A Temenos white paper

Everyone’s
Banking
Platform

Open Banking and

the Rise of Banking-
as-a-Service

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Contents

Introduction 03
1. Structural change – Disintermediation of the retail banking chain 04
2. Open Banking across the world 07
3. New business models 10
4. Open banking-driven innovation – Tangible customer value 13
5. Embedded finance and Banking-as-a-Service 21
6. Technology implications of Open Banking and BaaS 26
Conclusion 29

2
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Introduction
Since its inception in 2018 in Europe through regulatory initiatives innovation. As embedded finance is spreading to all consumer-
like the Second Payments Services Directive (PSD2) and Open facing brands, a particular new trend is gaining ground: Banking-as-
Banking Standard in the UK, open banking has spread across more as-service (BaaS), which has arisen under the umbrella of the open
than 50 countries in the world. From a typical compliance exercise, banking framework. BaaS offers a radically different approach to
it has evolved into one about developing innovative customer financial services—one that deconstructs the old, traditional model
propositions for both retail consumers and businesses alike. Open and places its building blocks in the hands of a wider range of
APIs have become the standard of collaboration in an increasingly stakeholders.
busy financial ecosystem where banks, neobanks, fintechs, payment
disruptors and the ecommerce and technology giants strive for Modern technology is a prerequisite for success in open banking
dominance in different parts of the banking value chain; a value and even more so, in participation in the BaaS world. All players in
chain that has fragmented along manufacturing and distribution. the open banking eco-system, banks as well as nimble new BaaS
Banks are exploiting open banking to experiment with new business providers or the fintech or technology brands consuming BaaS,
models to break into new markets, to consolidate market share in require a resilient, secure and scalable technology platform that
mature markets, or to defend against aggressive new entrants in is cloud-native, API-first, built on microservices and enabled by AI.
others. In order to succeed in open banking, incumbent banks running on
legacy-based architectures need to digitally transform by acquiring
We are now seeing the rise of embedded finance, the demand critical new technology capabilities, enabled by partnerships
for a unified customer-centric digital platform to deliver both, with innovative banking software vendors as well as public cloud
financial and non-financial products and services. Embedded or providers.
open finance (Open X) which includes not just mandated accounts
and payments but all financial products such as mortgages, loans,
pensions and insurance, creates even more opportunities for
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Structural change –
Disintermediation of the retail banking chain
The chipping away of the banking value
chain by non-traditional players plus the Unbundling of the banking value chain
1
widespread consumption of digital banking
services by technologically savvy, less loyal Distribution Manufacturing
customers, combined with the high costs
of operation of incumbent banks mean Traditional Sales & Product
Marketing Servicing Management Operations
that the end-to-end manufacturing and Model
distribution of banking services entirely Where is the value What is the risk of
What is the value?
within a bank will continue to decrease, in the chain? creating the value?
and that manufacturing and distribution
will continue to diverge making it necessary Disintermediated Sales &
Servicing
Product
Operations
Model Marketing Management
for banks to collaborate with other players
of the eco-system, be they fintechs, Where is the opportunity cost of Is someone else better placed
technology giants, telcos, retailers or other obtaining the value? to gain the value?
banks. This unbundling of the banking value Core Collaborate Outsource Insource
chain will only gather pace, as the disruptive
technologies mature in financial services.
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Banks need to assess which elements of their value chain truly add Open banking - A collaborative model
value to the end customer and which do not, how much value is based on sharing of data through APIs
created, what are the associated risks and costs and what are the
opportunity costs of divestment. Accordingly, banks may decide to
focus on certain processes themselves, may consider outsourcing
and other innovative partnership models for sections of their value To:
From:
chain or may in-source certain business from other banks, leveraging
economies of scale and leading to the rise of new utility models in the Customers Customers
industry.
Own 3rd party 3rd party
Open Banking is the resulting global phenomenon of the Channels developers providers
disintermediation of the value chain and the move from competition
to collaboration with other players in a wider eco-system. It is a Internal Open
APIs APIs
collaborative model in which banking data is shared between two or
more unaffiliated parties through APIs in a bid to deliver enhanced
capabilities to the end-customer. The third parties could be service
providers or technology developers. The use of APIs as opposed to
Bank Bank
non-standard ways such as screen-scraping or manual downloads,
improves the speed, ease and security of collaborating with third
parties. It makes data, algorithms, transactions, business processes
and functionality available to other players in the banking eco-system.

