I couldn’t find an existing thread to discuss Banking as a Service (BaaS) so here it is.
There are multiple relatively new players in this space that will offer you a white-label front-to-back bank - even with Business Process Outsourcing (BPO) on top.
What this means, and its a little tongue in cheek but actually fairly accurate, is you could go out and hire some Mad Men / an awesome digital agency / PR firm to market a brand and acquire customers and then just let Fidor (one of the providers) do everything else - they have people, processes, mobile app, infrastructure, APIs, they’ll do the AML/KYC for you and you borrow their banking license.
Starling offer this service and have Raisin on their platform. For those that don’t know Raisin, they are a Berlin based savings account marketplace. You sign-up once (only once) and then have access to heap of savings accounts and can switch between them. The savings accounts are offered by traditional third-party banks. The central Raisin account however is hosted by Starling - but you wouldn’t know that as customer - it’s Starling but with Raisin’s brand on top.
Why is this cool / interesting / clever? This means that Starling are now targeting institutions to join their platform. Aside from the fee that the institution pays Starling for the BaaS/Platform-as-a-Service, those institutions may already have hundreds of thousands of customers. So when they on-board an institution like Mettle (SME lender backed by RBS/Natwest) they acquire a heap of accounts and deposits at once. This is important because it puts cash on their balance sheet that then allows them to lend more - a path to profitability. Whats more it gives them a potentially enviable position at the heart of the payments architecture. The various institutions on Starling’s platform will be able to plug into each other more easily.
Other players are SolarisBank, Founder (by 11;FS) and even more established banks like ABN and BBVA.
What I find really interesting is that Chris Skinner was a big proponent that you don’t need to be a bank to pursue the marketplace banking business model. His argument was (in my words), “why get into all that banking license and regulatory hassle if you don’t have to”. " A FinTech can just use a legacy partner bank for that stuff" A fair argument. However, Monzo and Starling did believe they were better placed to build their own tech in-house. And now, we are in the extraordinary place where the in-house tech development effort has completely reversed Chris’ posited roles in the partnership. Mettle (owned by RBS/Natwest) is knocking on Starling’s door to use Starling as their banking partner - not RBS (as far as I know)!
I’d be really keen to hear others thoughts on this fascinating topic.