How Banking as a Service Will Keep Banks Digitally Relevant and Growing

To contend with insurgent competitors, regulatory mandates and demanding consumer requirements, banks must embrace open APIs that enable them to plug-and-play in the digital business ecosystem and reinforce their value proposition amid escalating share-of-wallet challenges.

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Executive SummaryAlthough banks have traditionally been considered pioneers of process automation, they now find themselves in the background of today’s consumer-led, digitized financial services landscape.1 Insurgent financial technology competitors (fintechs) are disrupting traditional banking strongholds worldwide, bringing to market a wide assortment of innovative plug-and-play, multi-channel banking solutions. Such offerings — including digital wallets and peer-to-peer (P2P) lending and payment offerings — are increasingly finding favor among today’s device-obsessed consumers.

To retain wallet share, banks need to rethink the future of service delivery. Their competitive response, in our view, must transcend new-age technology adoption. Banks need to think progressively, and embrace a strategic and executional approach that enables them to innovate and consistently deliver hyper-personalized services across channels. By doing so, banks will show customers they know them, hear them and understand their needs and can deliver on them within the constraints of an ever-demanding regulatory landscape.

Banking as a service (BaaS) offers banks a way to level the playing field by radically shifting from being builders of financial solutions to assemblers of consumer-driven financial management tools and related offerings. By doing so, banks can accelerate their entry into new markets and quickly size up and meet the needs of digital consumers — or fail fast and move onto other more profitable services and consumer-relevant offerings.

However, the move to BaaS is not for the faint of heart. Banks must be willing to unlock their data and application services to partners (i.e., fintechs, third-party developers, retailers, etc.) through standardized and open application programming interfaces (APIs). They must also be willing to plug-and-play with new and emerging industry platforms in which they act as participants, not owners, of the customer experience and relationship.

Such an all-encompassing transformation must be considered over a continuum of time and is predicated on the bank’s appetite for risk and digital business maturity. It starts as an exploratory venture, moves to open API platform selection and expansion, shifts into core process transformation, and ultimately evolves into a comprehensive BaaS model. The full journey pivots around the following:

• Identifying a suitable API strategy.

• Building an API-led digital ecosystem.

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 3

• Forging beneficial partnerships with fintech firms and independent software developers to support and monetize APIs.

• Designing a change management strategy to implement and advance BaaS to ensure strategic alignment with business objectives.

With a successful implementation, banks can evolve from being a peripheral entity in the digital revolution to an important power broker that ignites benefits for consumers and partners across the digital value chain. Partners, in particular, stand to benefit from an expanded customer base, enhanced innovation, new sources of revenue and accelerated time to value.

This white paper introduces the BaaS model, offers an in-depth assessment of its challenges and benefits, and identifies critical success factors that can spur business success. We also detail our BaaS experience and know-how in devising a best-in-class BaaS strategy and roadmap that banks can adapt to jumpstart the journey. Finally, we look ahead at how the BaaS model will evolve via increased inter-bank and fintech collaboration.

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BaaS: Harnessing Digital’s Remedial Powers Traditionally, retail banks have owned end-to-end service delivery by tightly inte-grating experience, processes and products. However, this approach is under attack from all sides. Consumer-centric, born-digital fintech firms are competing directly for customers by providing superior user experiences, enabled by accessing application services and data across financial services providers. Traditional banks are forced to rethink their value proposition to stay relevant in this high-stakes battlefield.

As banks respond to this secular shift, BaaS has emerged as an effective weapon in their competitive toolkit. Key facets of this model include:

• A command of open banking APIs. BaaS helps banks open up traditional capa-bilities and assets to deliver more innovative customer-centric solutions. APIs offer the foundational backbone for provisioning BaaS, aiding and abetting traditional players to make the leap into digitization. Through APIs, banks can share data with internal developers, partners and third-parties such as fintechs, which then manipulate this data to construct valuable service offerings, includ-ing mobile payment applications, peer-to-peer lending solutions, analytical dashboards, etc.

• A shift to solutions assembly. The focus of an effective BaaS strategy is com-ponentized capabilities that facilitate plug-and-play operations. As a result, BaaS allows banks to reinvent themselves as assemblers of financial management so-lutions, tailored to meet customer needs. Componentization also promotes reuse, standardization and cost reduction.