of UK financial executives have

73%
of financial executives say their
63% organization’s Open Banking spending
increased since 2019
a positive attitude to open banking
compared to 48% in 2019
Source: Tink 2020 Source: Tink 2020

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With Temenos, we can pursue This is an exciting time for us. As we move into a new phase in
new and untapped market Cloud offers the enhanced our banking journey, we are sure
opportunities with differentiated scalability and flexibility we need that the partnership with Temenos
products and services that to pursue aggressive growth will continue to contribute to our
will put us at the forefront of plans, while we can see real success, helping us to adapt to
Open Banking and Payments security benefits from modern evolving regulations and market
modernization opportunities. We public cloud infrastructure. Open conditions and embrace the
look forward to continuing to Banking offers a real opportunity opportunities created by Open
innovate with Temenos.” for us, too, and Temenos will be Banking. We are confident that
our first port of call when we kick the self-service capabilities, rich
Chris Catliff off these initiatives.” integration features to connect
President and CEO, BlueShore to third-party solutions, STP, and
Financial, Canada Dan Dickinson scalability of Temenos solutions
Former CIO, EQ (Equitable) Bank, will enable us to grow and
Canada enhance our services.”

Mark Sawyer
General Manager, MyLife MyFinance,
Australia

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Open Banking
across the world
While PSD2 in Europe and the UK’s Open Banking Standard
launched by the Competition and Markets Authority, are the
2
citizens cannot only request financial institutions to share their data
with third party providers of financial services but also companies
pioneering initiatives started three years ago to promote in other sectors like energy or telecoms.
competition and innovation in the industry, at least 50 countries
across the world are now well on the path to open banking. Some Canada is another example where the Banker’s Association has
are opting for a more regulatory-driven approach modelled on been focussing on digital identity as a precursor to an Open Banking
Europe and UK such as Australia, Canada and Hong Kong and more Framework. It has now started the second phase of its “consumer-
recently, Brazil and Mexico in Latin America and Bahrain and Saudi directed finance” consultation on open banking.
Arabia in the Middle East, with mandated API standards and data
access. Others are following a more market-driven approach such Amongst the market driven ones, China is an interesting example
as the US driven by the rise of nimble fintech challengers and where giants like Alipay and WeChat Pay exploited their huge
those in Asia like China and India driven by payment disrupters and social media and gaming platforms and customer bases to
ecommerce giants. embed financial services like wealth and AI-driven lending into
their platforms. They needed to develop payment systems in a
Amongst the regulated markets, Australia stands out from the country where credit card penetration is low. They were able to
crowd for having the most ambitious and innovative approach to do this and expand beyond payments under a relatively benign
open banking. Australia’s Prudential Regulatory Authority mandated regulatory regime at the time, and with a more receptive customer
open banking implementation for its Big Four Banks along the lines base. Today, Alipay is rapidly expanding beyond China to European
of the UK but moved beyond open banking by implementing in markets with the goal of having two billion users in the next decade.
parallel the Consumer Data Right, an open data economy whereby
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 A snapshot of Open Banking across the globe

UK EU/EEA HONG KONG CHINA

CANADA Open Banking Working Group UKI comprising - Revised Payments Open API framework paper Driven by fintechs,
Canadian Banker’s Association 9 major banks set up by Competition & Services Directive for issued by HK Monetary Authority ecommerce giants
focusing on Digital Identity as first Markets Authority; became the Open Banking account aggregation and for banking in Jan 2018; APIX API and payment
step towards Open Banking Implementation Entity (OBIE) in 2018 payment initiation in 2018 platform launched disrupters
- Berlin Group and other
country initiatives

US SOUTH KOREA
- Driven by rise of fintechs, e-commerce
Financial Services
giants and BaaS
Commission focusing on
- Limited regulation e.g., OCC financial
Open banking ecosystem
charter and 2018 Treasury report affirming
third party access to consumer data

INDIA
Driven by payment disrupters
but also by regulation (United
MEXICO Payments Interface) in 2016
Fintech law passed requiring banks to
publish open APIs with oversight by Central
Bank (BANXICO) for digital certificates

SINGAPORE
- Early adopter - launched the “Finance
BRAZIL as a service” API playbook with 270
Central Bank leading Open Banking open APIs published by Nov 2017
Project being implemented in parallel - Forward regulation by Monetary
with instant payments PIX Authority of Singapore (MAR) but non-
binding

