The Evolution of Banking-as-a-Service (BaaS) Business Models; Open Banking Open API Specs; Vertical SaaS: Now with AI Inside;

Sam Boboev
5 min readOct 2, 2024

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Welcome to this week’s Fintech Wrap Up, where we dive into the latest on the rapid rise of Banking-as-a-Service (BaaS), the game-changing potential of stablecoins in payments, and the evolving landscape of embedded finance transforming business models.

Insights & Reports:

1️⃣ The Evolution of Banking-as-a-Service (BaaS) Business Models

2️⃣ Evolution of stablecoin use cases

3️⃣ How banks generate revenue from embedded finance

4️⃣ Europe’s Local Card Schemes on a Steady Decline

5️⃣ Vertical SaaS: Now with AI Inside

6️⃣ Business spend management and embedded finance

7️⃣ How has digital banking development varied across regions?

8️⃣ Open Banking Open API Specs

9️⃣ Banking for Small and Medium Enterprises (SMEs)

TL;DR:

Hey everyone, welcome to this week’s edition of the Fintech Wrap Up! We’ve got some exciting updates from the world of fintech, payments, and banking, so let’s dive right in.

First, let’s talk about the evolution of Banking-as-a-Service (BaaS). The BaaS landscape has come a long way from its early days in the 1990s when big retailers like Tesco and Sainsbury’s partnered with banks to offer financial products. Fast forward to today, and we’re seeing banks take a more direct approach, working with tech vendors to offer embedded financial services. Regulatory shifts, especially in the US, have played a big role in this, pushing banks to maintain tighter control over fintech partnerships.

Speaking of evolving trends, stablecoins are really making waves. While they’re currently used mostly for crypto trading and hedging, their potential goes way beyond that. Companies like Circle are showing how stablecoins can disrupt traditional payments by streamlining cross-border transactions, reducing fees, and cutting settlement times. It’s only a matter of time before we see widespread adoption of stablecoins for everyday payments.

Next up, embedded finance is transforming how banks generate revenue. Banks are increasingly partnering with tech companies to offer financial products through their platforms. This model is helping banks expand beyond their local communities and grow both net interest margins and fee income, with some banks already seeing huge gains in new deposits and customers.

In Europe, local card schemes are struggling to keep up with the dominance of Visa and Mastercard. A lack of innovation, slow adoption of digital wallets, and limited cross-border reach are just a few of the reasons why these local schemes are losing ground. It’s clear that without significant changes, they may continue to decline.

On a related note, vertical SaaS is entering a new era. The combination of cloud, fintech, and now AI is revolutionizing business models. By integrating AI, companies like Mindbody are automating tasks in marketing, sales, and customer service, which is increasing revenue per customer and making operations more efficient. The future of vertical SaaS looks incredibly promising with AI at the forefront.

Lastly, business spend management is getting a much-needed boost thanks to embedded finance solutions. As companies grapple with SaaS sprawl and other challenges, better tools for managing business expenses are crucial. Embedded finance is stepping in to help businesses regain control and improve financial oversight.

That’s it for this edition!

Insights & Reports

The Evolution of Banking-as-a-Service (BaaS) Business Models

  1. Pre-BaaS Era (1990s-2000s):

During this period, large retail brands such as Tesco, Sainsbury, ASDA, and others entered financial services by partnering with traditional banks. These joint ventures allowed supermarkets to offer in-store banking products, leveraging their physical presence and customer trust. Examples include Tesco’s partnership with the Royal Bank of Scotland and Sainsbury’s Bank collaboration with the Bank of Scotland. These early models were tightly controlled by the banks, ensuring compliance while capitalizing on the brands’ extensive reach. This period laid the foundation for what would evolve into modern embedded finance and BaaS.

2. API Brokerage BaaS (2013–2021):

With the fintech boom, API brokerage providers emerged as key enablers in the BaaS space. Acting as intermediaries, these brokers facilitated partnerships between banks and fintechs, helping fintechs quickly launch financial products with minimal upfront investment. This model accelerated fintech innovation by enabling banks to outsource functions like due diligence and client onboarding. However, challenges such as regulatory scrutiny and unit economics arose, particularly as larger brands sought direct relationships with banks. Despite these obstacles, the API brokerage model played a crucial role in the expansion of BaaS, particularly in addressing underserved markets.

Insight continues…

Evolution of stablecoin use cases

We do not know exactly what the future will hold for stablecoins, but by looking at how people are using stablecoins today, we can see where new value will be created.

Right now, most use cases revolve around hedging and off-ramping for crypto trading — this is where Circle and Tether make the majority of their money. But Circle’s monetisation strategy illustrates the multiple avenues of revenue potential of stablecoins. While Circle earns substantial interest from holding USDC reserves, the majority of its revenue comes from transaction fees and API services provided to developers. Developers use Circle’s infrastructure and stablecoins to build applications like accounts, payments, payout services, and lending markets — each transaction generating value for Circle.

As adoption grows and banks begin integrating stablecoins, it will augment existing financial rails, facilitating real-time payments — internet-native money. Even at this early stage, there is the potential for a generation-defining company (GDC) to disrupt massive infrastructure players within the existing payments paradigm.

Money movement still relies on legacy systems and multiple intermediaries — card networks, payment processors, intermediary banks — each taking a cut and adding time, cost and complexity. The average SWIFT transfer settlement time takes three to five days. Domestic transfers cost $28 on average, or $44 for an international transfer. And Visa or Mastercard cross-border fees can reach up to 7%. Stablecoins cut the gordian knot.

Insight continues…

Curated News

Checkout.com unveils a suite of product launches and continued 40% annual revenue growth

The company offers a suite of modular payment solutions that help businesses reduce the complexity and cost of payment processing while increasing performance and revenues. The company’s Intelligent Acceptance product runs more than 60 million optimizations per day and has helped customers unlock $5.5bn in lost revenue (more than seven times more than the previous year), using AI trained on billions of transaction data points originating from the entire Checkout.com merchant portfolio (the ‘Checkout Network’).

News Continues…

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Sam Boboev

I am a fintech enthusiast and product leader passionate about crafting simple solutions for complex problems. Subscribe https://www.fintechwrapup.com/