• A tight focus on innovation and user experience. Provisioning consumable capabilities and data to external partners and third-parties can facilitate innova-tive customer-oriented offerings, such as a virtual intelligent banking assistant. These offerings could spur a multiplier effect for growing the customer base and revenue, while simultaneously reducing costs.

Pioneers such as Fidor Bank in Germany recently launched an API-driven open banking platform with a community of third-party developers. (For more on this topic, read the Cognizanti article, “Making Dollars & Sense of the Platform Economy.”)

This interactive platform accelerates customer onboarding and helps the bank acquire and/or partner with specialized fintech service providers. This initiative has also allowed seamless integration with a variety of new-age solutions in areas such as financial exchange trading, global money transfer and virtual currency innovations.

BaaS allows banks to reinvent themselves as assemblers of financial management solutions, tailored to meet customer needs.

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BaaS Trends and Market ShiftsMost global banks see BaaS as essential to propelling growth and addressing the demands of an ever-expanding digital business ecosystem. We see six industry trends redefining the banking industry and mandating a shift toward BaaS (see Figure 1 and below):

• The pervasive digitization of all elements of the banking business via a more clearly defined and precise service orientation of product offerings. Device-led digital proliferation is becoming the rule among younger and more technologically-affluent custom-ers. In response, banks have shifted their strategies to focus on the customer journey and deliver perso-na-driven experiences informed by data insights and foresights, as well as just-in-time business/service models. By improving their service orientation and modularizing product offerings, banks can catalyze their efforts to transform the customer experience.

For example, to take advantage of the burgeoning digital wallet market space, MasterCard launched its Partner Wallet API, which enables external digital wallet solutions to plug into the MasterPass Acceptance Network to leverage value-added services such as check-out, fraud detection and authentication.2

• Competing, cooperating with fintechs to drive innovation. The digital age has enabled fintechs to increase their consumer relevance through innovative ser-vice offerings (e.g., peer-to-peer lending, crowdfunding, etc.). To compete as an agile orchestrator of the digital economy, banks are partnering with or acquiring fintechs to provide end-to-end services and drive innovation.

Key Trends Influencing ‘Banking as a Service’

To compete as an agile orchestrator of the digital economy, banks are partnering with or acquiring fintechs to provide end-to-end services and drive innovation.

Changing regulatory context accelerating industrialization.

Pervasive digital transformation mandating improved service orientation of product offerings.

Banks trying to compete or partner with fintechs to drive innovation.

Open banking platforms built on service-oriented architectures.

SMBs trying to leverage simpler, more effective banking options.

Major shift in banking business architecture to support componentization.

Figure 1

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For example, American Express recently partnered with research lab Ideas42 to crowdsource innovative financial software solutions, in an effort to cultivate and deliver new offerings to existing customers and attract new ones.3

• Participating in the open banking platforms revolution via service-oriented architectures. The open banking revolution is gaining momentum through the Open Bank Project,4 a leading initiative to provide a standardized structure for sharing banking data. Most importantly, this initiative promises to securely ex-pose data through an API in a simple and consistent manner by abstracting the peculiarities of each banking system and enabling developers to write an applica-tion once, which can then be used across multiple banks. The UK has embraced the open banking platform concept and plans to implement a mandatory UK open banking API standard. This would mandate a nationwide standardization of an API that will enable third-party providers to securely access data from any UK bank.

Spanish bank BBVA is already striving to gain competitive advantage from the European Union’s Payment Services Directive (PSDII) by building an open API platform that helps developers enhance their solutions in areas such as P2P, personal finance management and biometrics.5

• Acceding to the demands of small to medium-size business players for more intuitive banking options. The prospect of enhanced convenience is pushing smaller business players to convert to easier to use banking options. For example, small businesses are setting up online payment services with new cloud entrants, such as FreshBooks,6 and even seasoned players like PayPal. To stymie the out-flow of customers, banks must either partner with these new cloud entrants or offer relevant services to make banking for smaller companies more user-friendly.

• Partaking in the industry shift to componentized business systems archi-tectures. To infuse flexibility into the digital ecosystem, new-age IT architectures are arising to support functional modularization. Architectural componentization is driven by the internationalization of APIs across the banking industry, allow-ing financial institutions to seamlessly layer their technology offerings like build-ing blocks rather than monolithic systems. This plug-and-play structure makes it easier and quicker for banks to develop new services and business channels.

