Oliver Wyman: Banking-as-a-service could provide new revenue
With a new Banking-as-a-Service (BaaS) model, financial services providers can save up to 95% of a typical customer acquisition cost, from a range of US$100-200 million to between US$5 million to US$35 million.
According to the report, the BaaS model is set to rise as a new battleground for financial incumbents and their digital challengers, with the model offering potential to generate significant new revenue growth for both financial and non-financial businesses.
Major revenue growth for both parties
BaaS is enabled by the seamless integration of financial services and products into other kinds of customer activities, typically on non-financial digital platforms, such as e-commerce, travel, retail, health, and telecom. This allows such businesses to then distribute financial products under their own brands, so the customer experience is of taking out a loan when checking out of an e-commerce store, for example, but the loan product is actually provided by a bank.
According to the report, which looked into select markets in the Asia-Pacific region, both financial institutions and distributors could achieve major revenue growth by launching BaaS business models. With a 4-5% of penetration rate, it would generate between US$5 million and US$13 million in revenue for every million customers that purchase financial products on the digital platform, creating enormous opportunities for fee-sharing-based partnerships.
“BaaS is a great opportunity for existing banks, insurers, and wealth managers to reach a greater number of customers at a lower cost by teaming up with non-financial businesses”, says Dan Jones, an Oliver Wyman Digital Partner and the lead author of the report. “But if they do not react in a rapid, strategic manner, BaaS could also pose a threat, as it opens up the financial services market to new challengers.”
Convening digital tech platforms and finance
Digital challenger banks are now running at a fraction of the cost of incumbents, according to the report. Some technology companies have obtained banking licenses, enabling them to offer their BaaS platforms to distributors who want to provide financial products to their customers.
This leaves incumbents with just a few competitive advantages: the regulatory license, the handling of cash through branches, and a recognised, trusted finance brand.
To fight back, financial incumbents have been spending billions of dollars on digitalisation, while the report suggests strategic decisions over BaaS model and potential partnerships with digital platforms.
Believing that BaaS will bring together digital technology platforms and finance to change the shape of economies and most sectors for years to come, Jones says that financial incumbents should start making decisions about how to enter this growing business – what products to offer and which partners to work with.
“For distributors, it is also an opportunity to gain a much deeper understanding of consumer behaviour through financial data,” he adds.
DBS Bank expands digital trade finance on Contour platform
DBS Bank has boosted its digitalisation extending its offerings on trade finance network Contour to corporate customers in four key Asia-Pacific markets – Australia, China, Hong Kong and Singapore.
Singapore-based DBS was the first bank to sign up to Contour’s beta network and completed the first fully digital Letter of Credit (LC) transaction on Contour last year. The bank has moved to Contour’s production network to offer streamlined digital LC transactions for customers, to help digitise global trade.
Contour’s network focuses on digitising paper-based trade finance processes which can be expensive and time-consuming.
APAC is seen as a key region for digitisation of trade finance as banks and corporates seek to mitigate risk and enhance cost efficiency, including moving away from traditional paper-based LC processes.
Via Contour, which is also based in Singapore, DBS will be able to provide a fully digital end-to-end LC settlement process for customers in Australia, China, Hong Kong and Singapore, including the transfer of electronic trade and title documents – increasing efficiency in the process by up to 90%.
Digitised trade finance builds resilient ecosystem
“Our partnership with Contour aligns with DBS’ ongoing efforts to drive greater efficiencies in trade and unlock strategic value for our corporate customers,” said Sriram Muthukrishnan, Group Head of Trade Product Management, DBS Bank.
“We recognise that digitisation is a powerful enabler to simplify the highly complex nature of trade finance, especially for processes relating to letters of credit. Digitising trade processes is also an increasingly relevant and heightened priority for corporates to survive and thrive in the new normal and will form an integral component for resilient trade ecosystems of the future.”
Contour’s decentralised network increases security as it validates all identities and leverages technology partners to match trade documents to real-time data. Contour also offers a sustainable way for companies to reduce their carbon footprint.
“The addition of another major Asian bank to our production network highlights Contour’s growing presence in APAC as an industry standard for digitising trade finance documentation,” said Carl Wegner, CEO at Contour.
“DBS has been an important partner for Contour in our work to support Singapore’s position as a key trading hub and has already participated in a number of successful transactions on our network. We’re delighted to facilitate its transition to offering live services to customers in these four markets. This is another important step on our journey to becoming the new digital end-to-end infrastructure for global trade.”