What will propel BaaS success: the technological advantage

“BaaS platform providers are FAR from dead.

Compliance as a competitive advantage” is nonsense. What’s going to differentiate the winners/losers in BaaS is the quality of their tech platform. -----

From Ron Shevlin, I can't agree more with you Ron!

Drawing from my experience as a former head of compliance overseeing $60B in assets and serving Tier 1 institutions, I can attest that compliance alone does not confer a competitive edge. Compliance is a baseline expectation mandated by regulators – it's not a point of distinction.

Any Fintech should expect from its bank sponsor that they do it right and that’s why they should pay attention to who the bank sponsor is. It’s not just the bank sponsor that can choose the Fintech, the Fintech has also to vet the bank.

All bank sponsors must possess the necessary organizational structure, processes, and personnel to meet regulatory expectations. However, the true competitive advantage lies in the caliber of their technological infrastructure and the capability to launch in time programs, scale them and perform change management. This is where the real challenge lies.

While all bank sponsors must meet regulatory standards through organizational structure, processes, and personnel, the real competitive edge lies in their technological capabilities. This includes launching programs in a timely manner, be able to address specific use cases, scaling them effectively, and managing change. This technological challenge cannot be overlooked.

Consider now the technology banks employ to support fintech. Can mid-sized or larger banks with, say, 300 employees can independently develop and maintain the intricate tech infrastructure required for fintech? Many banks rely on outdated legacy systems developed decades ago.

Although some banks and legacy providers claim to have modernized by adding an API layer, this doesn't address the inherent limitations of legacy systems and the need for multitenancy. APIs, while popular, come with scalability issues, data segmentation challenges, and complexities related to multitenancy.

And now you get it “What’s going to differentiate the winners/losers in BaaS is the quality of their tech platform.” And “why BaaS platform providers are FAR from dead.” BaaS providers remain indispensable in the ecosystem. ?This is why BaaS providers remain vital in the ecosystem, providing the technological backbone necessary to support fintech and enabling banks to achieve real-time multitenancy and enhanced oversight capabilities.

However, not all BaaS providers are created equal. The next generation of BaaS providers requires a microservices architecture – the lego set for banking applications, also known as modular banking technology. With microservices, each component performs a specific function, similar to individual lego pieces in a set. This modular approach empowers financial institutions and fintech to swiftly develop tailored solutions for specific use cases, facilitating rapid scalability and regulatory compliance.

From payment processing, reconciliation to user authentication, microservices offer unmatched agility, akin to a financial gymnast performing cartwheels. This accelerates development and ensures regulatory compliance, enhancing access to specific use cases.

Not every player in the industry possesses the capabilities to lead the next fintech wave. For those interested in key players in this space, insights from Royal Park Partners, The Paypers, and Contrary Research provide valuable information through their respective infographics and reports (See link in comment below).

Exciting time for Agora.