Who can BaaS provide the most value to right now?
Guest author Roy Ng, CEO and Co-Founder of Bond, shares his thoughts on how Banking as a Service (BaaS) has the potential to benefit pretty much everyone, but a few select groups in particular.
P.S. Have you watched our brand-new video series, Decoding: Banking as a Series, yet? Check out episode 1 on YouTube and sign up for instant updates on new episodes.
Financial services are no longer just the remit of banks or even fintechs. The rise of BaaS makes it possible for nearly any brand to offer financial services. It's time that we lean into this change in order to make banking work better for everyone — banks and customers alike.
That’s what we are doing at Bond; we’re building the next generation BaaS platform to securely connect brands and banks, to help them offer financial products easily and in a scalable and compliant way. Through an ecosystem of partners, banks can secure new revenue through building highly compliant relationships with brands who can, in turn, benefit from expanding their offerings with financial services.
BaaS has the potential to benefit millions of people around the world — 25% of US households are unbanked or underbanked. But there are certain clusters of customers whose need for it, and appreciation of it, will be far greater.
The rise of gig workers is changing the game
The global gig economy has ballooned in recent years thanks to increased digitisation and flexible working opportunities encouraging more people to dabble in contracting. And it doesn’t stop there: the COVID-19 pandemic has further increased the number of gig economy services and workers. So much so that the gig economy is now predicted to grow by 17.4% each year until 2023.
Self-employed workers have historically been under-banked with lenders even considering them second-class citizens in some cases. So there’s a massive opportunity for start-ups and neobanks to improve the current options available.
We have already seen banks and fintechs beginning to target the freelance market. Chime, for example, makes saving easier for the self-employed. They even have an online guide dedicated to helping the unemployed (of which there are now many more given the coronavirus) which pairs perfectly with their ‘we don’t profit off you; we profit with you’ ethos. Similarly, Joust prides itself on being the only banking platform that allows those who are self-employed to get paid on their schedule.
But there’s scope for non-banks to get involved, too. A key part of this is meeting people at the right stage in their life, at the right time. People don’t want to have to seek out products - they want to be approached with them. So, these days, distribution market fit is arguably more important than product market fit when it comes to financial services.
Lyft was on the same wavelength when it introduced the Direct debit card, whichallows drivers to get paid instantly after each ride. With the help of Stride Bank and Payfare, the platform offers its employees more economic security, including cashback, a savings feature and instant access to your earnings.
People don’t want to have to seek out products - they want to be approached with them.
Traditional banking doesn’t cater to all segments of the population
Another underserved market is that of minorities. In Latin American and Asian communities, it’s common for several generations to live together under one roof. This can make the simple act of managing finances, such as doing grocery shopping and paying the bills, confusing. Traditional banks don’t really cater to this.
Similarly, Black Americans made up 13.4% of the US population in 2019, yet nearly half of Black households are still either unbanked or underbanked.
Both banks and brands have an opportunity to improve financial inclusion for minority communities. And while it shouldn’t take global movements (such as Black Lives Matter) to bring this to the fore, we’re glad to see it’s finally starting to happen.
And this gap in the market often comes down to addressing unique lifestyle differences.
Progress is already happening in the banking space. Greenwood, for instance, is a digital bank targeting Black and Latinx customers, created after the founders realised how much the current financial system was failing them. Other brands, like Etsy, also offer small companies (many of whom are minority-owned businesses) the chance to embed finance.
But there’s still a way to go and non-fintechs are perfectly placed to incorporate finance into the point of sale, helping customers at the right place and the right time.
The gap in the market often comes down to addressing unique lifestyle differences.
Credit is often denied to out-of-towners
Personal experience is, among other reasons, what led to the creation of Bond in the first place. I came to the US from Hong Kong with my family when I was ten years old and my parents quickly noticed how difficult it was to navigate the country’s financial system.
When you relocate, you need credit in order to build a credit history, but lenders are often reluctant to offer it to you. It is when people (such as immigrants) are unable to access the financial services they need that the wealth gap swells.
More than 1 million people emigrate to the US every year, suggesting a market that is ripe for innovation when it comes to personal finance. Leaf is a business that’s doing just that. When people flee persecution in favor of a better life, they rarely have time to grab cash and valuables. Even if they do, it’s expensive and tricky to bring it across the border. Leaf customers can access digital savings through a phone, as well as safely transport assets to their new home.
The key for brands looking to target this market and boost financial inclusion is to recognise that while they might have limited financial education, many of them will be highly skilled with transferable talents. Plus, it’s common for these households to transfer remittances to loved ones across borders. So it’s not just newly-arrived immigrants the system needs to create better banking services for - it’s the families they’ve left behind.
It all comes back to trust
Underpinning all of this is the need for customers to trust the brands offering financial services in the first place.
Fortunately for some, trust is built on a joint foundation of experience and interactions. This bodes well for businesses people have long admired and engaged with… like Apple. If you have an iPhone, for example, you are trusting Apple with your sensitive personal information every day. So when the tech giant gently encourages you to adopt Apple Pay, you’re predisposed to believe that they will keep your money in safe hands.
Trust is built on a joint foundation of experience and interactions.
Similarly, drivers employed by Uber trust them with their data and so it makes sense for them to store their earnings and savings in the same place.
If a company’s core product or service is already well used, then it’s not that big of a leap for that company to start integrating finance in a way that resonates. Particularly if it’s a natural part of the process and provides a major benefit to the customer, such as time or cost savings. Ultimately, the BaaS platform acts as a seamless enabler, so the consumer never needs to know that the provider is working quietly in the background.
If you’re a brand thinking about embracing embedded finance, ask yourself this: Do your customers already love your product? If the answer is “Of course!,” then now is the time to lean into the opportunities created by BaaS platform, further enhancing the loyalty of your customers and welcoming new revenue streams into your business.