Banking-as-a-Service Moves Beyond Debit Cards to Help FinTechs Find Growth

Outsourced banking processes are being used by FinTechs and small business to minimize rising rate risk.

By using banking-as-a-service (BaaS) to address this and other macroeconomic challenges, Treasury Prime COO Remy Carole told PYMNTS, these companies are not only surviving and thriving but can even capture value from those rising rates.

“You’re going to see neobanks become more specialized,” he said. And many of those digital upstarts are being forced to examine their business models, where the reliance on debit cards and interchange revenues is looking less certain. The best approach, he said, will entail diversifying revenue streams and/or solving problems for certain business verticals of consumer demographics.

Treasury Prime, of course, operates as a platform that connects banks and businesses to automate accounts and embed banking services to underpin new revenue streams. For the banks, there’s the appeal of capturing new deposits, for the FinTech and small and medium-sized businesses (SMBs) there’s the benefit of launching new banking products without the need to hold those accounts.

That approach goes beyond the demand seen in the recent past for BaaS, he said, where FinTechs had focused mainly on building financial products to solve certain pain points like payment friction — and making it easier for end users to send or receive money.

Treasury Prime’s customers, he said, “are seeking to get some of the revenue that is based on [rising] interest rates” as more accounts are opened and funded.

“The products that they are building,” he told PYMNTS, “are focused on ‘how do we capture deposits — and how do we get peoples’ funds and hold on to them?’” One strategy is to encourage direct deposits, where that funding occurs with regularity, once or twice a month, and where revenue sharing agreements with the bank can help fuel neobanks’ revenues.

The increased revenue, he said, can be leveraged to help fund new innovations.

“What makes neobanks valuable,” said Carole, “is that they solve problems, and improve the customer experience.” Those customers, he said, can be individuals or families or they may be enterprises, too. Carole pointed out that neobanks are finding success in targeting B2B verticals (construction, for example) as they embed payments functionality. A consumer-facing neobank can find success in helping families and individuals manage their daily finances more adroitly, save money for college education or balance the household budget.

Saving Time and Money

But in the bid to bring new services to markets, no matter the end customer, speed is critical. Carole remarked that the BaaS platform approach helps circumvent the need to approach traditional FIs directly and build one-to-one partnerships, or establish their own internal teams dedicated to those relationships. That approach, he said, can be expensive and time consuming, and can take as long as 18 to 24 months.

“In this economic climate,” he said, “that’s a lot of time and that’s a lot of investment.” But by working with a BaaS provider, FinTechs (and SMBs) can get up and running with new embedded finance offerings in a matter of weeks or months, and with the added benefit of deploying fewer resources. Regulation and compliance are also automated, which is critical as the regulatory landscape continues to evolve.

Looking ahead, he said, “capitalizing on rising interest rates is really important,” and for the neobanks taking advantage of banking as a service, “being able to take advantage of the current economic environment will be valuable.”