Deutsche Bank is developing plug-and-play modularized solutions in the inter-national transaction services area for companies and their clients that wish to configure faster, more efficient and simpler transaction routines.7

• Contending with an ever-changing regulatory context and accelerating in-dustrialization. The banking industry is no stranger to regulatory change, but compliance demands have accelerated in recent years, requiring high levels of technology investment. By componentizing their IT architectures through mi-croservices,8 banks can respond to new regulations more quickly and with mini-mal disruption, opening the doors to full-fledged BaaS models. Banks are also being compelled to implement BaaS by governments and their regulatory bod-

Architectural componentization is driven by the internationalization of APIs across the banking industry,

allowing financial institutions to seamlessly layer their technology offerings like building blocks rather than

monolithic systems.

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 7

ies, many of which are focused on increasing consumer protection, encouraging open competition and breaking down traditional barriers to industry entry.

For example, the EU’s PSDII initiative is aimed at reducing barriers to entry for nonbank card and Internet payment providers. The directive, which is scheduled to become law in 2018, would oblige banks to reveal pertinent financial data to third-parties through APIs.

These trends will proliferate, as digital technology has only scraped the surface of its full potential in the banking industry. Banks should welcome these trends, as digital transformation can introduce unprecedented growth and benefits.

Digital Ecosystem Advantages of Using BaaSThe benefits of creating an API ecosystem are plentiful, as banks can tap into external innovation through data and logic exposed through open APIs (see Figure 2). They can then utilize these capabilities to develop and drive new service solutions and enhance the customer experience, customer loyalty and their wallet share. By doing so, banks will find new sources of revenue and attract new customers, particularly digital natives seeking more convenient and innovative offerings.

Improve Time to Value and MarketComponentize data and business logic to significantly reduce the time to build and deploy applications.

Foster and Leverage InnovationDrive innovation by capitalizing on the composition of different APIs, both yours and third parties.

Grow the Customer Base Grow the customer base by

attracting customers to products and services through API

ecosystems.

Provision End-to-End Capabilities to Create New Sources of Revenue Create new revenue sources (cross-sell/upsell opportunities) for financial institutions due to the advent of API-driven channels (new business channel for managing APIs).

BaaS Business Benefits

Figure 2

Banks can tap into external innovation through data and logic exposed through open APIs. They can then utilize these capabilities to develop and drive new service solutions and enhance the customer experience, customer loyalty and their wallet share.

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Not only does the BaaS model expedite a bank’s ability to respond to market conditions and shifting customer demands, but its componentized nature also allows for the rapid industrialization and implementation of newly developed service solutions. BaaS also exposes banks to risk, including loss of control over customer engagements, consumer base fragmentation and the erosion of bank-led product innovation. Banks need to manage such outcomes to achieve their business objectives.

For example, BBVA9 is embracing an open platform business model, with a focus on building an API-driven marketplace. The creation of this marketplace has allowed BBVA to widen its reach, grow customers and build market recognition. Since 2006, BBVA has undertaken a continual improvement journey toward digitization that includes creating a dedicated digital banking division; starting a fintech-focused capital firm to tap innovations and proactively engage digital disruptors; acquiring startups such as Holvi and Madiva; and investing in digital banks, such as Atom Bank (currently undergoing due process).

Connecting the BaaS DotsProactive banks have recognized the multitude of benefits offered through BaaS and are now embarking on the journey of gradual BaaS adoption (see Figure 3).

The first step of the journey focuses on discovery and experimentation. Banks typically start by building a tactical API gateway and layering it on top of their existing technology stack to expose services. This involves utilizing the capabilities of multiple API management vendors and developing customer-facing mobile apps with limited connectivity into core systems.

The BaaS Adoption Continuum

Initial Exploration• Partner/internal apps

with limited core system integration.

• Tactical API gateway built on existing technology stack.

• Utilization of multiple API management vendor capabilities.

• Low investment and short timeframe.

• API management platform implemented.

• Basic API portal established.• Business-prioritized

systems/use cases exposed.• Moderate level of investment.

Platform Selection & Expansion

• APIs providing commoditized services.

• Moderate core system integration.

• Low development effort.

Core Process Transformation

• API-based scalable service model.

