Getting The Plumbing Ready For Banking-As-A-Service

In times of turmoil, you go toward whom you trust.

The coronavirus pandemic — which has forced all of us online — is exposing just who in financial services has embraced digitization, and who is truly digital native. We now must bank entirely online, by necessity. And many of us must transact entirely online, by necessity, to get the goods and services we need on a daily basis.

The stage is being set, then, for consumers to pivot away from legacy banking toward trusted brands that, increasingly, are building out financial services. The space once reserved for marquee names like Wells Fargo, JPMorgan and peers is getting a bit crowded.

In an interview with Karen Webster, Nigel Verdon, CEO of Railsbank, said the changing landscape of financial services has helped shine a light on the flexibility and speed companies need to develop new products and services and get them to market quickly to their end customers.

The rise of open banking (and account aggregation) has shaped the conventional wisdom that banking will pivot toward innovation and service-oriented offerings.

But, in truth, account aggregation is largely an activity that simply moves data from financial institution (FI) to FinTech.

It’s what you do with the data, and how you leverage it into new customer-facing offerings that matters.

As Verdon told Webster, embracing platforms such as the one offered by Railsbank — which enables companies to issue unique international bank account numbers (IBANs), receive and send money and issue and manage cards — means that banking becomes a service rather than a series or suite of separate products.

And, as Verdon explained, service-oriented platforms can spur a shift away from consumer banking with a bank — and toward individuals’ banking with whomever they trust.

That functionality comes as Railsbank issues IBANs, by virtue of being connected to the Bank of England, among other partner banks, which then can be used to by firms to issue accounts and cards (in bank-like fashion).

Along the way, Verdon said, firms can branch out into new offerings as they cater to end users’ demand.

As Verdon said, “it’s not just financial services businesses going into these new use cases.” There are a whole range of forward-thinking firms leveraging application programming interfaces (APIs) to issue cards, to create virtual accounts, promote micro-lending and micro-saving and even pay workers — all in bits and bytes.

“It’s supermarkets too,” Verdon noted, drilling down into a vertical that might not be immediately synonymous with launching digital financial products.

Against that backdrop, for example, the supermarket can enable workers to use Wagestream, an app backed in part by Bill Gates that lets employees get early access to wages, enabling them to manage cash flow more efficiently and avoid using payday lenders.

Financial Services For Other Means

Broadly speaking, he said, the trend of banking-as-a-service is marked by “non-financial services people wanting to use financial services for other means, which include engagement and data.”

To get there, said Verdon, firms need a streamlined way to conceptualize, innovate, test and create new banking products. He said that firms can quickly create financial products that have value, in real time, using the issuer and bank account as a foundation.

He likened Railsbank to a “utility” connected to the traditional banks, including the Bank of England (and the data within those banks).

The company’s API, he said, enables users to create an own-branded debit card (not a co-branded one) into their apps.

“The accounts are not just money accounts,” he told Webster. “They [are] fungible assets, linked together and made spendable. You can reward people in non-cash ways.”

“Our proposition is that any business or brand can be a FinTech,” he added, explaining that “we aim to be the infrastructure that they all run on top of, using our pieces of ‘Lego’ to build a use case that’s on top of mind.”

That platform’s functionality (which includes RegTech) may be a threat to banks’ co-branded businesses, Verdon told Webster.

As more tech-savvy startups and challenger banks, like Monzo, and juggernauts, such as Google, seek to broaden their offerings with digital checking and other “banking-as-a-service” options, the limitations of the traditional FIs stand out in stark relief.

As Verdon told Webster, the banks have digitized legacy processes, but they haven’t made them digital. Having a website and an app simply are not enough.

And the inherent trust placed with banks simply will not go far enough to keep customers in place, he said.

That sentiment is borne out by PYMNTS research in the latest 2020 Credit Union Innovation Index, which found that among credit union consumers, 21.9 percent would consider switching to more “innovative” financial service providers.

Simply put, in an environment where low interest rates may stretch out over decades, deposits do not matter as much anymore, not when other companies can offer credit or insurance as a service.

Banks will likely always have a place as asset holders and places of safety during times of volatility or crisis, but not as key conduits of the activities that make up daily financial life.

That will fall to the tech upstarts, he said, the customer-centric businesses that deeply understand their customers, and who embrace banking-as-a-service.

Welcome, perhaps, to a digital banking landscape that has room for the Bank of Google, and the Bank of PayPal.

Verdon’s conversation with Webster came after Railsbank said earlier this month that it had received an investment from Visa and Japanese venture capital firm Global Brain. Railsbank said it signed a five-year pact with Visa to deliver banking-as-a-service in southeast Asia. The company has also joined Visa’s FinTech Fast Track Program and will launch Visa products throughout the region.

Looking ahead, Verdon noted that Southeast Asia remains the “main area” of focus for Railsbank, given the pervasiveness of mobile devices in the region and that there are hundreds of millions of unbanked individuals.

He said the platform is live across the United Kingdom, Europe and Singapore and is going live across the Philippines and Indonesia, reaching Australia, with the U.S. in sight, too.

“We’re able to offer a proposition to companies — it’s ‘You concentrate on product and customer and on delightful financial experiences. We will do the rest, and we will be the plumbers,’” Verdon told Webster.