Banking as a Service

Managing our money is dull, so it is only when the situation is dire that it becomes important enough that most of us are actually willing to do it. Usually it sits on that long list of good intentions, somewhere under painting the bedroom.

Unfortunately in a recession we need to manage our finances and anything that can make that task easier is fantastic. I have already talked about services that can help us manage our finances. But none of these services are offered by the banks themselves. Egg and First Direct offer a limited aggregation service, but with none of the additional functionality of Wesabe or Mint.

So if I start using a third party tool to help me manage my money what does this mean for the banks? Now I no longer need to visit my bank's website to check my balance, my relationship with my bank becomes increasingly filtered through my money management tool of choice, which is a one stop shop for my financial information, currently needing only to visit my bank's website inorder to perform a transaction.

To my mind the banks have a choice; they can either decide they want to retain their direct customer engagement on-line and compete to keep customers engaging with them directly, or alternatively they can outsource the customer experience to third party services and consider the approach of offering Banking as a Service.

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Essentially banks offer services to store and move money securely. If we consider the concept of Banking as a Service, like other Web Services it would allow third parties to transact and store money, using appropriate protocols over the Internet.

Currently there are several existing Web Services that enable money transfer, including Amazon Flexible Payment System and Google Checkout, but both these systems still need a bank to actually support the service. PayPal is probably one of the largest on-line money services but it is deliberately set up so that it isn't a bank and as such it doesn't come under the same regulation as banks, so there is less protection for its customers increasingly retailers are becoming unhappy with its service, but there are few alternatives.

If a bank were to offer BaaS, concentrating on the core business and enabling features such as Faster Payments would create a competitive advantage over existing services. It could also offer better connectivity for third party sites such as Wesabe, enabling them to access the financial data in more robust fashion, for example using OAuth.

If banks are not willing or capable of improving their customer engagement, but would rather concentrate on their core business, then they should do so, but they are wreckless to do so while remaining blind to the context and opportunities of the Internet as it stands now and in the future.