You might have heard of “Open Banking”, “Banking-as-a-Service” and “Data-as-a-Service” and wondered how these terms differ.
Open Banking and Banking-as-a-Service both provide banking services via open connections or open APIs to third parties. While open banking provides access to the data of existing bank customers, Banking-as-a-Service (BaaS) provides access to bank functionality, so that non-bank companies can connect users outside a bank’s existing footprint to banking services. On the other hand, Data-as-a-Service (DaaS) is a service that uses the cloud to deliver value-added data via a network connection. In some contexts, there may be overlapping use-cases between BaaS and DaaS. For example, providing transaction data through API can be considered as both BaaS and DaaS.
1Q2021 Beacon Quarterly Insight will briefly explain to you the definition of BaaS and DaaS (in financial services context), together with market landscape and use cases.
What is BaaS?
BaaS is an on-demand service that enables users to access financial services (e.g. payments and banking data) over the internet using application programming interfaces (APIs) and cloud-based systems. For instance, a fintech company pays fees to BaaS providers (banks or non-banks) in exchange for API usage. The fintech company then uses APIs to build new financial services solutions for customers.
BaaS allows financial services to be embedded in a wide variety of software and applications. This is also called “Embedded Finance.”
Nowadays, digital brands are embedding financial services into their customer touchpoints, creating more BaaS providers. Many tech companies have realized that their talents are best spent on their core business, thus they are outsourcing to specialists to provide the infrastructure to run financial services at scale.
The BaaS ecosystem includes three parties: brands, BaaS providers, and license holders. License holders rent licenses out, often through partnerships with providers. Providers offer modular financial capabilities to brands to embed financial services in their customer offering. This allows license holders to focus on regulatory compliance and to shift the technological development to providers. BaaS providers would fill in the gap of license holders’ high cost of maintaining pace with regulation.
Examples of BaaS Providers
There are two types of BaaS providers: BaaS-focused fintechs and BaaS with a banking license. Marqeta is a pure BaaS provider in the US. Marqeta offers payments and debit cards programs focusing on card-control features and real-time experiences. In Europe, Railsbank works with payment processors, banks and fintechs to create debit cards, payments and FX through one API.
Examples of commercial banks engaged in BaaS include BBVA and Goldman Sachs. BBVA Open Platform is a platform that uses APIs to let firms offer their customers financial products without having to take on full banking themselves. In addition, BBVA partnered with Uber in Mexico. In Jan 2020, Goldman Sachs announced its intent to build full BaaS capability: its cloud native, fully API-based platform which is scalable and secured. Already, they have built a new cloud-based infrastructure for accounts and payments, and have released access via APIs for developers to easily integrate new products on top of the platform.
The Landscape of BaaS in Thailand
BaaS players in Thailand are limited; however, there are initiatives from traditional banks.
Thai commercial banks such as Siam Commercial Bank (SCB) and Kasikornbank (KBank) have begun offering open API functions. Open Banking APIs include loan origination, payments, identity sharing, authentication, and slip verification.
There has been very little regulatory conversation about Open Banking in Thailand and to date, regulators have not initiated any frameworks or regulations on this issue. Nevertheless, there is room for financial service providers to experiment through Bank of Thailand’s regulatory sandbox.
In the Asia Pacific region, only Australia currently requires account providers to allow authorized TPPs to access customer data and initiate payments on behalf of clients. The Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) do not require that financial institutions provide open APIs, but have consulted with industry experts to create open API playbooks for banks.
What is DaaS?
DaaS providers capture, clean, organize, and process data from various sources. DaaS providers then deliver these value-added data services in different forms to clients mostly through APIs or Software-as-a-Service (SaaS) platforms. B2B clients of DaaS providers utilize data to build incremental business results or improve their products and services for their end customers. In B2C business models, end customers utilize data such as credit monitoring data in exchange of money or other incentives. The data comes in various forms including raw data, aggregated data, statistically analyzed data, visualized data, or advanced analytics.
