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.

Executive Summary
Although banks have traditionally been considered pioneers of process
automation, they now find themselves in the background of todays
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 todays 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, thirdparty 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 banks 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.

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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 knowhow 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.

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

BaaS: Harnessing Digitals Remedial Powers

Traditionally, retail banks have owned end-to-end service delivery by tightly integrating 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, including mobile payment applications, peer-to-peer lending solutions, analytical
dashboards, etc.

A shift to solutions assembly. The focus of an effective BaaS strategy is componentized capabilities that facilitate plug-and-play operations. As a result, BaaS
allows banks to reinvent themselves as assemblers of financial management solutions, 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 innovative 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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Key Trends Influencing Banking as a Service

Changing regulatory
context accelerating
industrialization.

Banks trying to compete

or partner with fintechs
to drive innovation.

Pervasive digital transformation

mandating improved service
orientation of product offerings.

Open banking platforms

built on service-oriented
architectures.

Major shift in banking

business architecture to
support componentization.

SMBs trying to leverage

simpler, more effective
banking options.

Figure 1

BaaS Trends and Market Shifts

Most 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. Deviceled digital proliferation is becoming the rule among
younger and more technologically-affluent customers. In response, banks have shifted their strategies
to focus on the customer journey and deliver persona-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.

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.

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 service 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.

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

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 expose data through an API in a simple and consistent manner by abstracting the
peculiarities of each banking system and enabling developers to write an application 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 Unions 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 outflow of customers, banks must either partner with these new cloud entrants or
offer relevant services to make banking for smaller companies more user-friendly.

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.

Partaking in the industry shift to componentized business systems architectures. 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, allowing financial institutions to seamlessly layer their technology offerings like building 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 international transaction services area for companies and their clients that wish to
configure faster, more efficient and simpler transaction routines.7

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Contending with an ever-changing regulatory context and accelerating industrialization. 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 microservices,8 banks can respond to new regulations more quickly and with minimal disruption, opening the doors to full-fledged BaaS models. Banks are also
being compelled to implement BaaS by governments and their regulatory bod-

BaaS Business Benefits

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 APIdriven channels (new business channel for
managing APIs).

Foster and Leverage Innovation

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

Improve Time to Value and Market

Componentize data and business logic to
significantly reduce the time to build and
deploy applications.

Grow the Customer Base

Grow the customer base by
attracting customers to products
and services through API
ecosystems.

Figure 2

ies, many of which are focused on increasing consumer

protection, encouraging open competition and breaking
down traditional barriers to industry entry.
For example, the EUs 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 BaaS

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.

The 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.

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

Not only does the BaaS model expedite a banks 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 Dots

Proactive 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

WHAT
Initial Exploration
Partner/internal apps
with limited core
system integration.

HOW
Tactical API gateway built on
existing technology stack.
Utilization of multiple API
management vendor
capabilities.
Low investment and short
timeframe.

Figure 3

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Platform Selection &

Expansion
APIs providing
commoditized services.
Moderate core system
integration.
Low development
effort.

API management platform

implemented.
Basic API portal established.
Business-prioritized
systems/use cases exposed.
Moderate level of investment.

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.

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.

Highly dynamic and personalized architecture.

Run like a product: Automated
customer-centric ecosystem.
Organic services and
architecture enabled by
loosely-coupled components.

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 banks
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.

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.

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 comprehensive 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 organizations strategy and future initiatives, through a multi-dimensional
lens. Figure 4 illustrates six crucial considerations that can facilitate successful
BaaS adoption.

BaaS Success Factors

Business capabilities
considering
regulatory context

2
Ecosystem and
partnerships

BaaS

Monetization
and pricing

Operating
model

Technology strategy
and security

6
Marketing and
change management

Figure 4

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 its 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 commoditized service capabilities to facilitate rapid industrialization and ease of implementation (for example, access and user authentication or account summary listings). A
large private bank in India is partnering with the fintech MatchMove, a Singaporebased 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

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

API-driven Banking Capabilities

HIGH

EARLY INVESTMENT

MID- AND LONG-TERM FOCUS

Cross-border
transactions

Loyalty and
rewards
management, CRM

Total Economic Benefits

Revenue
analytics
Forex quotes,
rates and deal
management

Market events
monitoring and feeds

AML/KYC

Trading order
management

Fund transfer/digital
payments and
payment data
management

Portfolio
dashboard

Corporate
entitlements and
CRM

Eligibility and
comparisons

RAPID INDUSTRIALIZATION

CAUTIOUS DEFERRAL
Beneficiary
record
management

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

Access and user

authentication

Accounts,
transactions,
balance
management
and listings

Liquidity review
Content and
quotations

HIGH

LOW

Implementation Effort
API Architectural Complexity:
LOW

MEDIUM

HIGH

Figure 5
and partnered with Currency Cloud to integrate the companys 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 transfers 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 financial 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.

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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 transforming into a back-office service provider and allowing fintechs to control customer
interactions is very real. Banks face a conundrum: If they dont 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 banks 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.

The BaaS Digital Ecosystem and Partnerships

APIs are specifically

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

APIs are tuned and

designed per the
needs of external
partners and thirdparty developers.

Internal enterpriselevel integration:

Provide quicker
onboarding and
seamless integration,
leading to standardization of APIs.

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

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

Citis platforms and

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

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

Fidor is leveraging its

API that allows
developers to create
add-on services in a
marketplace format.

