There’s a moment in Charlie Puth’s music video, “Left and Right” where he pays for his therapy session. He uses his Chime debit card. It’s the kind of product plug that product managers dream of. It took just two months for the video to rack up well over 200 million views. The exposure shows no sign of slowing down any time soon. What does this have to do with BaaS?
Geared towards Gen Z who prefer mobile banking, Chime is enjoying tremendous success. Last year the company generated more than $950 million in revenue from its 12 million subscribers. 8 million for whom Chime serves their primary bank.
Only Chime isn’t actually a bank. It’s a fintech company that offers banking services to its customers via the banking-as-a-service (BaaS) model. Bancorp provides debit services to Chime customers behind the scenes. For bancorp, BaaS is the gateway to servicing millennials and Gen Z consumers. These consumers, according to Tearsheet, “will be the dominant banking consumers in the next decades, redefining digital engagement as well as financing and payments.” There are at least 172 BaaS companies as of this writing, and many more are sure to come.
What Is BaaS Exactly?
It’s a model in which chartered banks provision services—checking, savings, loans, investment—via APIs to third-party companies. Banking has always been modular. This means chartered banks have discrete capabilities (think of them as building blocks) that third-party companies can leverage to offer products and services to communities they view as underserved in one way or another. For Chime, it’s younger consumers who bristle at overdraft fees. For Ababil, it’s companies that want to offer products that adhere to the financial values of Islamic culture. Others may want to create services geared towards, say, the Asian American community, or investments for veterans.
Fintech companies are just one type of BaaS client, the other are large corporations that have strong relationships with consumers. For instance, Apple’s BaaS relationship with Goldman Sachs to offer credit cards to its customers. One can see big retailers like Walmart or Costco following suit.
BaaS is a win-win for everyone involved as the BaaS client takes on the responsibility of building a brand and marketing to customers, while the chartered bank does what it does best: manage a customer’s money.
Trust through Improved Processes
Any banker reading this article knows that servicing a customer’s banking needs is far more complex than managing money. They need to build trust in their organization, along with self-service models and transparency into operations. Let’s break this down.
BaaS clients rightly expect their chartered bank partners to detail every aspect of every process so that they, in turn, can tell their clients what to expect when they bank with them. If a consumer deposits a check with the BaaS company, when will it clear? Will a certain amount of money be available right away?
Keep in mind that the BaaS company will design an offering around the chartered bank’s processes, which means those processes must be laid out in full detail early on in the relationship. If the BaaS company promises that up to $100 will be made available to a checking customer upon deposit, the chartered bank must be able to honor that promise. If it can’t, that bank will lose the trust of both its BaaS client and the end consumer.
Self-service processes are equally critical to trust. When customers fund a checking or investment account, they need complete assurance that their money will be available to them to use it whenever they need it. That begins with a range of self-service models—checking a balance, transferring money, canceling a transaction, ordering checks or replacement ATM cards—that are absolutely bulletproof. Can the bank transfer bank activities to its BaaS clients in real time so that balances and debits are accurately reflected? How exactly does that update work?
Transparency in BaaS
Transparency also comes into play. If the BaaS company wants to offer mortgage or small business loans to its clients, it will need transparency into the chartered bank’s processes so that it can be transparent with its customers in turn. For instance, what are the loan processes? What weight does a FICO score have in the decisioning?
Customer Experience Matters
And then there’s customer service to consider. To the BaaS client, the end customer’s experience matters greatly, and any bank should expect them to do their due diligence prior to entering an agreement. Expect ghost callers to phone the bank’s customer care center to assess quality and response time. Afterall, the BaaS client will be on the hook for incoming customer care calls, and they want assurance upfront that problems will be resolved quickly.
Customer care is always complicated when a middleman is involved. Therefore, it’s critical to plan out every possible event that can occur, and ensure a rock-solid process is in place to address it. For instance, let’s say a Costco checking account customer bounces a check and the recipient of that check calls Costco. How does Costco handle that call? Or what happens if someone who shouldn’t open a banking account opens one anyway? How does Costco provide that information to your bank? You’ll also need workflows to address routine customer service issues, such as a Costco client who insists that an overdraft fee should be waived.
Customer care processes can get complicated pretty quickly. Let’s say that the checking account customer begins the request to waive the fee via a live chat. Who’s on the other end of that chat? Who decides if that request should be granted? What if that customer is unhappy with the decision and wants to escalate it and calls a customer care center later on? What technology should the agent on the service side use? Does it have a copy of the earlier chat transcript? And what data should the summary of the call include?
Success in the BaaS market requires that the bank specifies what happens at each step for all parties involved, including the technology that’s used in the end-to-end processes. As you can see, banks have quite a bit of homework to do in order to ensure that Charlie Puth can pay for his therapy sessions without any hitches, but it’s well worth the investment, as it will serve as your differentiator among BaaS customers.
