Banking-as-a-Service: why IBAN is key

Christoph Tutsch, Onpex: the benefits of BaaS

The IBAN capability of Banking-as-a-Service (BaaS) platforms is set to become the key driver of flexibility and growth for global businesses, writes Christoph Tutsch, CEO at Onpex.

The benefits of the BaaS approach

Technology has made a huge impact on how we purchase goods and services. It’s thanks to digital innovation in the banking and payments sectors that the ‘one-click’ economy has developed, offering customers a fast and flexible way of making payments.

Consequently, terms like fintech, Software-as-a-Service (SaaS), application programming interface (API) and blockchain have all become part of our modern business lexicon – each driving beneficial change in the global e-commerce sector.

Another term that is becoming increasingly significant is BaaS. This technology is helping to extend banking services beyond the dimensions of traditional banks and offering any business the ability to build, configure and manage their own financial services. This means companies can gain greater autonomy and provide solutions that are more flexible when it comes to meeting the exact needs of their clients.

Thanks to cloud-based infrastructures and APIs, innovative fintechs are now able to respond to market needs more quickly than traditional banks, who are hindered by legacy systems.

A solution to cross-border issues?

Although fintechs are greatly changing the way banking and payments are made, there are still challenges when it comes to offering cross-border services.

One difficulty is the inability to provide access to IBAN accounts for customers in order to enable easy cross-border transactions. While the creation of such accounts is strictly coordinated and regulated at a national level in the EU, it is still the case that IBAN issuing, as well as the corresponding banking and clearing are still dominated by traditional banks.

Additionally, financial service providers often face concerns from clients when it comes to multi-currency handling which often includes high transaction fees, and expensive exchange rates. Meeting the requirements for local and international banking and payment regulations is yet another challenge to master. All these issues need to be tackled when providing an attractive service to online merchants wishing to move products and services between different jurisdictions.

Despite these cross-border challenges, a growing number of innovative BaaS providers are benefiting from the power of Open Banking and the “plug and play” principle of API technology. This allows them to offer highly customisable solutions for the changing needs of businesses operating across borders.

Why BaaS platforms need to offer cross-border capabilities

To maintain strong growth, BaaS providers need to be able to offer merchants the ability to operate internationally.

Thanks to the power of global e-commerce, retailers have greater access to overseas customers than ever before. According to data from eMarketer, global retail e-commerce sales grew by four times the rate of overall retail in 2017, reaching $2.29 trillion.

To support this market, BaaS platforms aim to provide simple and secure payment tools for their customers regardless of where they are in the world. This is true for both business-to-business (B2B) and business-to-consumer (B2C) facing businesses. An important step in achieving this goal is for BaaS platforms to use the opportunities of Open Banking to develop an IBAN offering.

BaaS platforms with IBAN issuing capabilities can offer major benefits to clients. Let’s use the example of a phone service provider. To avoid reconciliation issues with invoice payments and numbers, a phone service provider could work with a BaaS platform to give every customer an IBAN that would directly reflect the balance on their account. Offering IBANs, therefore, not only allows BaaS platforms to help a customer make international payments, but offers other benefits, such as eliminating complex reconciliation problems for merchants.

In addition to IBAN accounts, cross-border transactions can be further streamlined by BaaS providers offering multi-currency management tools. With these tools, businesses are better equipped to collect foreign currencies and operate in foreign markets. The combination of IBAN issuing capabilities and simple and cost-efficient multi-currency management will make it easier for international businesses to rationalise and integrate payment flows into one easy-to-manage platform. This greatly enables businesses – whether they operate in marketplace, mobile, or e-commerce sectors – to grow quickly on an international scale and more easily chart their progress through the use of API technology.

What’s more, they will still be able to take full advantage of all the other benefits of BaaS platforms – whether it’s optimising account management, performing settlements, reconciliation and onboarding, or navigating the ever-increasing number of regulations and directives that surround the banking and finance environments.

What does the future hold?

To allow businesses to take full advantage of the global opportunities on offer, BaaS providers must listen to their clients’ needs. Only by doing so can they provide a platform truly equipped to facilitate growth and efficiency.

Spotting the gap between what traditional banks are offering and what fintechs currently aren’t, BaaS providers are beginning to launch cloud-based API-driven products which integrate the issuing of IBAN accounts. Onpex, for example, released its own BaaS platform with integrated IBAN accounts in August 2018.

BaaS providers are also realising the advantages of combining IBANs with multi-currency solutions. Overall, forward-thinking new entrants to the market are starting to make the administration of finances easier for multi-national companies trading across borders.

With the total value of global B2B cross-border transactions reaching $136 trillion in 2017, and forecast to hit $218 trillion by 2022 (according to Juniper Research), it is time that businesses of all shapes, sizes and sectors, are given the ability to develop the financial services their customers need.

By integrating IBAN issuing and other services into their value proposition, leading BaaS providers are setting a new benchmark for fintech organisations to facilitate cross-border transactions. This helps businesses to fulfil their true potential on the global stage. As a result, the whole payments and banking ecosystem can benefit from this solution.

The continuing evolution of finance and payments

There’s no doubt that fintech entrants have changed the financial and payments landscape for the better. Innovative BaaS providers are giving merchants across the globe the bespoke solutions they require to meet their customers’ needs for simplicity, speed and security, whilst also allowing them to realise the full growth potential of their business.

We live in a highly globalised environment, and solutions like BaaS can provide the capabilities companies need to continue evolving right into the future.