API Creation
Consumers

Internal APIs

API proxies can be

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

Differentiated
User Experience

App Stores

Partner APIs

External APIs

External APIs

API Consumption

Application
Endpoints

Partner APIs

Examples

Internal APIs

Providers
Increased Revenue
through New Channels
Enterprise
Assets &
Services

Figure 6

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

11

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-inclass 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-perclick advertising.

API Monetization: Context and Lifecycle

LIFECYCLE OF
PARTNER APIs
used by partners
and affiliates

to develop
applications

APIs for
front-end
or back-end
services
LIFECYCLE OF
INTERNAL APIs

LIFECYCLE OF
EXTERNAL APIs

API

used by internal
developer groups,
CoEs, business unit IT

Revenue sharing,
third-party data
sharing fees, API
usage fees

used by
end-users
(external Transaction
customers)
fees %

APIs for front-end or

back-end services
API

Free usage API

used by external
developers

to develop
API

Internal APIs

External APIs

to develop
applications
applications
(finished endproducts)

Partner APIs
API Provisioning Platform

API usage fees

FINANCIAL
INSTITUTION

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

Figure 7

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

Transaction
fees %
used by end-users
(external customers)

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 banks 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 supporting 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.

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

13

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 communication, 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 opportunities. 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 banks API to attract consumers to the ecosystem.

Banks can sponsor campaigns and industry-wide competitions to build momentum 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 organizations 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 organizations 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, development 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.

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An Approach to BaaS Strategy Assessment and Roadmapping

Understand the Current-State
Bank Vision, Direction and Capabilities
KEY DIMENSIONS
Growth model and
business capabilities
Business
Strategy

Information architecture
and data flow

BaaS Strategy Leveraging APIs

Develop the business and
technology reference architecture.

Ecosystem Development and

Partnerships
Identify the API management
partner to develop the API
ecosystem.

Monetization
Develop the business case for
bank and partner APIs.

API Development
Partner, develop and host APIs.

Change Management
Design and execute the
organization change management
strategy.

Security policies,
standards and constraints
Bank Vision
and Direction

Operating model
Technology
competencies

Current-State
Capabilities

Design the Target State

Banking as a Service

Develop the Change Roadmap

and Implementation Plan

Implementation roadmap for

instituting the API ecosystem
Immediate change
considerations and next steps

Figure 8

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 Ahead
Technological 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 reengineering 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 outmaneuver 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 winwin-win proposition for banks, third-party developers and consumers, alike.

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

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Footnotes
1

IT Glossary, Gartner, http://www.gartner.com/it-glossary/consumerization.

MasterPass Partner Wallet, MasterCard Developer Zone, https://developer.mastercard.com/portal/

display/api/MasterPass+-+Partner+Wallet.

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-inclusionideas-from-academics-1069913-1.html.

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

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.

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

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-plugand-play-payments-integration-for-sap-users/.

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

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-ecommerce-market-india-543464835.

11

Matthias Kroener, Fidor Bank Case Study, Currency Cloud, https://www.currencycloud.com/case-study/

fidor-bank/.

12

Manish Grover, Dont 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 Nationwides 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-releases/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-whyus-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/.

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June 2016

About the Authors

Philippe Dintrans is the Senior Vice-President and Global Consulting Leader of
Cognizant Business Consultings 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 masters 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 Consultings 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 bachelors 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

Consultings Banking and Financial Services Practice. He has more than 12 years of
experience leading large IT operating model innovations, IT performance improvement and change management initiatives. Madhu holds an MBA from Asian Institute
of Management, Philippines, and a bachelors degree in engineering from MSRIT,
India. He can be reached at Madhusudan.Ponnuveetil@cognizant.com.

Ardhendu Acharya is a Consulting Manager with Cognizant Business Consultings

Strategy and Transformation Practice. He has more than eight years of experience
managing consulting engagements across target IT operating models, businessdriven IT strategy and cost optimization initiatives. Ardhendu holds an MBA from
the Rotterdam School of Management, Erasmus University, the Netherlands, and
a bachelors degree from Anna University, India. He can be reached at Ardhendu.
Acharya@cognizant.com.

Adam Chardukian is a Senior Consultant with Cognizant Business Consultings

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 bachelors 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.

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

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About Cognizant Banking and

Financial Services
Cognizants Banking and Financial Services business unit which
includes consumer lending, commercial finance, leasing insurance, cards, payments, banking, investment banking, wealth
management and transaction processing, is the companys
largest industry segment, serving leading financial institutions
in North America, Europe, and Asia-Pacific. These include six
out of the top 10 North American financial institutions and
nine out of the top 10 European banks. The practice leverages
its deep domain and consulting expertise to provide solutions
across the entire financial services spectrum, and enables our
clients to manage business transformation challenges, drive
revenue and cost optimization, create new capabilities, mitigate risks, comply with regulations, capitalize on new business
opportunities, and drive efficiency, effectiveness, innovation
and virtualization. For more, please visit www.cognizant.com/
banking-financial-services.

About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process services,
dedicated to helping the worlds leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.),
Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise,
and a global, collaborative workforce that embodies the future
of work. With over 100 development and delivery centers worldwide and approximately 233,000 employees as of March 31,
2016, Cognizant is a member of the NASDAQ-100, the S&P 500,
the Forbes Global 2000, and the Fortune 500 and is ranked
among the top performing and fastest growing companies in
the world. Visit us online at www.cognizant.com or follow us on
Twitter: Cognizant.

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