Robinhood makes second foray into Europe with UK launch; Deep Dive: Beyond the Basics of Banking as a Service (BaaS); How BaaS becomes the Twilio of embedded finance;
In this edition:
1️⃣ Apple is trying to unwind its Goldman Sachs credit card partnership
2️⃣ Robinhood makes second foray into Europe with UK launch
3️⃣ Dutch fintech Bunq plots return to UK after leaving post-Brexit
4️⃣ Deep Dive: Beyond the Basics of Banking as a Service (BaaS)
5️⃣ World Cloud Report — Payments sector leads adoption
6️⃣ How BaaS becomes the Twilio of embedded finance
7️⃣ How a Permissioned DeFi-Based Model for Cross-Border Payments Works
News
Apple is trying to unwind its Goldman Sachs credit card partnership
Apple has given Goldman Sachs a proposal to end its credit-card and savings account partnership within the next 12 to 15 months, a person familiar with the matter told CNBC’s Leslie Picker.
Source CNBC
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Robinhood makes second foray into Europe with UK launch
Stock trading platform Robinhood, famed for its central role in the pandemic meme stock craze, is launching its commission-free trading app in the UK today.
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Dutch fintech Bunq plots return to UK after leaving post-Brexit
Amsterdam-based Bunq is now eyeing a comeback and is exploring ways to bring new customers on board. The firm incorporated a new UK subsidiary in late November, Companies House filings show, with a registered office in Regent Street in the capital’s central shopping district.
Insights
Deep Dive: Beyond the Basics of Banking as a Service (BaaS)
Dive into the transformative journey of Banking as a Service, exploring the rise of neobanks, innovative use cases beyond finance, and the collaborative synergy reshaping industries. 🌍💡
Join us on the forefront of fintech innovation as we go beyond traditional banking, unraveling the potential of BaaS in reshaping the future of financial services.
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World Cloud Report — Payments sector leads adoption
More than 80% of financial services industry executives surveyed for the World Cloud Report — Financial Services, agree that firms can overcome business challenges and unleash growth through superior customer experience and operational excellence.
And the right platform is critical for scalability, flexibility, productivity, innovation and agility required to meet industry and customer demands.
Cloud as an enabler is catalysing growth for financial services firms, as 91% of respondents indicated.
New age players essentially born in the cloud leveraged this competitive advantage to fuel their initial successes and win customer mindshare.
Now incumbent banks and insurers are fully engaged in their own cloud journeys. Across the financial sector cloud migration has risen significantly from 37% in August 2020 to 91% in August 2023.
While non core applications have most definitely experienced a cloud migration upsurge, many firms have not moved a considerable portion of their core applications to a cloud computing environment.
Instead, many opt for a “lift and shift” model that can hinder cloud based systems’ full scalability and flexibility advantages.
Composable platforms are instrumental to business needs
A composable platform will help financial services firms redefine processes, move to cloud and integrate cloud enabled, customer facing applications and core back end functionality: operational impact and improve customer satisfaction will be the result.
This platform approach leverages prebuilt components spread across layers over a legacy or cloud enabled core engine.
This helps to increase flexibility, improve digital collaboration/integration, enhance scalability through modular mechanisms, realise cost efficiency and enrich customer experience.
A phased approach helps firms successfully add platform components and prioritise functionalities for cloud migration — while risk management functions are a priority for banks, policy servicing and management and customer relationship management are essential for insurers.
However as financial services functionality is transformed some firms will face challenges around data and cost overruns during cloud migration.
A comprehensive cloud strategy and road map are critical to overcoming cloud migration challenges and enabling business growth for financial services companies.
As a first step consider an end to end phased approach to digital transformation in financial services this starts by prioritising the key businesses and adoption areas.
Next it is essential to create and then implement a path for cloud modernization enablement and implementation.
And finally understanding and taking full advantage of cloud enabled systems to deliver the best customer experience is essential.
Source Capgemini / Payments Cards and Mobile
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How BaaS becomes the Twilio of embedded finance
In the past, the only way to extend financial products like cards or bank accounts or loans to your customers was to spend years and millions of dollars becoming (or trying to become) a bank yourself.
