In Southeast Asia, banking-as-a-service (BaaS) can help financial institutions reach a greater number of customers and improve financial inclusion. But for BaaS to reach its full potential, the sharing of data is critical, Arvind Swami, director of business development for Red Hat’s Asia Pacific (APAC) financial services division, told Fintech News Singapore in an interview.
BaaS refers to a business-to-business (B2B) service where a bank leases its infrastructure. Clients like fintechs, challenger banks and other third parties can then connect with the bank’s systems directly via APIs and build banking offerings on top of the provider’s regulated infrastructure.
Finance becomes embedded
Perhaps one of the biggest opportunities related to BaaS is the ability to integrate financial services products into other kinds of customer activities, including non-financial digital platforms. For instance, a customer could be provided with the ability to take out a small loan when paying for a holiday on a travel site. Or that person could be given a tailored micro-insurance product when purchasing new jewelry.
“BaaS is about moving away from a product-centric approach to actually providing the services to take care of customers’ needs,”
Swami said.
“The seamless lifecycle of a service is what I would call BaaS.”
BaaS and open finance are intimately connected, he said, noting that the sharing of customer data becomes critical when finance is embedded into a customer’s life.
“Everything needs to be open in order for BaaS to work, otherwise it just goes back to the previous model where customers have to transact with each and every provider [along the way, whether that’s a bank, an insurance company, or a credit bureau,]” Swami said. “If the ecosystem is open, they can aggregate other components and create a lifecycle.”
Southeast Asia’s payment-as-a-service (PaaS) innovators
One example of this in Southeast Asia, Swami said, is Ascend Money, the fintech company behind Thailand’s leading e-wallet TrueMoney Wallet. TrueMoney Wallet is an all-in-one app that allows users to make cashless and cardless payments, including mobile top-ups, bill payments, online and offline purchases, cross-border remittances, as well as get access to exclusive promotions and discounts across a wide variety of merchants and services.
In Thailand, the TrueMoney brand has also produced other spin-offs including WeCard, in partnership with MasterCard, and TrueMoney Cash Card, for specialized top-up services like gaming.
In Myanmar, Wave Money is another relevant example of a successful payment-as-a-service provider. Wave Money specializes in over-the-counter financial services and operates with over 65,000 Wave Money shops across the country. In parallel, the company also offers the WavePay mobile wallet app which allows users to cash in/out money, top up their mobile phones, pay bills, repay loans, purchase tickets, and more.
“That’s a classical model of payment-as-a-service because what they’ve done is going beyond transactions to actually providing wallet and services, to the extent that I can do a transaction through a small shop,” Swami said. “As a consumer, I have that much more flexibility around transacting, rather than having to go to a bank and do a fund transfer. In that case, fund transfer is a product.”
BaaS: an underdeveloped yet promising sector in Southeast Asia
Though in most developing markets in Southeast Asia, BaaS still remains an underdeveloped area, there are plenty of opportunities for growth, especially considering the region’s large population of unbanked and underbanked, and high Internet and mobile phone penetration rates.
For example, BaaS can help bring financing to the micro, small and medium-sized enterprises (MSMEs) ineligible for loans at traditional financial institutions. Leveraging technology and data, these providers can lower the cost of onboarding and create better credit scoring mechanisms for these segments.
“The challenge in the past was that … traditional banks that have access to multiple layers of customers always went for customer profiles that are the less risky … [thus leaving behind most small and medium-sized enterprises,]” Swami said. But “technology can help reduce the cost of … customer acquisition and help by aggregating data to do better risk profiling of customers.”
Technology alone is not a silver bullet
But technology is not a silver bullet, Swami noted, stressing that the right technology must be coupled with the right use case and the right process. Not only that, but it must run on the right infrastructure and the right platform.
“Technology … helps and is a great enabler, but there’s a combination,” Swami said.
“A lot of time what we realize is people take the shiniest technology and won’t apply the right process and people don’t understand what to do with it.”
Blockchain is a good example of that, he said, noting that only two schools of thought exist around the technology: the supporters who believe that blockchain will solve every problem; and the detractors who argue that it’s useless. “I think there’s a middle ground to it where you just need to find the right use cases and know how to use it.”
Cybersecurity concerns grow
Swami warned however that the prolific use of technology and digital platforms is bringing new risks, notably in the areas of cybersecurity and fraud. He deplored banks’ nonchalant attitude towards the issue.
“As technology advances, methods to breach and hack that technology will also advance,” he said.
“One of the biggest problems we find in that space is that … cybersecurity investments are amongst the lowest in terms of the areas of funding in any financial institution. The general trend is ‘I’m not being hacked, I’m fine.’ Then once they get hacked, everything breaks loose.”
Attacks against the financial sector increased 238% globally from the beginning of February 2020 to the end of April 2020, with some 80% of financial institutions reporting an increase in cyberattacks, according to cyber security firm VMware.
Ransomware attacks against the financial sector went up 9x in that period and 82% of surveyed financial institutions said cybercriminals have become more sophisticated.
Featured image: Arvind Swami, Director of Business Development for Red Hat’s Asia Pacific (APAC), background Infographic vector created by GarryKillian – www.freepik.com
