The money flows, and banking-as-a-service (BaaS) grows.
The rise of the digital economy has proved to be a tailwind for platform models and APIs to take root, offering a range of services for companies that want to reach end consumers in a streamlined manner.
Connectivity is key, and platforms and APIs can make it possible for companies to plug into that connectivity on demand. Firms can use it to offer credit, accounts and a wealth of other financial products and services that would traditionally be offered in a brick-and-mortar setting.
Investor activity – specifically, where investors put their dollars – is a good sign of where financial services’ next wave will likely land. That’s looking increasingly like Banking-as-a-Service, where efforts are spanning continents, borders and currencies.
For example, U.K. banking-as-a-service startup Railsbank closed a $37 million funding deal on Thursday (Nov. 12). Funding came from a consortium of investors co-led by MiddleGame Ventures and Ventura Capital.
Growing Global Footprints
The funding is earmarked to launch credit-cards-as-a-service in the United States and elsewhere as Railsbank grows its global footprint.
The fact that the latest announcement hails from the United Kingdom only underscores the U.K. and the continent as prime locations for BaaS’ evolution. As has been reported in this space, open banking is blurring the lines of which companies may offer banking services.
The regulatory framework known as PSD2 mandated that banks open their APIs and share account data and other information to enable third parties (with consumers’ consent) to offer financial services. Open banking has opened the door for neobanks and others such as Revolut to bring digital-native products and services to users.
More traditionally, the BaaS model may be thought of as a bank bringing more of its presence online. That’s done through partnerships that leverage the regulatory and compliance know-how of the legacy financial institution (FI) with the tech-nimble hallmarks of FinTechs.
But then again, we’ve seen the reverse modality take shape, too – where tech upstarts become banks. In one recent example profiled in this space, MercadoLibre has obtained a license to operate as an FI in Brazil, which will help the company expand its portfolio of credit offerings. The move will give the company more autonomy in the direct creation and operation of financing and other financial services within Brazil.
As for following the money, MercadoLibre has also gotten a $72 million investment from Goldman Sachs to help expand credit services. Goldman is seeking to “help any company in the world become a bank,” as reported by Bloomberg.
New software via APIs from the company allows corporate clients to layer banking services into their own end customer-facing products. It’s a way to move into transaction banking, according to CNBC – and, we contend, away from the marquee status atop Wall Street that the firm has enjoyed for so long. The new efforts in transaction banking have garnered $28 billion in deposits across more than 200 clients, according to reports.
Not Just Consumers
However, BaaS isn’t confined to consumers. Recent PYMNTS coverage has noted that small-business BaaS efforts have secured new funding rounds as well.
For example, Brazil's BizCapital received $3 million in funding from the Netherlands' Oikocredit. Separately, StreetShares, which offers small business lending technology for banks and credit unions, raised $10 million from a consortium of investors that included Motley Fool Ventures.