As late as 2014, if you didn’t have a bank charter, issuing any kind of virtual cards to your customers meant you would have to work with a legacy processor like i2c, FIS, TSYS, First Data (Fiserv), or Jack Henry.
Getting a product to market with those providers could take a year or more, $500,000+, and a large amount of work on the engineering side.
Marqeta, the first major player in this space, partnered with a bank, built card rails, integrated with Visa and MasterCard and other card networks, and built themselves into the first modern digital issuer processor. They made it possible not just for other fintechs but for non-fintech companies to bring cards to market.
Banking-as-a-service took this idea and broadened it such that companies could access all kinds of financial functions via API.
Treasury Prime, Bond, Unit, Synapse, Productfy, and other BaaS providers serve as all-in-one banking platforms, encompassing card issuing, payments, bank accounts, lending, and more.
In doing so, they both facilitate companies quickly spinning up sophisticated finance products, and they drive more business to infrastructure-level companies like Marqeta, as well as upstarts like Lithic and Highnote, which they use to power their offering.
These companies emphasize a modular approach that permits integration with other tools so companies can essentially build their own BaaS stack: Alloy for KYC, Sila for ACH, Lithic for card issuing, Canopy Servicing for lending, etc.
For companies today, because of these banking-as-a-service companies and digital processors, offering banking services has become something that companies can start doing in a matter of weeks.
Reminiscent of build vs. buy debates around cloud infrastructure, these companies bring a leaner, more opex-centric approach to financial services that moves faster and is more flexible to customer needs.
They make it possible for companies that never could have monetized off interchange to do so, but importantly, they also enable companies that never could have issued cards to incorporate them into their products.
That’s driving a rise in two phenomena: a broader range of more specialized fintechs using banking services to monetize, and everyday apps you use like Instacart and Uber using banking as a part of their core product experience.
One of the big questions for BaaS platforms today is which of these two segments they will serve.
Source Sacra
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How a Permissioned DeFi-Based Model for Cross-Border Payments Works
1. A sender triggers a cross-border fiat money transfer. Once a sender has been successfully KYC-approved, the sender can initiate a cross-border transaction. The sender can be an individual, a business, or an institution.
2. An on-ramp instruction is sent to an on- and off-ramp service provider (OOSP). OOSPs act as entry and exit points for funds moving on-ramp and off-ramp — in other words, from the traditional fiat financial system to a token-based model and vice versa. The OOSP debits the sender’s fiat balance and credits the sender’s digital wallet with the amount of a specific type of token worth the same value as the fiat amount.
This model can use various types of tokens. These digital assets are tied to the value of a corresponding fiat currency and act as the transaction’s main payment format. In short, these assets are the money that changes hands during the payment. Examples include bank-issued stablecoins and central bank digital currencies (CBDCs).
3. After the token is received in the digital wallet, it must be wrapped by a service provider into a token accepted by the permissioned DeFi model. Wrapping is a crucial step to enable interoperability across various blockchains. A wrapped token represents a different token existing on another blockchain with equal value.
In the wrapping process, the wrapping platform locks the initial token in the smart contract and mints the same amount of the corresponding wrapped token. Before the wrapped token wallet can accept the token, a whitelister must check that the wallets involved in the transaction are KYC-approved and whitelisted to allow the transaction.
4. The smart contract deployed on the permissioned DeFi protocol handles the transfer of the wrapped token to the receiver side. This permissioned DeFi model uses an automated market maker (AMM), which are smart contracts that provide a pool of tokens, or a liquidity pool, to determine prices and facilitate trades. Examples of AMMs include Uniswap.
These assets are critical to the speed and stability of permissioned DeFi. AMM smart contracts enable an atomic swap between the two different tokens, ensuring near-instant settlement. Blockchain and the DeFi protocols built on top of them run 24/7, avoiding issues with settlement risk and fluctuations in traditional foreign exchange during market hours.
5. Receivers can use the token on another blockchain network. They must unwrap the received wrapped token through an unwrapping platform. This sends the unwrapped token to the receiver’s digital wallet.
6. If the receiver prefers to receive fiat currency, the optional off-ramp or burning step will then be applied, depending on token type, to receive the fiat currency. This would entail burning the token and crediting of the corresponding value of fiat to the receiver’s bank account.
Source BCG
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Reports
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