What does Banking as a service (BaaS), or what's been called embedded banking, mean?
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I'm glad we have a disagreement on this. We are not going to go from being a brick and mortar banking society to digital instant payments right off the bat. From my perspective, banking as a service allows us to take a big step forward, stepping away from some of the traditional banks, getting to a more digitally oriented mindset of banking and financial transaction instruments, and then getting down the path of doing the instant payments.
Yeah. So I'm more on your side that these things just take time and there will be waves of transformation and it will always take longer than we think. I've been an analyst now over 20 something years and I started off covering what was first called application service providers, and now, the world of cloud. And it took 20 years before everyone really could get on board with that, before apps got rewritten. So I think I learned early on in my career that things take a lot longer. Now, I'll say that was tested this past year to see how fast things did move, but it still will take time. And you're right, the ones that don't get it will be decimated and the rest will start to get on board because they want to stay in the game and it will be a do or die situation for them and that will be their motivator.
From my perspective, Banking as a Service is a real thing and there are a lot of opportunities. As I see, it is driving a lot of the open banking notion. Every new business has to do deal with banking - not just the financial aspects but also accounting. The API based banking as a service enables other institutions to build on top of traditional capabilities. We've all been hearing that “everything is FinTech.” As long as we believe that everything is FinTech, you now have the ability to merchandise pretty much any online store. How do you run those transactions? How do you enable a mom and pop shop to be able to sell their equipment? And I'm pretty bullish on this. Commoditization of enabling everyone to have access to these financial infrastructures that allow them to sell their goods, get paid is essential for where the digital economy is heading.
My personal view of banking as a service is it's built upon ancient rickety infrastructure and rails. And if you look at the blow up of the Visa-Plaid integration, there are these “BAS” vendors developing technology on legacy payment rails and infrastructure. Like the real opportunity is to disrupt the industry completely, which is hard because it's an old guard. Old school bankers are going to be a tough bunch to crack, but if we really want to get to the world of instant payments and lower fees and reducing them... If you think about the extortion of remittances and payday loans. Getting to a true credit score identity and optimizing that, I think that's the big opportunity, and banking as a service or embedded banking, whatever you want to call it, is only a minor step there. But that's, once again, that's my personal pseudo, somewhat religious or completely religious view.