• High level of core system integration.

• Legacy processes transformed.

• API ecosystem with metering and monetization.

• Elastic back-end architecture.• Collaborative community

management portal for partners and developers.

• Highly dynamic and personal-ized architecture.

• Run like a product: Automated customer-centric ecosystem.

• Organic services and architecture enabled by loosely-coupled components.

Full-Fledged BaaS• Fully functional API

marketplace established as a new banking channel.

• API development for self-serve IT.

• Time to market for app development reduces to days from weeks.

HOW

WHAT

Figure 3

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 9

As adoption evolves beyond the testing phase, an API management platform and a basic API portal are established. Business-prioritized systems and use cases are then exposed, which mandate moderate integration of core systems and a medium level of investment.

The next stage involves the transformation of the bank’s legacy systems to accommodate and link with the newly developed API strategy. An API ecosystem with metering and monetization is established, creating an API-based scalable service model. The high level of integration now makes it possible for partners and developers to engage through a collaborative community management portal, producing an elastic back-end architecture.

The final stages of integration and adoption necessitate a highly dynamic and personalized architecture. The channel is now run as a product and establishes a comprehen-sive ecosystem of symbiotic partners and third-party providers. Loosely-coupled components enable organic services and a flexible architecture, leaving the bank with a fully functional API marketplace that is regarded as a new banking channel.

Moving Forward with BaaS When adopting the BaaS model, banks must take a personalized, in-depth look at their organization’s strategy and future initiatives, through a multi-dimensional lens. Figure 4 illustrates six crucial considerations that can facilitate successful BaaS adoption.

1. Identify Business Capabilities to Offer as a Service To identify optimal business capabilities, banks must first define their specific goal for providing BaaS, whether it’s enhancing customer service, monetization and revenue growth or gaining first-mover advantage. Depending on the response, the company can then develop a fitting strategy.

For example, if first-mover advantage is important, banks must provision commod-itized service capabilities to facilitate rapid industrialization and ease of implemen-tation (for example, access and user authentication or account summary listings). A large private bank in India is partnering with the fintech MatchMove, a Singapore-based company that offers virtual card and remittance services to tap into the e-commerce and payments market.10

On the other hand, if maximizing economic returns is a priority, the bank must provision services that provide enhanced customer returns, which requires awareness of the regulatory/compliance context. Fidor opened its banking services

Loosely-coupled components enable organic services and a flexible architecture, leaving the bank with a fully functional API marketplace that is regarded as a new banking channel.

BaaS Success Factors

Figure 4

Business capabilitiesconsidering regulatory context

Ecosystem andpartnerships

Monetizationand pricing

Technology strategyand security

Operatingmodel

Marketing andchange management

1 2 3 4 5 6

BaaS

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and partnered with Currency Cloud to integrate the company’s international payment engine capabilities into its own banking system through APIs. In doing so, it became the first bank to offer a regulated e-wallet that allows customers to buy currency, make payments and view balances in a wide array of currencies.11

APIs are driving industry innovation and enhancing services in the following areas:

• Fund transfer and digital payment. These APIs enable seamless money trans-fers across banks and applications, and are the most prevalent APIs utilized in the industry.

• Cross-border transactions. These APIs enhance the security of cross-border money transfers, including AML/KYC APIs (anti-money laundering/know your customer). This helps banks and organizations verify customer identities and prevent money laundering.

• Loyalty and rewards management and CRM. These APIs allow merchants and banks to partner on offering perks and reward packages.

• Portfolio dashboards. These APIs consolidate all customer accounts and finan-cial products into one visual dashboard, allowing for a comprehensive snapshot view of customers’ current financial situation.

Figure 5 illustrates the economic benefits and implementation effort required for a variety of business capabilities that are currently being provisioned as a service in the banking industry. This reveals four categories of initiatives that a bank may seek to accomplish when adopting the BaaS model.

