Several firms have developed in recent years to simplify the process of establishing financial services by providing technology that sits on top of partner banks’ infrastructure and allows developers to create bank accounts, payments, and card capabilities via APIs. This banking-as-a-service (BaaS) startups claim to be able to provide fintech capabilities to other businesses without requiring them to strike deals with partner banks, integrate with the banking core, or hire the technical or compliance personnel required to test or launch a new financial product.
Therefore, launching a financial app or adding a banking component to an existing vertical SaaS firm has never been faster or easier. We spoke with various founders in the industry, including Unit CEO Itai Damti, Bond CEO Roy Ng, and Synctera CEO Peter Hazlehurst, to obtain a deeper understanding of the problem BaaS providers are attempting to tackle.
When it came to creating or launching a new financial services app in the early days of the fintech business, companies were mostly on his or her own. Finding a bank partner and signing a long-term contract, creating and implementing compliance policies with that bank, and finally building out the tech needed to support whatever financial app or service you were looking to offer to end users were all part of bringing a new financial product to market.
For entrepreneurs, this meant making a significant upfront effort and financial commitments only to set the basis for launching a new product before determining product-market fit. It also meant a lot of duplication of effort, not just by startups building the infrastructure required to launch a financial product, but also by banks signing up and granting fintech partners access to their banking systems.
“The amount of work and pain that goes into launching even something as simple as checking accounts — you have to navigate a partner ecosystem of 30 to 40 banks that don’t always understand your business, then you have to write 15 to 20 compliance policies and operationalize them,” Unit founder and CEO Itai Damti explained. A lot of that complexity may now be delegated to BaaS firms that already have bank partnerships, APIs for integrating financial services into apps, and the capacity to manage compliance programs on behalf of their clients. Moreover, venture investors have stepped up to back them, with rounds launched in the last three months by businesses including Rize ($11.4 million), Synctera ($33 million), and Unit ($51 million).
