As the importance of being able to adapt continues to grow, John Mitchell, CEO of Episode Six, spoke to PaymentExpert about the growing role of Banking as a Service in Europe, as well as why open banking could be key.
Can you tell us about Episode Six and the company’s background in the payment sector?
Episode Six is a fast-growing global business with offices in Austin, Singapore, Hong Kong, Tokyo and London.
It provides a highly configurable and extensible digital ledger and payments system for financial institutions, fintechs and other innovative companies of all sizes, which allows them to effortlessly design and manage products that consumers and businesses want and need.
The company was founded with a mission to enable frictionless development of innovative, customer-centric financial solutions across the globe.
Episode Six’s proprietary technology was built from scratch and is designed to be future-proofed.
As global economies continue to adapt and change because of the pandemic, how can BaaS enable that change and drive innovation?
Banking as a Service (BaaS) is enabling technology firms and other financial institutions to adapt to new digital requirements brought on by the pandemic. As legacy technology often hinders the speed of innovation and development of new solutions, traditional banks must find ways to keep up with the demands of the digital-first world.
BaaS providers strive to offer an API-driven approach towards innovation, eliminating dependencies based on legacy banking systems, while freeing companies to closely control and manage their product roadmap and customer engagement strategies.
Looking ahead, as more non-banks offer access to financial products and solutions, BaaS companies will continue to help drive the application of new solutions across global markets, pushing traditional banks to keep up with the pace of innovation.
What challenges do you think will be involved for new players entering the BaaS market?
There are a number of benefits that come with adopting a BaaS model, but with its advantages also come challenges.
One of the greatest challenges for newcomers is staying on top of privacy regulations.
Fintech and other platforms require handling and sharing of sensitive personal data, so more stringent regulations related to customer information will emerge. It may be burdensome for new players to comply with the ever-changing regulatory landscape, which can take significant time and effort to adhere to. If they fail to follow regulations, they can potentially fall into non-compliance and risk paying a hefty fine. For new entrants, they must look to collaborate with companies that specialise in compliance solutions to hold their hand through the regulatory process.
Another important aspect for newcomers is to understand the market they are entering. Currently, the financial market is saturated with several challenger/neo banks. New entrants should focus on new and innovative offerings to differentiate themselves from the competition.
Another challenge to consider is that even though the UK has a robust application process to acquire a banking licence, it can take a long time to get one and requires significant capital to keep it.
Why do you think Open Banking will benefit the region?
Open banking in Europe has been perceived by the rest of the world as a new gold standard, and through it, fintechs will be able to offer more unique and innovative products and services.
As an example, open-banking helps drive interoperability between an ever-increasing array of application programming interfaces (APIs) and artificial intelligence (AI), which in turn enables the delivery of financial products and services to consumers more efficiently.
Instant and low-fee, cross-border remittance payments are another use-case of innovation made possible by fintech open-banking. Low-fee, mobile investment apps such as Robinhood, eToro and Acorns, which have democratised retail investing for millennials and Generation Zs, were born thanks to open innovation in financial services.
Open banking encompasses six central themes. These include cloud data storage, seamless integration of new software-as-a-service (SaaS) applications via APIs, automation, secure data exchange, AI-powered analytics and personalised user experiences based on insights from those analytics.
Collectively, this hexagonal framework has provided a sound model for the next wave of fintech innovation in Europe. Enter Banking-as-a-Service (BaaS).
What can Europe learn from other regions in terms of BaaS?
Many of the payment services developed in Europe revolve around high-level technology for the end user that can be inaccessible for a portion of the market.
If you look at Asia and Africa, they have adopted payment technology that is far more accessible with the likes of QR codes and other mobile payments. Banking-as-a -Service enables the provision of a range of payment solutions and other banking services that work across different mediums and that can provide access for all sectors of society and business. Europe has focused on specific access points and is learning to broaden that focus.
Irrespective of the market, whether that’s Europe, APAC, LATAM or the U.S, BaaS provides an opportunity to connect with each other and scale. Looking over the horizon, BaaS service will continue to grow and develop, and complement financial institutions’ existing products, leading them into the 21st century.