BaaS to SaaS: Why take the plunge?

BaaS: what are we talking about? 🔎

Initiated by Open Banking, Banking as a Service (BaaS) represents a major innovation in the banking sector. This business model enables any company to deploy various banking services as part of their offering without requiring a license. To achieve this, the approach involves working with a bank or regulated financial institution with a credit, e-money, or payment institution license. Thanks to this partner, the non-banking company can access banking functionalities and offer services linked to payment, debit cards, compliance measures (KYC identity checks), etc.

BaaS model: what are the benefits for fintechs?

Many fintechs rely on the BaaS model to launch and test their business models quickly. This approach offers several advantages:

• Saving time & speed of launch: for a fintech, obtaining a license is a process that takes several months or even years, whereas registering as a BaaS agent can be achieved in just a few weeks.

• Assured compliance: Launching innovative offerings requires significant technical resources, and dozens of partners may be called on to ensure compliance with the standards of a highly regulated sector. Thanks to the Banking as a Service model, fintechs can draw on the maturity and expertise of robust banking players, who will ensure compliance with requirements (user identity checks, PCI DSS, etc.).

• Reduced initial investment: BaaS provides a set of APIs that agents can use to launch their offer.

When do you need to switch to SaaS Core Banking? ⌛

Despite their advantages, BaaS models are struggling to meet the needs of fast-growing fintechs. These limitations mainly concern the limited autonomy of this type of offering and the associated costs once the BaaS agent reaches a certain maturity.

Cost and scalability management

While BaaS is undoubtedly a cost-effective approach at the outset, migrating to a Core Banking Platform makes more sense once a certain number of transactions need to be managed.

BaaS models often combine fixed monthly costs for access to services (as an indication, these can be in the region of €5,000), costs per active account, and number of transactions. Added to this are the costs associated with issuing and processing card transactions and monthly fees linked to regulatory compliance aspects per account (active and non-active!).

Once it has reached a certain level of maturity, the BaaS model will be less suitable, as costs increase with the number of users without being degressive. This model may, therefore, give rise to concerns about its sustainability.
 On the other hand, Core Banking Platforms with a "pay as you grow" cost structure enable fintechs to free themselves from costs linked to the number of users and better support their growth. This allows them to optimize their margins and establish a sustainable growth/cost ratio.

While initial costs may be higher, benefits will be seen in the long term.

Autonomy & flexibility

Dependence on a single BaaS provider is a primary risk factor for business continuity. Also, the strict structures and processes imposed by this model limit the innovation capabilities of fintechs, which require greater flexibility and agility.

Core Banking, distributed as SaaS, lets you choose your own network of partners, guaranteeing autonomy in the launch of new products, which is in line with your ambitions for growth and value creation. And that's the whole point of Core Banking: to emancipate yourself to carry out more and more projects and increase your revenue capacity.

Like Banking as a Service, the SaaS model enables us to break free from legacy - monolithic structures - and launch high-value-added products via technology that combines simplicity and efficiency. At the same time, Core Banking SaaS provides security and compliance guarantees through its network of partners (KYC, AML CFT, etc.) so that in-house teams can concentrate on product innovation.

Instructions for use: a smooth transition in 3 steps 🧘

Are you a BaaS agent with a proven track record and a technology and cost structure that's putting a strain on your long-term viability?

Moving from a BaaS model to a SaaS solution requires careful planning to ensure a seamless transition. But don't panic! Here's how to make the transition as smooth as possible.

#1 Evaluate the flexibility of your architecture 

The first step is to assess the configurability of your solution. The different bricks must be independent and modular to adapt to specific customer needs.

This first check should not be overlooked: the more autonomous your applications are, the more beneficial migration will be for you. This organization is essential to ensure the scalability of your offering, as you'll be able to test and modify specific components without touching the rest!

#2 Choose a suitable migration model

There are several ways to migrate to distributed SaaS core banking. Here are the 3 most common options:

• Silo migration - Each user has a dedicated infrastructure. This approach requires few changes to the application’s design. This method offers users advantages such as customization and data security.
• Layer-by-layer migration - With this method, migration takes place progressively. The various layers gradually move to a shared "multi-tenant" structure, meaning one platform can manage multiple institutions. At the same time, some layers retain their single-tenant structures. This method can be started at any level, allowing other layers to move later, when required.
• Data migration - Data storage is moved to a multi-tenant schema. Other layers use a single-tenant architecture.

Your choice should be based on the particularities of your business.

#3 Cost structure and approach to facilitate the BaaS to SaaS transition

In addition to the technological, business, and strategic aspects, it’s essential to consider the issues and challenges associated with economic viability and develop a business model when transitioning from BaaS to SaaS. When considering costs, one of the decisions is the level of procurement model (e.g., choosing a full Core Banking provider or partial IT infrastructure outsourcing) to apply. The considerable challenge of a BaaS to SaaS transition project can be tackled by following a secure approach that adequately considers all technological, business, and strategic perspectives. 

Skaleet, your partner for a successful transition ❤️

Skaleet offers the latest generation of core banking solutions for a smooth and efficient transition, with a reduced time-to-market (less than 4 months)! 

To stay one step ahead, our Best-of-Breed approach ensures that you collaborate with the best partners and tools, enabling you to offer relevant solutions to new market needs while guaranteeing compliance.

Would you like to find out more? Feel free to contact us.