API-driven Banking Capabilities

Implementation Effort

RAPID INDUSTRIALIZATION CAUTIOUS DEFERRAL

EARLY INVESTMENT

API Architectural Complexity: LOW

LOW

HIGH

HIGH

MEDIUM HIGH

MID- AND LONG-TERM FOCUS

Branch banking add-ins (i.e., branch locator)

Forex quotes, rates and deal management

Accounts,transactions,balancemanagementand listings

AML/KYC

Market events monitoring and feeds

Access and user authentication

Eligibility and comparisons

Loyalty and rewards management, CRM Trading order

management

Portfolio dashboard

Content and quotations

Liquidity review

Beneficiaryrecordmanagement

Cross-border transactions

Corporate entitlements and CRM

Revenue analytics

Fund transfer/digital payments and payment data management

Tota

l Eco

no

mic

Ben

efit

s

Figure 5

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 11

The BaaS Digital Ecosystem and Partnerships

Figure 6

Internal APIs

Internal APIs

Partner APIs External APIs

App Stores

Consumers

Providers

ApplicationEndpoints

DifferentiatedUser Experience

EnterpriseAssets &Services

Increased Revenuethrough New Channels

API proxies can be leveraged to quickly and securely expose and enable internal teams/partners to consume core data and services.

Internal enterprise-level integration:Provide quicker onboarding and seamless integration, leading to standard-ization of APIs.

Citi’s platforms and channels can be consolidated through internal APIs, thereby reducing cost and complexity and introducing agility.

Partner APIs

APIs are specifically designed for partners to access business functions, depending on the business relationship of the partnership.

Enhancement of the partner experience through omnichannel:Enable consumption through personalized API product experiences for B2B adoption.

Dwolla-FiSync has partnered with BBVA Compass API to access real-time bank transactions.

External APIs

APIs are tuned and designed per the needs of external partners and third-party developers.

Promotion of new business models:Create new revenue streams, business models and, in rare cases, direct consumer integration.

Fidor is leveraging its API that allows developers to create add-on services in a marketplace format.

AP

I Cre

atio

nA

PI C

on

sum

pti

on

Exa

mp

les

2. Form Beneficial Partnerships and an Interactive Ecosystem Despite the many BaaS benefits, adoption is still in its infancy, as many banks are unwilling to lose control of the customer. The inherent risk of banks transform-ing into a back-office service provider and allowing fintechs to control customer interactions is very real. Banks face a conundrum: If they don’t embrace BaaS, they lose out to competition from new technology entrants, and if they do adopt BaaS, they risk losing customer engagement. The answer lies in effectively developing beneficial partnerships, which can be accomplished by considering the following:12

• Ensure the third-party partnership does not result in a fragmented customer experience or impede the bank’s ability to pursue innovative operating models.

• Structure the partnership so that APIs equally benefit the bank and the fintech provider. For example, APIs provide fintechs with a broader market in which to sell their services, and banks benefit from the ability to cross-sell related products and services hosted elsewhere on the platforms in which they participate.

• Adopt co-branded partnerships (i.e., partnerships in which the fintech develops services to deliver bank-branded services).

When building BaaS capabilities, organizations must also consider how to create an effective ecosystem of internal developers, partners and third-party providers. This can be accomplished by establishing a comprehensive developer portal that optimizes internal partner and third-party developer effectiveness and productivity.

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It is also important to institute a dedicated function to manage developer, partner and third-party relationships. For example, Barclays promotes an investor-driven program called Barclays Accelerator to team up with third-party developers and new fintechs for business collaboration.13

Figure 6, previous page, provides an illustrative example of how banks can leverage these partnerships and commercialize their data based on different relationships.

3. Consider New Pricing Models to Extract Greater Business Value More so than any other for-profit institution, banks recognize that all business endeavors must have an eventual payout. Banks will typically make APIs available to partners and developers to create solutions for end-user consumption. Best-in-class monetization practices indicate a hybrid model, in which APIs and services are individually tagged to the highest ROI method: End-users can pay transaction fees to use the solution; partners and/or developers can pay for service/data usage; and partners and banks can enter into a revenue-sharing agreement, such as pay-per-click advertising.

