Digital Banking

How Invisible Engines Drive FinServ Innovation

Consumers take a somewhat binary view of the features and functions that come packaged as innovative: They either believe those innovations can solve problems and, therefore, embrace them or the consumers go somewhere else that offers legacy features and functions.

Those consumers also don’t care about the efforts required to make those innovations valuable — 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 Americas to fully grasp.

“Many banks [in that region] choose to work primarily on the surface, emphasizing the app layer,” Pérez explained. “The focus is correctly on the customer experience (for example, improving onboarding and presenting information so that it is more user-friendly), but they can also take a different, deeper approach.”

Pérez said that banks are starting to understand the benefits of “connecting the dots” to the functionality that lies beneath those user-friendly interfaces, allowing them to create more consistent, seamless consumer experiences over time.

Application programming interfaces (APIs), Pérez added, offer another approach. Plugging into a series of one-off APIs that connect with legacy systems is great for quickly enabling functions, but some banks may want to optimize down yet another layer, given the ever-expanding number of interfaces and channels they may need support with features and functions that consumers and businesses value.

Innovating in that layer can come 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 an expanding and transferable digital ecosystem, without having to wholesale redesign their legacy systems or choose a roadmap of endless superficial improvements.

Beauty In Banking Is More Than Skin-Deep

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

However, as they seek guidance on how to move faster, she noted, they realize that they may only be scratching the surface when it comes to addressing consumers’ ever-changing preferences for touchpoints and interfaces.

“Some bankers in the Americas, 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,” Pérez 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 about offering a digital experience that isn’t just beautiful (i.e., in a well-designed app with a smooth user experience), but functions across all the relevant moments and channels its customers want to use.

Delving Deeper 

Bank executives, Pérez noted, are waking up to this reality. 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 where they often can’t do what they want to do with a single approach. They want to do things like aggregate consumer data across channels or enter collaboration models with other players, but they find their legacy systems just “can’t connect the multiple systems needed to provide services in a unified way.”

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 its modular approach, offering flexible delivery models from an end-to-end open platform that can “provide the complete full stack of a modern open bank, without being a bank,” down to consumable APIs. 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 believes it is a good metaphor, but noted that it often overlooks a reality: Lego sets come with instruction manuals that tell the users how to build a set. Without those manuals, one could have a messy pile of Legos and not a lot of direction.

“You may need someone to help you assemble the pieces or help you see other options,” she said.

An end-to-end BaaS solution can pull out the pieces (APIs) that its banking partner needs, and assemble them invisibly on the back end into something coherent and applicable in other places. A lot of things that pass as a BaaS platform, Pérez 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 FinTech firms.

“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 NovoPayment to operate a full platform stack, and to be integrated and tied into original data sources, Pérez noted. However, that’s what is necessary to enable a range of banks that may be looking for a robust front-end offering or a complete and flexible back-end to support it.

It’s about the services banks can offer their customers, she said, but also about the services they might want to offer other financial services players. That might mean banks enabling FinTech providers in a certain sector to capture all that data on money flow, she explained, 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.

“Banks that sit on an Open Banking platform are better able to provide services in the way they need, in order to compete in the long run against all new participants in the financial services space,” said Pérez.

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