I've just uploaded my latest presentation on Banking as a Service, which was presented for the first time in Bahrain this week. This is therefore, in effect, my fourth posting about why banking will be free, or razorblade margins anyway.
BaaS is based upon Software as a Service, a method of taking complex applications and offering them as web services where you pay for what you use. Salesforce.com and Netsuite are examples. BaaS is just applying the same concept to banking services.
Widgets are parts of applications offered as simple pick up and drop code on the network. The Google widgets on the top left of this frame are examples, as are the Plaxo, Twitter and LinkedIn widgets on the bottom left. Programmers have developed these so that anyone can just lift them into their web pages if they want to, and have the right permissions.
That's all you need to know, if you didn't already, and you can now follow the presentation by clicking the arrows forward and backward on the bottom middle of the slides (thanks to SaaS Slideshare.net):
Alternatively, you can download the presentation if you want.
I've already nicknamed this presentation Banking on a Widget, and the slides link to all the relevant blog posts on the case studies of HSBC, BBVA, Social Lending and more.
So what's the point?
The point is that BaaS allows banks to be decoupled into their constituent components and
offered as widget-based functionality through the net. It's radical but
obvious, and applies to all aspects of retail, wholesale, investment and
I specifically outlined some basic attributes of BaaS in an earlier blog, but my thoughts have come on a little since as shown here. For example, I've taken Ken Harvey's (CTSO, HSBC) comments about Banking on the Network, and used them to illustrate how BaaS has real power.
Ken makes the point that he can launch in any country and it is just the physical bits that cost: the buildings, offices, branches and advertising. All the IT is free, because HSBC build it once and then deploy globally through the network so that it can be used by thousands of staff and customers in almost 200 countries.
Note: one program build for thousands of users in hundreds of countries.
Once you have network enabled components, you can add any branch, product or even country onto the network for zero extra cost.
That's the power of BaaS.
BaaS means that any module, component or function of a bank can be application packaged and network enabled as a banking widget. The balance statement widget; the payments transaction widget; the loan application widget; and so on.
BBVA realise this, as demonstrated by their Tu Cuentas service, but most banks do not get it which means that new players, such as PayPal, Zopa, SmartyPig, Wonga and more, could step in and deploy widgets for loans, savings and payments.
Using such widgets within BaaS allows a bank or new entrant to gain customers with no
extra work as, once built and deployed, there is no extra cost for more
on the network. This is clearly demonstrated by Slides 4 and 5 which itemise illustrative costs for running my own business – the Financial Services Club.
Ten years ago, the Club would have cost around $800k in mailing, printing and telephone costs. Of this, about $150k is the cost of physical meetings.
Today, the only costs are for those physical meetings.
The digital network – this blog, emailing, website operation etc – is near enough free from a costing perspective, apart for our own time and effort, as Typepad, Facebook and more create zero cost operations.
This is the challenge for banks. A decade ago, 70% of costs in materials that are now free would have been a big barrier to entry. Today, the are not.
That's what Ken Harvey (HSBC) makes clear. HSBC can enter any country with a mortgage, credit card or new branches, and the only costs are above-the-line marketing (that could even be free on YouTube) and physical infrastructures such as buildings. The rest is on the network.
And it's not limited to retail banking either, as the new European equities exchanges are demonstrating. Chi-X, Turquoise, BATS Trading, NASDAQ OMX and more are all launching radical new trading systems using leading-edge technologies at a tenth or more of the cost of the traditional exchanges.
They also have a tenth or less of the staff and overall, this is why these new trading venues can charge 10 basis points per side to clear and execute trades in under 2 milliseconds compared to seven times the cost and many times the time taken by the incumbents.
Any area of financial services you want to point to, I could show you new entrants and innovative incumbents changing the model using the concepts of BaaS and the network.
Combining these thoughts, BaaS with banking widgets delivers:
1) the ability to grow without any additional costs – just add more traffic on the network;
2) componetise the bank into widgets that can be picked up and dropped by staff and customers as they feel;
3) the opportunity for staff and customers to create banking homepages that are completely personalised to them;
4) the integration of banking functionality from one bank with others, in a completely flexible aggregated manner;
5) future-proofing for the semantic relational networking of the next generation web; and
6) totally flexible, totally comprehensive, low cost, high tailorability for every part of the banking organisation.
That's pretty powerful and compelling, as the bottom-line is that anyone could now launch a widget for a banking app and make it available anywhere.
The question will then be: which widgets do you trust, which raises the old nugget of banking regulation, licences and other barriers to entry.
Some things are much slower to change!
Further reading if you have time.
Five articles on social media and networks, and their impact on banking:
Banks ignore social media at their peril
Social networks don't need banks, they need friends
Social finance is right here, right now
Social money – what’s all that about?
Mobile social money, the final frontier?
A few books by Chris Skinner (that's me, in case you didn't know) and friends:
The Future of Banking In a Globalised World
The Future of Investing in Europe's Markets after MiFID
The Future of Finance after SEPA