Figure 7

LIFECYCLE OFPARTNER APIs

FINANCIALINSTITUTION

used by internal developer groups, CoEs, business unit IT

APIs for front-end

or back-end services

APIs for front-end or back-end services

used by partners and affiliates

used by external developers

Revenue sharing, third-party data sharing fees, API

usage feesTransaction

fees %

used by end-users(internal users, external customers)

Free usage API

to develop

to develop applications

applications (finished end-products)

Transfer pricing (in case of BU usage) or cost savings

Internal APIs

Partner APIs

External APIs

used by end-users (external

customers)

used by end-users (external customers)

API

API

to develop applications

API usage fees

Transaction fees %

LIFECYCLE OFINTERNAL APIs

API Provisioning Platform

LIFECYCLE OFEXTERNAL APIs

API

API Monetization: Context and Lifecycle

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 13

For instance, Nationwide in the UK has partnered with Apple Pay to launch a digital wallet solution. The solution is built on a hybrid revenue-sharing agreement. The solution allows users to store card information for the bank’s credit and debit cards, making contactless purchases with a single sign-on that is secure across various storefront channels. It is built on APIs that make such services seamless across platforms.14

Figure 7 (previous page) illustrates leading monetization models that have been implemented by early adopters.

To succeed, these monetization approaches should provide:

• Comprehensive developer portals with easy access to API documentation, along with forums for developer collaboration.

• Comprehensive security features, such as approvals, authorization, open security standards or OAuth 2.0 for authentication and key management services. More sophisticated API management platforms support multi-tier access control methods that specify which developers can access which APIs. Usage monitoring is also part of this multi-tier access control capability. For example:

> Traffic control: The traffic control feature protects back-end systems from overload by enforcing levels of partner access for data consumption.

> Scalability: API management platforms address scalability issues by support-ing open source and customer-modifiable extensions.

> Analytics and reporting: Comprehensive analytics measure traffic, purchases and registrations.

4. Create an IT Roadmap that Supports Innovation, Inside the Bank and across the Ecosystem In addition to implementing the API management platform, the technology strategy should also focus on:

• API development lifecycle: Deploy Agile SDLC lifecycle and other modern approaches, such as DevOps and Test Environment Management Service for API development

• API design: Utilize API design pattern standards to support discovery, versioning, URI naming, etc.

• Internal data management: Establish a dedicated API data management and governance function, which focuses on data acquisition, data transformation and data quality management.

• Integration: Institute a clear API integration strategy with secure, sustainable and scalable integration interfaces (e.g., the use of an enterprise service bus to channel data from multiple core systems within the organization).

5. Identify an Operating Model that Advances Business Objectives Develop an efficient operating model that supports BaaS by constructing a dedicated channel that is actively managed and structured to align business with IT. This process can be incubated through the creation of an enterprise center of excellence (CoE) that focuses on architecture, engineering, governance and security management. The lines of business will be responsible for deciding on the service catalog and associated requirements to be provisioned using BaaS. This structure ensures standardization and enables effective organizational control for the service design.

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6. Rethink Marketing, Instituting Change Management The change and marketing management for API strategy implementation espouses a more holistic and constructive approach for instituting the digital DNA across the bank. The focus would be to launch the API ecosystem as a startup and scale it to the entire banking function. This process necessitates a clear change strategy, engaged leadership, effective stakeholder management and communica-tion, continual training and education, and operating model alignment to ensure successful adoption.

Decoding the Critical Factors As banks embrace BaaS, they must also be cognizant of the factors that influence success. A look at early BaaS entrants that have implemented digital initiatives and continue to innovate reveals the following success factors:

• Ensure sustained senior leadership commitment and engagement. BaaS is more than IT. Success typically pivots around effective organizational change management that opens senior leaders’ minds (and pocketbooks), to the concept of open APIs and new business models that spawn new revenue generation op-portunities. By establishing an internal task force to incubate BaaS, banks can establish a dedicated team focused on market scanning, benchmarking and best practice initiatives.

• Develop a holistic BaaS strategy and roadmap. The strategy should extend beyond IT into business process, organizational and attitudinal change. Banks need to nurture a startup mindset and an entrepreneurial culture, and follow agile principles such as “start small, scale fast.”

• Build an ecosystem of partners. Industry experts or outside vendors can help with building and scaling the model.

• Consider the impact of service design to existing business processes/models. Integration or process reengineering may be required.

• Actively promote the bank’s API to attract consumers to the ecosystem. Banks can sponsor campaigns and industry-wide competitions to build momen-tum and appeal to developers and third parties.

• Communicate, communicate, communicate. Education and training can help inspire enthusiasm throughout the organization and among partners.

Getting Started As a first step toward BaaS enablement, we typically take a structured, three-step approach to define a BaaS best practice strategy and roadmap leveraging APIs (see Figure 8, next page). Based on our industry experiences gleaned from numerous client engagements, we take a holistic view of an organization’s situation and desired capabilities.

