Banks are historically opaque. It’s hard to export customer data, let alone integrate it with third-party applications. And due to legal limitations, it’s typically challenging for startups or retail brands to build out their own financial services. However, throughout the last decade, the open banking movement has altered this status quo.
By opening up as platforms, banks are enabling a brand new ecosystem of FinTechs. These FinTech solutions are honing the customer experience around finance with tools like real-time payments, lending services, retail cards, account aggregators, and more. Interestingly, banks are discovering a new market too by productizing themselves as composable service providers. Yet, connecting to this Banking-as-a-Service (BaaS) infrastructure does necessitate an integration hurdle for time-pressed engineers.
Yet again, BaaS is another area that low-code/no-code could accelerate. Low-code/no-code is an ongoing trend that relies on visual programming models to construct applications and build out connected workflows between services. As I’ve previously covered, low-code is enabling rapid development in many areas, such as UI generation, manufacturing, data science, AI, and finance.
I recently met with Vikram Srivats, VP of go-to-market at WaveMaker, to discuss how low-code platforms are revolutionizing finance and the future of modern banking. According to Srivats, usable layers over core bank infrastructure could allow more FinTechs to build out retail finance for underserved segments. Below, we’ll see how low-code could bring more financial capabilities to a new generation of applications.
What is Banking-as-a-Service?
Global investment into FinTech set record-breaking heights in 2021 — the first half of the year saw $98 billion funneled into FinTech investment, compared to roughly $120 billion for all of 2020. These technology platforms perform everything from quick money transfers to stock trading, micro-lending, buy-now-pay-later abilities, and digital wallets. We’ve also witnessed enormous investment into cryptocurrency-powered platforms that mimic traditional financial services.
The number of FinTechs is undoubtedly increasing, meaning that the number of financial applications that must be built is staggering. And as follows, “there’s this whole ecosystem in the financial services domain that are powering these FinTechs,” explains Srivats. “The scale and volume for infrastructure are huge.”
Many new FinTech services are essentially wrapping banking operations in a more modern look and feel. And, to tap into core banking services, this ecosystem is primarily driven by application programming interfaces (APIs). “We’re seeing Financial services are realized through software APIs,” says Srivats. Due to their agnostic nature, web APIs provide a low-code option for platforms to deliver cloud-native financial experiences across devices.
This is essentially what we mean by Banking-as-a-Service. These banking platform providers lay the foundations, enabling speed to market without reinventing the wheel for common monetary abilities. A prime example of a BaaS is Solaris Bank, which offers a platform to build banking products.
BaaS Evolves Traditional Finance
Whereas the EU has government-mandated open banking requirements, the US regulators have yet to respond with as much tenacity. In the US, opening financial services is more driven by consumer expectations, according to Srivats. In this market, “big tech has a big role to play,” he says. Tech companies have introduced streamlined applications to meet high user expectations. And now, “people want the same experience with financial services,” says Srivats.
Interestingly, notes Srivats, the open banking trend is not nullifying the need for banks. Instead, it’s showcasing their core competency — the licenses they hold. Since banks must obtain a banking license for the region they do business in, it’s hard for financial startups, especially those in developing countries, to penetrate global markets. BaaS is thus a tremendous opportunity for niche Software-as-a-Service providers and smaller community banks to access regulatory compliances and ACH technology.
The Role of Low-Code in BaaS
In the context of BaaS adoption, low-code could make integrating with APIs more efficient. “From a low-code development, APIs are critical to web, mobile, and multichannel experiences,” says Srivats. By lowering the barrier, financial services could rapidly prototype minimum viable products. Low-code fits the trend toward application composability, notes Srivats, and the decoupled nature means FinTechs could ingest APIs to power many different use cases. To integrate such components, he predicts the industry is moving toward more pre-fabricated UI widgets. Furthermore, this could enable inserting a funds transfer into an application in a three-screen process.
Of course, any technology has its drawbacks, and low-code is no exception. Low-code requires granular security controls and keen platform governance. You don’t want low-code tools to break anything, Srivats describes. Low-code adoption also shouldn’t feel forced, either. Ideally, it should fit like a glove into the developer team’s established processes.
The Future of BaaS And Low-code
We are in the middle of a great unbundling of banking, says Srivats. What used to be one financial application may now be 10 or 20. Additionally, the type of debit accounts we use today is fragmenting too. In five years, Srivats predicts we will maintain three primary checking accounts: a regularly banking account, a big tech account, and a cryptocurrency account. He also anticipates more retailers leveraging BaaS to provide new financial applications to end consumers.
All of these developments are accelerating the need for more API-driven finance and low-code capabilities. “We can very clearly see that for the number of apps that need to be built, we just don’t have enough professional developers able to build them,” says Srivats. To fill this need, low-code platforms could abstract away the complexity of integrations with core banking infrastructure, enabling more fair, accessible, and inclusive finance for more applications.