NIGERIA
Open Technology Foundation
to develop open API standards SOUTH AFRICA RWANDA SAUDI ARABIA BAHRAIN AUSTRALIA
Reserve Bank to establish Modelled on PSD2 plus Open banking initiative Bahrain Open Banking - Prudential Regulatory Authority (PRA)
regulatory sandbox regulatory sandbox launched by Saudi Framework (Bahrain OBF) mandate for phased implementation of
Central Bank (SAMA) launched by Central Bank Open Banking by the Big Four banks in
for early 2022 of Bahrain in 2020 parallel to Consumer Data Right

Source: Press Research Regulatory-driven Market-driven Both | 8

Open Banking Implementation Entity
(OBIE) case study

In the UK, the Open Banking Working Group, a consortium OBIE has been instrumental in the development of Open
of 9 high street banks, was set up in 2015 by HM Treasury Banking in the UK and is widely seen as a success by
to develop the Open Banking Standard, a framework to the rest of the world including Europe with its PSD2. By
guide how Open Banking data should be created, securely December 2020, it had more than 300 regulated providers,
shared and used by its owners and those who access it including fintechs, in the ecosystem with 102 having live
using open APIs. The intention was to develop common offerings in the market through the Open Banking App
technology, security and data protection standards across Store. Another 450 are in the pipeline. More than 3 million
the industry for open data such as current account UK consumers and businesses now use open banking-
terms and conditions or credit data, so as to maximize enabled products to manage their finances, access credit
its potential value through reuse. In addition, the UK’s and make payments and API call volume has increased
Competition and Markets Authority (CMA) published a from 66.8 million in 2018 to nearly 6 billion in 2020. The
report in late 2016 requiring banks to implement open focus of OBIE now is delivering true customer value, going
banking by 2018 in order to accelerate technological change beyond the regulatory mandate by creating a premium set
in UK banking and to help new entrants compete more of services on top of the existing regulatory API framework
fairly with the larger incumbent banks. The UK’s Open and standards, which will be targeted at specific use
Banking Implementation Entity (OBIE) was established cases. “That’s when it really takes off: all the data in one
at the same time. Funded by the industry and operating place built around serving the consumer,” said Imran
under the aegis of the CMA, it is a central programme Gulamhuseinwala, the Trustee of OBIE.
and platform that supervises the implementation of
open banking in the UK, champions the open banking The app store run by the UK’s OBIE currently has 100+
ecosystem and provides critical infrastructure services different open banking mobile applications and online
to that ecosystem such as directory security and dispute products across consumer, business and technical services.
management services.

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New business models
Open banking is leading banks to
co-exist with and co-evolve with
multiple players in the banking
eco-system. Open banking has
they may choose to provide a full
front-to-back-service as well as
aggregate 3rd party products to
build their own digital ecosystems.
Open Banking business models
(inspired by the European Banking Association)
3
seen the traditional full-service Citi bank has recently launched a
bank morph into new business digital lending platform designed
models such as the ‘aggregator or to provide access to credit to Manufacturer Platform (B2B2C/ B2B2B)
distributor’ where the bank sells SMEs looking for loans for up to
Customers Customers
third-party products to its own $10 million to connect seamlessly
customers, the ‘manufacturer’ with several regional, local and

Third party
Distribution Distribution
where the bank sells its own community banks. Idea bank in
products to other customer-facing Poland has built a similar eco- API API API API API API
institutions, or the ’platform’ system for SMEs and start-ups but
where the bank facilitates the providing accounting, cash flow Manufacturing Manufacturing

DISTRIBUTION
exchange of financial products analytics, promotion support and
and services between multiple even book-keeping for Uber drivers.
Traditional full-service bank Distributor (B2C/ B2B)
distributors and manufacturers. Gobank in the US teamed up with
Uber to offer banking services on
Customers Customers
In reality, banks will pursue a the ride-sharing platform gaining
multitude of these business access to Uber’s vast customer Distribution Distribution

Own
models depending on their base. To enter new markets, banks
business strategy and market may decide to offer their services to API API API API API API
position in different business third-party distributors or participate
segments and geographies. In in an existing eco-system. Manufacturing Manufacturing
markets where they dominate, Own Third party