To develop a strategy and roadmap for BaaS, it is imperative to comprehensively understand the current IT state and business capabilities, and recognize the organi-zation’s vision and direction moving forward. Following the current state assessment and finalization of the desired direction, the organization can then design the target-state BaaS.

This involves identifying the right set of business capabilities to enable BaaS, devel-opment of a business and technology reference architecture, selection of the right API management partner, identification of the crucial technology components and investments for the API ecosystem, and design of a target operating model to enable the API ecosystem across the bank.

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 15

Understand the Current-State Bank Vision, Direction and Capabilities

Business Strategy

KEY DIMENSIONS

Growth model and business capabilities

BaaS Strategy Leveraging APIs Develop the business and technology reference architecture.

Ecosystem Development and PartnershipsIdentify the API management partner to develop the API ecosystem.

Implementation roadmap for instituting the API ecosystem

Immediate change considerations and next steps

Information architecture and data flow

Security policies, standards and constraints

Operating model

Technologycompetencies

Bank Vision and Direction

Current-StateCapabilities

Design the Target State Banking as a Service

Develop the Change Roadmap and Implementation Plan

1

2

Monetization Develop the business case for bank and partner APIs.

3

API DevelopmentPartner, develop and host APIs.

4

Change ManagementDesign and execute the organization change management strategy.

5

An Approach to BaaS Strategy Assessment and Roadmapping

Finally, the organization must develop the roadmap and implementation plan for instituting the BaaS model, and develop a change management strategy to embrace, evangelize and adapt to the new API strategy.

Looking AheadTechnological advancements are accelerating the trend toward IT consumerization, commoditized banking services and higher consumer expectations for convenience and accessibility. In response, we foresee many banks embracing a service-oriented and componentized architectural approach that will result in a massive reengineer-ing of traditional back-end processes. Furthermore, the advent of open banking standards will further catalyze componentization, resulting in increased inter-bank and fintech collaboration in the near future.

The impact of BaaS will only grow, as banks continue to address shifting consumer needs, expectations and technology-enabled capabilities, and innovate to outma-neuver the competition. To stay digitally relevant, preserve market share and retain an industry presence, most banks will need to fully embrace BaaS.

As the financial services industry evolves, the BaaS movement will emerge as a win-win-win proposition for banks, third-party developers and consumers, alike.

Figure 8

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Footnot es1 “IT Glossary,” Gartner, http://www.gartner.com/it-glossary/consumerization.

2 “MasterPass Partner Wallet,” MasterCard Developer Zone, https://developer.mastercard.com/portal/display/api/MasterPass+-+Partner+Wallet.

3 Mary Wisniewski, “Amex to Crowdsource Financial Inclusion Ideas from Academics,” American Banker, Sept. 12, 2014, http://www.americanbanker.com/issues/179_177/amex-to-crowdsource-financial-inclusion-ideas-from-academics-1069913-1.html.

4 Open Bank Project overview, https://openbankproject.com/about/.

5 “PSD2, a Business Model Perspective: Financial APIs Will Foster Business Model Innovations,” BBVA Research, December 2015, https://www.bbvaresearch.com/wp-content/uploads/2015/12/DEO_Dec15_Cap3.pdf.

6 FreshBooks website, https://www.freshbooks.com/.

7 Scott Thompson, “Deutsche Bank Preps Plug and Play Payments Integration for SAP Users,” IBS Intelligence, April 11, 2016, https://ibsintelligence.com/ibs-journal/ibs-news/deutsche-bank-preps-plug-and-play-payments-integration-for-sap-users/.

8 “What Are Microservices?” Opensoure.com, https://opensource.com/resources/what-are-microservices.

9 “BBVA Acquires Digital Banking Start-up Holvi,” Holvi press release, March 7, 2016, https://about.holvi.com/cmsmedia/filer_public/fd/25/fd25aba3-0cde-41ec-95c8-f8651e6f1a85/holvi_release_7_mar_2016.pdf.

10 “YES Bank Ties Up with MatchMove Pay to Tap Booming E-commerce Market in India,” Fintech Innovation, Oct. 8, 2015, http://www.enterpriseinnovation.net/article/yes-bank-ties-matchmove-pay-tap-booming-e-commerce-market-india-543464835.

