Innovative banking ecosystems flourish as banks embrace the Greenfield approach, separating core functions for enhanced agility. Riaz Syed, the CEO and founder of Infinant, highlights how this shift has propelled the growth of Banking-as-a-Service (BaaS), fostering innovation across the financial landscape.
Being independent of previous infrastructures allows developers to explore and create, which is why the greenfield concept has been so popular in Banking-as-a-Service (Baas). BaaS has been a welcome opportunity for banks to bundle their existing products with newer fintech services. The result? New business models and offerings that were previously impossible in legacy infrastructure, releasing sustained growth into the global financial economy.Â
First conceived in the late 00s, BaaS laid the foundation for the ecosystem of fintech startups working with embedded finance that we see now. The BaaS market now includes banks, wealth management firms, insurance providers, brands, and startups that offer supporting tech rather than the underlying financial services solutions.
So how can the greenfield approach complement the successful implementation of BaaS?Â
How Big Could BaaS Become?
As an industry, it doesn’t seem to be slowing down soon. Verified Market ResearchOpens a new window suggests rapid digital transformation, innovative new players, and the growing presence of application programming interfaces (APIs) will drive the BaaS market size to just under seven billion by 2030, with a CAGR of 32.9%.Â
Plug-and-play apps now stack together to form the fintechs we recognize, like PayPal, CardConnect, and Kash. This way, traditional banks have become decomposed, acting mainly as account registries, sweeping away legacy systems in favor of a Greenfield approach. Without previous limitations in place, fintechs can offer the connectivity, products, and services needed to free up the opportunities made possible by BaaS.Â
The Real Cost of Legacy Systems
Before BaaS models, banks had been anchored by the legacy infrastructure of their core banking providers. However, this also means banks depend on what products and services they can roll out based on their core provider’s capabilities. Banks can dictate their offerings, timelines, and costs when tied to a core provider with a legacy system and hard-wired ancillary systems.Â
Research in the Journal of Applied Computing and Informatics suggests that around 75% of bank and insurance company IT budgets are dedicated to maintaining existing systems. While a legacy system might seem stable, it can quickly become difficult and costly to support.Â
See More: Making the Shift From Legacy Systems to Cloud
What Can a Greenfield Approach Offer BaaS?
Starting with a Greenfield approach is one-way. Banks and businesses can side-step outdated and cumbersome architectures. Starting fresh means creating the ability to scale your banking infrastructure to allow for dynamic change, growth, and adaptations as necessary.Â
Digital-first banks like Monzo and Starling are great examples of how cloud-based infrastructures aid speed, cost, and mobility. Allowing room for scale is one way BaaS is helping to future-proof and streamline our financial systems.Â
See More: Brownfield or Greenfield: Who’s field is this anyway?
Adopting a Greenfield approach has three main benefits for BaaS:Â
1. The ability to run above the coreÂ
Fintechs have created a competitive market by allowing BaaS to run above the traditional cores. This refers to the ability to deliver products, store customers and accounts on a lighter-weight platform, and only settle to the legacy core at the end of the day.Â
As banks adopt their own BaaS platforms and gain the ability to run above the core, they can offer new products and services without being dependent upon a big core migration or a core modernization effort. Allowing banks to introduce new products in months versus years accelerates the competitive landscape for banks, shifting control from fintech to banks. Â
2. Going outside your current bank footprintÂ
Working with fintechs and brands means your business model can take advantage of new geographies, customer segments, and products. Instead of being a big bank with millions of customers, community banks typically brand themselves as focusing on segments in one area, but this can also make it a challenge to find avenues for growth.
The power of a Greenfield approach in BaaS is how banks can expand their target markets. A brand or fintech might have an app that helps minority-owned startups raise capital and manage their cash flow. This is beyond a community bank’s usual remit, so partnering with that fintech may allow them to expand their geographic reach and customer demographic. With the flexibility of a Greenfield approach, the bank allows a brand or fintech to handle the last-mile delivery of its products and services. Â
3. RebundlingÂ
Brand and fintech partnerships also open possibilities for new products through rebundling. When you think of the last-mile delivery of financial products and services, it is about being able to decompose traditional banking apps and rebundle products and features in ways that meet customer intent at their point of need. So think of how customers are now given payment options upon checkout – based upon the purchase amount, current account balance, and upcoming bills. The tasks the customer would typically have to go through in their online banking application are now done for them—at the time of need, being the checkout process.
The rebundling paradigm also spans businesses. Many banks view business banking as a single segment. But the nature of their business, or vertical, influences the types of products and services they may need.Â
A dentist should be able to offer quick financing options to customers with a Buy Now, Pay Later option for an emergency procedure. The dental practice itself may also need equipment financing as they upgrade facilities. A different vertical, such as self-storage franchises, may need regular short-term loans to manage cash flow or payroll services for hourly contract workers.Â
By using a Greenfield approach that decomposes the banking cores and frees its associated functions, banks can bundle multiple products and services to suit the needs of a particular business vertical. This financial bundling can reimagine how banks target new market segments and become hyper-personalized to retail and business customers to grow their deposits and lending.
The Bank Opportunity
As banks gain confidence in BaaS and launch their programs on their platform, their ability to free themselves from their dependency on outdated core systems creates a Greenfield opportunity. That will lead the bank into new partnerships with brands and fintech, offering bank products and services bundled to allow them to reach new market segments.
Leading banks now talk about their multi-tier markets and how they manage last-mile delivery of products and services beyond their direct customers. A few years ago, the bank viewed their last-mile delivery as their branch and digital banking apps. The BaaS growth effect is that as the bank introduces a new product on its own BaaS platform, last-mile delivery to its direct customers, its brand and merchant relationships, its fintech relationships, and finally, its correspondent bank networks.
Take the example of faster real-time payments (RTP) or FedNow. A certified bank offering those services can enable that in their digital apps. A bank that owns its own BaaS platform can then offer faster payments to its merchants, commercial brands, and other banks in its bank network.
How have you embraced the greenfield approach to unlock the potential of BaaS? Let us know on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window . We’d love to hear from you!
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