PRODUCT CREATION
of respondents want to act as a true digital ecosystem
(offering own and third-party banking and non-banking
46.6% products and services to own customers as well as to
other financial services organisations)

Source: EIU Report 2021

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The ecommerce and technology giants like Amazon, Rakuten, Ant
Financial and Tencent first merged the value chains of various industries
to offer financial services from platforms. Being more central to their Percent of respondents who trust big
customers’ lives and better able to exploit the mountains of incredibly
tech to handle financial needs:
valuable customer data they owned enabled them to do so. Many banks
today aspire to create a platform like Airbnb or Google or WeChat i.e. to
enable transactions between buyers and sellers for transactions across
different related businesses offering a shared solution, within the context
of a well-defined value proposition under their own brand with the value
being generated by the transactions themselves.
58% 65%
In the context of retail banking, such a platform could be around a lifestyle
proposition such as buying a new home, with the bank orchestrating not
just financial services but also services that help the customer insure,
renovate and furnish the new home all integrated into the bank’s platform.
For businesses, an example of a platform is RBC’s Ownr which offers end- Source: McKinsey - Future of Banking Consumer Survey July 2019

to-end administrative, regulatory and advisory services to entrepreneurs

setting up and managing a new business in Canada from registering the
business as a sole proprietorship or an incorporation to building the brand
and helping with business insights. With such a model offering a one-stop
shop of personalized services, a customer is more likely to remain within
the platform ecosystem.

A large bank in Europe embarked on a digital transformation with Temenos to deploy cloud-
native Temenos Transact and Infinity. The new technology platform not only enables the
bank to improve operating efficiency but also allows them to participate in third party eco-
systems to create new revenue streams and distribution channels whether in real estate or
car dealership or a home moving company.

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Increasingly favourable customer attitudes towards banking with brands like Google and Amazon
combined with the truly digital and compelling propositions that these giants and other disruptors
provide, imply a significant erosion of the banking revenue pool. Citi predicts a loss in business
volumes of up to 50% in payments and investments and up to 35% in consumer and business
lending and mortgages to new entrants by 20251. This means that banks have to act fast to maintain
and gain market share in the world of open banking where proprietary data is no longer the source of
competitive advantage it once was.

However, banks have several historic advantages – rich transaction data, trusted client relationships,
compliance prowess and capital – that they could exploit to create their own platforms. McKinsey
estimates that banks that can capture a share of some non-banking markets through the platform
model could elevate their ROE by ~5% above the current industry average2.

Top benefits to banks from Open Banking

44% 39% 37% 31% 17%

Revenue growth Revenue growth Revenue growth
from new from new products from new APIs Market share Churn rate
customers and services and developer growth
services

Source: Tink 2020

1. Citi Research Global Digital Strategy “Bang and Fuse” Model

2. McKinsey: Remaking the bank for an eco-system world October 2017
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Open banking-driven innovation
– Tangible customer value
Open banking continues to be driven by the original regulatory objectives of
4
The benefits to the end
customer and/or business
increasing competition and accelerating innovation using APIs. Despite PSD2
having a very limited focus, and while the regulation has not yet had the impact
many had hoped for, the concept of using open APIs has had a transformative
Access
impact on the industry as market leaders, both incumbent banks and new
entrants, go beyond the regulation to provide innovative experiences and products
to consumers and businesses alike, giving them more choice and greater control
Relevance Convenience
over which financial products and services they consume and from whom.

Open banking’s ultimate success depends on end-customers’ awareness and

acceptance which in turn depends on the additional tangible benefits it brings
– greater personalization, a better experience with improved convenience and
responsiveness, more transparency, and access where none existed. Financial
services providers need to go beyond mere account switching and aggregation Transparency Control
to provide next-generation financial services not only to existing customers but
also extend their reach to under-served or unbanked segments, by accessing and
Choice
mining open banking data from multiple third-parties in addition to their own. For
instance, many providers are using open banking to extend private banking to the
mass affluent and ultimately mass retail segments and extend corporate banking
to the underserved SME segment. In the UK, open banking is progressing beyond
accounts to other areas of finance such as savings, mortgages and even pensions
and insurance which is being referred to as Open Finance or Open X.

Banks are starting to leverage open banking for retail, SME and corporate
customers with rich use cases emerging in all segments.