11 Matthias Kroener, “Fidor Bank Case Study,” Currency Cloud, https://www.currencycloud.com/case-study/fidor-bank/.

12 Manish Grover, “Don’t Give Away the Store When Enabling APIs,” American Banker, Feb. 3, 2016, http://www.americanbanker.com/bankthink/dont-give-away-the-store-when-enabling-apis-1079149-1.html.

13 Barclays Accelerator website, http://www.barclaysaccelerator.com/#/.

14 “Apple Pay Available for Nationwide’s Customers in the UK from Today,” Nationwide press release, July 14, 2015, http://www.nationwide.co.uk/about/media-centre-and-specialist-areas/media-centre/press-releas-es/archive/2015/7/14-apple-pay-available-today.

References• Chris Skinner, “Banking as a Service, Five Years Later,” The Finanser, May 2015, http://thefinanser.

com/2014/05/banking-as-a-service-five-years-later.html/.

• Mehdi Medjaoui and Mark Boyd, “Banking APIs State of the Market,“ Axway, November 2015, https://www.axway.com/sites/default/files/report_files/axway_report_banking_apis_state_of_the_market_report_apidays.pdf.

• Penny Crosman, “Fintech Glasnost: Why U.S. Banks Are Opening Up APIs to Outsiders,” American Banker, July 8, 2015, http://www.americanbanker.com/news/bank-technology/fintech-glasnost-why-us-banks-are-opening-up-apis-to-outsiders-1075284-1.html?zkPrintable=1&nopagination=1.

• Bill Doerrfeld, “FinTech and APIs: Making the Bank Programmable,” Nordic APIS, http://nordicapis.com/fintech-and-apis-making-a-bank-programmable/.

• David Bannister, “Is Everybody API?” Banking Technology, Oct. 14 2015, http://www.bankingtech.com/383591/is-everybody-api/.

• “Fintech: Friend or Foe?” Banking Technology, Dec. 22, 2015, http://www.bankingtech.com/415672/fintech-friend-or-foe/.

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 17

About the Authors

Philippe Dintrans is the Senior Vice-President and Global Consulting Leader of Cognizant Business Consulting’s Banking and Financial Services Practice. Philippe has led numerous consulting engagements covering business transformation, IT transformation and change management for marquee Cognizant clients. He holds a master’s of science degree in engineering from the Massachusetts Institute of Technology (MIT) and an MBA from INSEAD. He can be reached at Philippe.Dintrans@cognizant.com.

Amit Anand is a Senior Director within Cognizant Business Consulting’s Banking and Financial Services Practice. He has 14-plus years of experience successfully leading and managing large business/IT transformation and operating model initiatives for various clients. Amit holds a bachelor’s degree from the IIT Delhi and an MBA from the Indian School of Business, Hyderabad. He can be reached at Amit.Anand@cognizant.com.

Madhusudan Ponnuveetil is a Senior Consulting Manager with Cognizant Business Consulting’s Banking and Financial Services Practice. He has more than 12 years of experience leading large IT operating model innovations, IT performance improve-ment and change management initiatives. Madhu holds an MBA from Asian Institute of Management, Philippines, and a bachelor’s degree in engineering from MSRIT, India. He can be reached at Madhusudan.Ponnuveetil@cognizant.com.

Ardhendu Acharya is a Consulting Manager with Cognizant Business Consulting’s Strategy and Transformation Practice. He has more than eight years of experience managing consulting engagements across target IT operating models, business-driven IT strategy and cost optimization initiatives. Ardhendu holds an MBA from the Rotterdam School of Management, Erasmus University, the Netherlands, and a bachelor’s degree from Anna University, India. He can be reached at Ardhendu.Acharya@cognizant.com.

Adam Chardukian is a Senior Consultant with Cognizant Business Consulting’s Banking and Financial Services Practice. He has more than six years of experience in consulting, financial analysis, Lean/Six Sigma implementation and sales and product management. Adam holds an international MBA and a bachelor’s degree in finance and global supply chain and operations management from the University of South Carolina. He can be reached at Adam.Chardukian@cognizant.com.

18 KEEP CHALLENGING June 2016

HOW BANKING AS A SERVICE WILL KEEP BANKS DIGITALLY RELEVANT AND GROWING 19

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