Banking-as-a-Service Helps Community Banks Grow Main Street Deposit

Banking-as-a-service will help community banks prosper in the digital age.

Jeff Nowicki, vice president of banking at Treasury Prime, told PYMNTS in a recent interview that the network effect of linking large numbers of banks — smaller ones and their larger brethren, too — to enterprises can lead to true financial services innovation.

BaaS, he said, is a necessity to have among their “go forward strategies” — especially the smaller, community banks that want to diversify into new revenue streams without having to invest the time and money involved in creating new front-end or digital onboarding initiatives. Instead of forging individual partnerships with enterprise clients that already have engaged user bases, he said, BaaS represents an efficient way to bring in more clients and more deposits.

As for the enterprise “side of the house,” Nowicki said, embedded finance offers the ways and means through which companies can monetize those engaged users and offer a range of new financial products and services.

“For anyone that has a true user base — and with anything even resembling a ‘touch’ of finance or payments rails … well, that’s a prime opportunity to think about embedded finance,” he said.

Looking ahead, he said, 2023 will be a year of growth for BaaS, and for regulatory clarity. Regulators are going to need comfort that there’s “safe and sound” oversight of any data-sharing and financial services undertaking, Nowicki added.

But growth is in the cards, over the long term, as enterprises create and promote checking accounts or business accounts across non-traditional channels, in consumer-facing interactions and back-office workflows.

Benefits Accrue to the Enterprises, Too

The benefits are especially useful for the enterprises that do not create those accounts or have them on the balance sheet, and therefore enlist the aid of the banks — and platforms such as Treasury Prime.

The enterprises, Nowicki said, may have invested in, and built, their own full-on banking platforms (and call centers).

Blend it all together, he said, and “those worlds are merging more and more every day. You’re going to see the terminology of BaaS and embedded finance being used interchangeably.”

But for BaaS and a new generation of financial services to realize the utmost potential, he said, banks are going to have to change their mindsets beyond the confines of simply embracing APIs, and will have to be comfortable with having an intermediary in the mix as they reach their end clients.

BaaS platforms, however, give banks the same visibility into end users’ behavior as a brick-and-mortar branch on the proverbial Main Street might offer.

Nowicki noted that data connect banks and enterprises, and it is data transforming the very ways in which businesses operate. He offered up the example where accounting software platforms can wind up being convenient places to have checking and accounts “embedded” into the mix.

Against that backdrop, Nowicki said, “Why not have that your bank accounts within that same ‘UI ecosystem’ instead of moving files … and instead of bouncing back and forth between sites?” The small business selling on Etsy, in another example, can grow as its bank account, embedded on the site, is well-positioned to capture payments in a seamless continuum of eCommerce.

The network effect quickly takes root as several banks can be “connected” together to help manage deposits, savings and lending offerings, Nowicki pointed out.

The platform model “offers a flawless integration … and so a community bank should not be worried that a top 15 bank is coming in to ‘eat their lunch,’” he told PYMNTS. “There’s opportunities on the table in which everyone can participate.”