that allows our partners to provide a full range of services that can be configured in different ways and countries for different use cases,” she said.

It’s a complicated process that requires building a full platform stack and being integrated and tied into original data sources, Pérez noted – but that’s what is necessary for banks actually looking to enable a robust front-end offering with a complete back-end to support it. It’s about the services banks can offer their customers, she said, but also about the services it might want to offer to financial services players.

That might mean banks enabling FinTech providers in a certain sector to capture all of that data on money flow, she said. But banks need to be enabled on the back end by a platform that can turn on those lights in the background, in a way that using APIs makes sense.

“If a bank doesn’t sit on an open banking platform, it will never be able to provide the services in the way that a massive financial services platform needs in order to compete against all the new participants in the financial services space,” said Pérez.