How can SaaS give banks a competitive edge over BaaS users? Anyone? Anyone?

Core banking technology moves pretty fast. If you don’t stop and look around once in a while, you could miss out…

The reduced cost of fintech, and increased functionality of cloud-based "as a service" models can reduce the number of applications a bank is running by 30 to 40 percent, and the cost of ownership by 15 to 20 percent, when compared to traditional financial services IT infrastructure.

For banks and financial services (FS) firms, the race to market is on to leverage core banking technology, and capture new customers, whose digital expectations are high and tolerance for price is low. 

But there is a clear fork in the road when launching a disruptive new financial services product, who is the regulated entity? There is a choice between a Banking-as-a-Service (BaaS) provider, where a licensed bank will enable FS firms to use a set of fixed digital banking and payment services. Or, firms can pick a Software-as-a-Service (SaaS) solution; where they are regulated, but can integrate services from other fintechs to offer a broader range of financial services.

Whether it’s a challenger bank launching, or an existing bank revitalizing its services, this decision could make all the difference. This choice could either foster the ability to create a truly innovative offering, or create a solution that’s "just another challenger". So, it’s worth taking the time needed to make the right decision.

Built-in or best in class?

For BaaS offerings, the core banking system is in place and ready to use from the offset, but will be limited in the number of different ways it can be configured and deployed. Ultimately, the other customers of the BaaS service provider are using exactly the same tools that you will be using. This raises the question: how can you differentiate yourself from those competitors if you’re building with the same system?

On the other hand, SaaS banking offerings may not have the lure of a pre-packaged solution. But, modern SaaS offerings present the chance to build a USP that is clearly differentiated from the competition, while also giving firms the flexibility to grow and pivot their focus in the years to come.

Listen to the next generation

Before deciding on BaaS versus SaaS -- consider that the next generation has been raised in a post-digital world. So, they expect more personalized, smooth, and ethical customer experiences -- and if their bank doesn’t fit the bill they won’t hesitate to jump to the next provider. A recent IBM study found nearly half (48 percent) of Gen Z respondents said they would switch banks in favor of a better customer experience. At the same time, almost two-thirds (64 percent) said they’d move away from banks that did not meet their expectations on ethical or environmental standards.

In previous decades, nothing short of a disaster would cause most customers to switch banks. But today, better tech, financial incentives, better interest rates or even social media buzz about great customer service can result in a customer moving their accounts. Even having an edgy-looking debit card can convince some customers to 'join the club'.  

Movers and shakers

It is clear firms need a USP in an increasingly competitive FS market. But how can FS firms stay ahead of the curve, innovate, and make sure they are listening to their customers and even anticipating their needs? This is particularly challenging if banks and FS firms are using the same static set of tech as every other provider in their space.

SaaS enables firms to harness a flexible core banking solution, built natively with open APIs to work with any number of providers to build USPs that go beyond anything that a set of rigid building blocks could make. 

This means users will have the scope to build a truly unique offering, whether this focuses on features like biometrics, carbon footprint offsetting, or enhanced customer loyalty programs. As expectations and opportunities are always evolving, firms must have the technology at their core that can enable them to build differentiated products that unlock trapped value quickly. This will help them to increase market share and share of wallet while protecting reputations and staying ahead of the pack.

No more modules

What’s more, the barriers to scaling fast can come off with a SaaS offering. To truly innovate, firms need a core banking solution that doesn’t require purchase of new modules to create new product offerings; with all the cost, delays, training, and IT integrations that entails. The ability to simply create a product by picking the relevant product features allows fast-track development of new products. 

When combined with the freedom afforded by open APIs to choose preferred providers for each element of a service offering, rather than a predetermined set, firms can pivot quickly to take advantage of new opportunities to grow and differentiate their business. 

So for new entrants or legacy banks looking to create new offerings, why would they want to limit themselves to a BaaS solution to deliver exactly what is already on offer in the market? With SaaS, the question isn’t, 'what are we going to do?', the question is, 'what aren’t we going to do?'.

Photo credit: Alexander Supertramp / Shutterstock

Nelson Wootton is Co-Founder and CEO at SaaScada.