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Retail banking
Retail consumers were the first target for open banking and compelling use cases for end-consumers are emerging rapidly, ranging from
aggregation and personal financial management to beyond banking.

Retail banking use cases

1 2 3 4 5 6

Aggregation
Credit risk Origination & Charitable Beyond
& financial Payments
decisioning onboarding giving banking…
management

The Temenos MarketPlace has a strong retail banking hub across Europe
that we are excited to become a part of. By adding our open banking
platform with deep bank connectivity, we can help banks in the Temenos
community seamlessly access real-time, enriched financial data, enabling
them to get a better understanding of their customers’ finances, and to
build new digital services that help people better manage their money.”

Daniel Kjellén,
Co-founder and CEO of Tink

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1. Aggregation and financial management: 2. Credit risk decisioning: Credit risk 3. Origination and onboarding: Disruptive
Already, open banking is helping retail decisioning for loans and mortgages is technologies like AI and machine learning
customers manage all of their personal being transformed by automating and and Robotic Process Automation (RPA) can
finances in one place, giving them a holistic incorporating open banking data like be applied to open banking data to simplify
view of their financial footprint plus access shopping history in addition to static credit and dramatically improve the origination
to faster, cheaper credit, and personalized reference agency data, allowing customers experience. Fintechs like Habito and Trussle
advice on managing debt or the best to receive bespoke, fairer offers faster and are already doing this for mortgages. Even for
mortgages to buy. HSBC, KBC, OP Bank more cheaply, while the providers benefit account originations, access to open banking
have all launched aggregator apps in recent from operational cost savings, reduced fraud, data can reduce exceptions and hence
years. Aggregator and personal financial and better lending decisions. Platforms like reduce dropout rates in the application
management apps have now extended DirectID categorize open banking data such process through automated verification. The
their scope to include new services such as as salary, debts and affordability to provide same principles apply to tenant applications
targeting recommendations for restaurants, visual insights on the creditworthiness of for rentals.
attractions and activities based on previous the applicant. This can allow people with
financial behaviour. Natwest and Swedish no credit history like young people, new
fintech Tink3 have partnered on a spending immigrants or the self-employed access to
feature on Natwest’s mobile banking app credit they would not otherwise receive. The
used by 4.6 million customers to control not-for-profit lender, Fair for You, uses open
finances. In July 2020, a personalized banking to enable low income families to
and actionable newsfeed was added to access credit.
this app which has helped 1.6 million
customers save money. ABN Amro has also
collaborated with Tink to develop Grip, a
PFM application that allows customers to
view their consolidated finances from other
banks. Within 3 months of launch, they had
attracted 670,000 customers, 50% of whom
reported improved perception of the bank.

3. Tink has built its business model on open banking in Europe, offering account aggregation, personal financial management
and payment initiation services to banks in 13 European markets. It is connected to 3400 banks and FIs.
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4. Payments: Payments are being 5. Charitable giving: Charitable giving is an 6. Beyond banking: Open banking could
revolutionized not just by open banking but area adjacent to banking that is seeing the be extended into completely new areas
by new formats and methods such as QR positive effects of open banking. Sustainably outside banking and finance like managing
Codes, P2P payments and cryptocurrencies is a fintech that allows users to roundup all of a customer’s passwords from the
to reduce friction and improve the consumer their digital spare change from shopping bank’s portal. Imran Gulamhuseinwala,
experience. New firms such as Adyen are and debit card use towards charitable giving. implementation trustee at the OBIE, uses the
complementing existing technology firms Moneyhub Enterprise and Streeva are example of an app leveraging open banking
such as Stripe and PayPal in this space. powering charity donations by scanning QR data to help people better understand
codes with a phone to allow direct payment their carbon footprint and make better
with automated Giftaid. Santander’s environmental decisions.
Openbank recently launched a charity
marketplace. “Customers can go to the
website, select a charity, set up an automatic
transfer every month or year, and receive a
tax receipt”, said their CEO, Ezequiel Szafir,
recently.

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Corporate/SME banking

Open Banking can also help small and medium enterprises (SMEs) and corporates all the way from corporate treasury to
payments, credit access, account opening and operations to beyond banking. It helps in reducing costs, enables better
decision making and improves compliance.

