Article | August 7, 2020
Both depreciation and amortization are ways of expensing the cost of a business asset over its useful life period. When a company acquires a business asset, the complete cost of acquisition of the asset is not expensed at once, but proportionately based on the time period of their usage. In essence, both depreciation and amortization mean the same thing. While depreciation refers to the proportionate reduction in the cost of fixed assets or tangible assets over its lifespan. Fixed assets or tangible assets could include things such as a plant, machinery, tools, equipment, etc.
Article | March 20, 2020
Fintech has drastically improved the products and the services of the traditional financial services in the past few years. However, even after many financial institutions have readily adopted fintech services, there are still some hidden risks in the aforementioned industry. For instance, the integration of the fintech services in the existing banking solutions raised a severe concern for data security. Also, the rapid growth of digital platforms made the fintech industry and its customers uniquely vulnerable to various breaches in IT security networks.
Article | May 14, 2021
Digital banking is not new – major banks began to offer internet banking services in the mid-1990s. However, the traditional banking industry is facing significant pressure from rapidly shifting consumer expectations, changing regulations and increasing competition from digital-native disruptors. Younger Gen Z customers are more apt to use alternative transaction methods such as mobile wallets or P2P payments (e.g., PayPal or the Dutch payment app Tikkie), and businesses are beginning to favor real-time digital payments to improve efficiency, reduce cost and better manage their cash flow. Moreover the ongoing global health crisis is accelerating the movement toward real-time contactless digital payments. Fifty-six countries are now live with real-time payments, and six countries more than doubled their volume of real-time payments in the past year. [i] Due to a joint implementation of the major banks led by the Dutch Payments Association (Betaalvereniging Nederland), the Netherlands is a European leader in terms of the adoption of real-time payments.
In the midst of this fast-changing landscape, new business models are arising as digital-natives, FinTechs and incumbent banks partner to offer new banking and payment services in the cloud. One example is Dutch Cobase – a subsidiary of ING Group that bundles business accounts – which recently signed a cooperation agreement with the Nordic bank Nordea and the French Crédit Agricole. Amsterdam-based banking platform Five Degrees supplies its technology to banks such as ABN Amro, Van Lanschot and Knab, among others. Collaboration like this is spurring further innovation as these digital ecosystems expand, attracting new participants. But successfully delivering these new digital services requires the direct and secure, low-latency, reliable exchange of data between partners that interconnection can provide.
BaaS needs FinTechs AND banks
FinTechs born in the cloud have the IT infrastructure, skills and agility to deliver digital banking and payment services on-demand. They can also offer these BaaS capabilities to any brand who wants to embed financial services in their customer experience. Sometimes referred to as “embedded finance,” BaaS enables businesses to create new products and services along the customer journey as the diagram below illustrates.
However, FinTechs typically lack the assets and regulatory license to fulfill financial transactions, and that’s where banks come in. To ensure that deposits and money transfers stay safe, banks are heavily regulated and often insured up to a certain dollar amount for each depositor. This combined with a longer history with customers means that banks have an advantage when it comes to perceptions of how safe and secure a financial transaction will be. As a result, there are a few collaboration paths that FinTechs and banks generally pursue to bring BaaS services to the market:
The FinTech buys a bank that already has a license such as Jiko purchasing Mid Central National Bank in the U.S. or Raisin GmbH buying MHG-Bank AG in Germany.
The FinTech partners with a bank to borrow their license such as Chime partnering with Stride Bank, N.A. and The Bancorp Bank.
The FinTech acquires its own license (a lengthy process that could take up to three years) such as Railsbank in the U.K. or Varo Money in the U.S.
The bank partners with a FinTech to launch BaaS services such as Deutsche Bank partnering with Traxpay to integrate supply chain financing technologies and solutions within its own offerings.
Regulations are shaping the partnering model
The regulatory environment may also impact the partnering model. For example, open banking laws in the European Union and the U.K. require banks to open APIs to third-party developers, making it easier for FinTechs to gain access to bank data. Regulations like these are helping to reduce uncertainty for startups and accelerate innovation in the European banking system. Challenger banks such as U.K.-based Revolut have also benefitted from special licenses that allow them to directly accept deposits, process payments or lend.
In the U.S., the Durbin Amendment is accelerating partnerships between small-medium banks and FinTechs in a different way. The Amendment, which has been in effect since 2011, aimed to lower prices for consumers by reducing the fees that retail stores pay to banks when customers use debit cards. In reality, banks just responded by increasing the fees that consumers pay to make up the lost revenue. However, the Durbin Amendment exempts financial institutions with less than $10 billion, making them ideal partnering candidates for FinTechs.
How BaaS actually works
A hybrid digital architecture for BaaS with a mix of on-premises, colocation and public/private cloud elements. In this example, the bank is the license holder partnering with the FinTech BaaS provider to deliver embedded financial services to a Brand (such as a retailer or transportation business). The bank has also partnered with other FinTechs for real-time and cross-border payments, although it handles any card transactions in-house. Interconnection will be critical for ensuring secure, low latency data flows between the partners and digital infrastructure across the regions where the BaaS is offered.
Partnerships like these are steadily growing into ecosystems of digital exchange around financial services that include clouds, networks, banks, FinTechs, payment rails, fraud detection and other service providers. By placing their digital infrastructure close to these ecosystems, leveraging an interconnection approach, banks and FinTechs alike can maximize their competitive advantage. Interconnection provides a more scalable, reliable, secure approach to moving data between members of the value chain than the public internet. With an interconnection strategy, banks and FinTechs can deploy a digital core, extend across edge locations and enhance their capabilities through digital exchange to create new BaaS markets for any brand.
Article | July 29, 2020
Over the past few months, in the midst of our global health crisis, some have questioned the connection between sustainability and the broader issues weighing on our society. But if we take one lesson away from these intersecting crises, as our CEO Mike Corbat has said – it is that our physical and economic health, our sustainability and resiliency, and social justice are inextricably linked.