According to IDC, there are multiple possible stakeholders in the DaaS ecosystem that are involved in different stages of service. Data Collectors obtain data from different sources. Data Providers process or analyze data before offering value-added data services such as transaction and customer insights to their clients. In some cases, clients can obtain data through Data Marketplaces, which are platforms where users buy or sell different types of data sets and data streams from several Data Providers.
According to Mordor Intelligence, a global market research firm, the highest growth of the DaaS market is found in APAC. Growth of the DaaS market is expected to directly correlate with the growth of end-user industries e.g. financial service DaaS market growth correlates with increased financial inclusion. Further, as DaaS is based on a cloud deployment model, its growth also correlates with cloud computing adoption. According to Forbes, demand for cloud computing is expected to increase to USD 160 billion by 2020, attaining a growth rate of 19%. According to synergy research group, although the APAC region does not yet account for a third of the worldwide market, it is growing much faster than the North American or EMEA regional markets.
Examples of DaaS Providers
There are several DaaS providers supporting the financial services industry. Examples include Equifax, Mastercard, UnionBank, and DBS.
Equifax, an American multinational consumer credit reporting agency, provides credit and demographic data to business and sells credit monitoring and fraud prevention services directly to consumers. Mastercard offers a powerful analytics platform that enables organizations to make better and faster business decisions based on real-time, anonymized and aggregated transaction data, and proprietary analysis.
Among the financial institutions engaged in the DaaS industry, UnionBank provides an API Marketplace that empowers developers to create new products and services by leveraging data from UnionBank and other fintech players. Another bank, DBS, has built BaaS and DaaS APIs for business clients. Each has a specific function related to sharing information and instructions, from balance inquiries to data required in settling a payment.
The Landscape of DaaS in Thailand
Similar to BaaS, the number of DaaS players in Thailand is currently limited compared to other countries like Singapore or UK where there are regulatory body-led initiatives regarding Open-API or Open-Banking.
There are two major initiatives in Thailand related to data and DaaS: NDID and PDPA. Initiated by Bank of Thailand, NDID (National Digital ID) is a platform to provide identity authentication (eKYC) that allows customers to do 100% online transactions such as eOpen Accounts and Digital Lending. DaaS providers will need to take into account the impact of NDID once it is fully rolled out. Another potential concern for DaaS providers is the Personal Data Protection Act (PDPA), Thailand’s streamlined version of the European GDPR. Of great relevance here is that the usage of data and API goes hand-in-hand with the data protection legislation.
Perfecting the customer experience is the ultimate goal of consumer-facing companies. Financial services and data help companies improve the customer experience, which provides opportunities for different stakeholders in BaaS and DaaS to play in the ecosystem. BaaS and DaaS business models allow different stakeholders to utilize their strengths and at the same time minimize costs by outsourcing the areas where they lack expertise. Therefore, players must identify their unique competitive advantage within the ecosystem in order to win this new-wave-of-finance game. In Thailand, financial institutions play a big role in implementing new banking technology. They quickly adapt to change as the industry is highly competitive. Therefore, they potentially expand their roles from license holders to BaaS and DaaS providers. Nevertheless, fintechs are likely to get a piece of a pie by providing products and services at lower cost and greater quality.
Authors: Panuchanad Phunkitjakran (Pook) and Phanthila Saengthong (Mook)
Editor: Krongkamol Deleon (Joy)
Business Insider’s BaaS market outlook for 2021: https://www.businessinsider.com/banking-as-a-service-industry
11:FS’s Banking as a service report: https://11fs.com/reports/banking-as-a-service
IDC Market Glance: Data as a Service: https://blogs.idc.com/2020/05/21/the-data-as-a-service-daas-market-at-a-glance/
Big Data as a Service market: https://www.mordorintelligence.com/industry-reports/big-data-as-a-service-market
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