‘Something’-as-a-service, the new fintech paradigm

Something-as-a-service lights up the eyes of most VCs and investors.

Mainly because it sounds far easier and simpler than going after the juggernaut of core-anything. The thesis behind SaaS in fintech is premised around letting the banks and existing incumbents get on with what they are good at – financial plumbing – and enabling the fintechs and flashy experience layers and product teams to build cool stuff.

One excellent example of this in action is German business Raisin, a deposits-as-a-service play. They’re not dissimilar to Cashwerkz, a local player in Australia. Both operate a model that allows consumers to access a marketplace of deposit and saving products from multiple brands, in one place.

In February this year, Raisin announced it had closed a Series D round with Index Ventures, PayPal, Ribbit Capital and Thrive Capital injecting $114 million into the business. To date the business has brokered $11 billion worth of deposits to 62 partner banks, and generated savers $90 million in interest earnings.

Fintech SaaS businesses, like Raisin, are often free to the user. Raisin charges no fees for opening accounts with one of its partner banks, and provides a single online interface from which to manage all your accounts.

While SaaS is lower risk and investment from an infrastructure perspective, it can also be lower margin, and under threat from regulatory pressure regarding conflicted commission structures and independence. Raisin receives a commission from partner banks, essentially establishing itself as a very good lead generation tool for banks, and a great commercial model, until the taps turn off.

Which of course, they very well may not. With marketing budgets under pressure, and lead generation from traditional media hard, to near impossible to measure, outsourcing marketing to fintech-as-a-service is probably a smart investment, from a bank or financial incumbent’s perspective.

The only thing that could stop these businesses in their tracks is tightened regulation and an increasingly risk-averse regulator that has had to deal with too many human financial advisors and brokers willing to push financial products onto consumers that come with conflicted commissions (i.e. I sell you this because it pays me the most, rather than it being the best product for you). In theory, technology should make this transparent to all involved, including the regulator, and put the shine back on commission led structures.

For marketplace businesses in fintech to achieve longevity, it must be unequivocal that the marketplace is designed for fairness and puts the customer at the centre. It’s an inherently conflicted idea, because both parties are in a sense driven by opposite goals – one to sell high and the other to buy low. But it is not impossible, if there are other value-added features beyond the pure vanilla transaction. In my view, this is still unchartered space, and lots of scope for innovation and ideas. My guess is Raisin will be one of the early ones to deliver it.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no commercial relationship with the companies or people mentioned. I am not receiving compensation for this post.

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  1. Tempting as it is for Incumbents to “outsource” acquisitions to FinTech firms, I feel that lessons learnt from telcos is that when losing control over direct customer relationships, Core players risk being reduced into utilities or even dumb pipes. What’s the optimal strategy for Banks to collaborate with FinTechs for a healthy ecosystem play and fair value exchange? What do you think?

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