Corporate/ SME banking use cases

1 2 3 4 5 6

Financial
Corporate management Credit Value-added Beyond
treasury for SMEs and decisioning Payments services banking…
Wealth

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1. Corporate treasury: Open banking 2. Financial management for SMEs and 3. Credit decisioning: Banks can use open
offers significant benefits to the corporate Wealth: Open banking is especially useful to banking APIs to access accounts payable
treasury function. It enables real-time SMEs as it allows them access to the same and receivable transaction data in real-
integration between the corporate’s ERP technology benefits that were previously only time as well as invoice history from their
available to larger, well-resourced corporate
and treasury systems and the bank, greatly corporate clients in addition to balance
organizations. For example, a single open
enhancing visibility for both the bank banking API can enable smaller treasury sheet and credit registry data, allowing them
and the corporate treasury. Corporates teams to access the online portals of to make better-informed credit decisions
meanwhile can use open banking to access multiple banks with their own specific ways and accordingly tailor their propositions to
real-time transactions and balances from of downloading information, which can be the corporate’s specific business context,
their multiple banking relationships to have much more cost-effective than SWIFT. This proactively offering appropriate hedging
enhanced and timely visibility on their cash offers greater choice and easy comparison and other working capital products as pre-
and FX positions globally, rather than end- of different products and services available approved lines of credit. CreditPassport
of-day MT940 or MT92 statements, for specific to the SME’s sector and market. is a fintech providing credit scoring for
Open banking data can enable account
instance. This helps corporate treasurers businesses.
aggregation or book-keeping and financial
manage their liquidity more effectively. management as well as the ability to
improve credit checking of customers and
integrate accounting and lending. Improved
visibility and analytics into cashflow against
forecasts helps manage late payments. In
the UK, Barclays, HSBC, Lloyds, and RBS
all offer SMEs and middle-market clients
products for aggregated cash management.
In Central Europe, OTP bank recently
launched eBiz , a financial management
tool for SMEs. New players like Tide, Holvi,
Plaid and Coconut also offer aggregation
solutions, mostly focused on accounting
and bookkeeping, with payment tracking, tax
calculation, and invoice preparation to SMEs
and freelancers. Others like VisibleCapital
provide improved insights on private clients
financial advisors, wealth managers and
pension providers. | 18
4. Payments: Banks can initiate 5. Value-added services: Open banking 6. Beyond banking: Open banking data
payments on behalf of SMEs and data can be analysed to provide additional can lead to provision of services beyond
corporates to maximize returns and value-added services. For example, banks banking. Expense management and
reduce funding costs by offering can help corporates avoid future cashflow scheduling supplier payments is an area
where UBS, Standard Chartered and
alternatives to card payments. Fintechs problems by proactively comparing
fintechs like Bill.com play. Mastercard
like Plaid are already offering payment payment due dates for supplier invoices is partnering with a fintech, Cardlay, to
initiation services for SMEs. Klarna against current account balances to unlock corporate card data to provide
is an ecommerce payments solution warn about potential lack of funds. They automated expense management and VAT
for businesses and merchants. Open could also provide peer comparisons claim processes to their commercial clients.
banking enables corporates and SMEs to to companies on market share, utility Wells Fargo together with Quickbooks
enhance their own customer relationships spend and other aspects of running a (accounting software) provide automatic
i.e. the experience they are able to business. Barclays’ SmartBusiness invoice issuance to SMEs. RBS and Chase
offer their end-customers in terms of Dashboard offers marketing effectiveness are providing collections management
services such as reminders and repayment
the speed of fulfilment of payment tools as part of a customizable business
solutions by analyzing debtor data. Bank
transactions as the payment can now dashboard. of America with Quickbooks is providing
be part of their customer’s journey e.g., payroll services to SMEs. Apart from
incorporating bill and invoice payments banks, accounting and payroll processing
from their app. Another example is car companies can use HR and payroll data to
dealerships that can use open banking flow freely across platforms and hence allow
APIs to allow their clients to instantly them to more efficiently manage HR, talent,
pay and drive away with the car in the time and attendance, payroll processing,
same interaction rather than wait for the payroll compliance and employee portals
for their corporate clients. Gusto is an
payment to clear until the next day.
integrated platform that automates all
payroll calculations, tax filings, reporting
and payments to allow businesses to
provide direct deposits to employees. Tax
administration and inventory management
are other areas where fintechs like Davo,
TradeGecko, Coconut and Holvi have
entered.

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Temenos Infinity Virtual COO: A business intelligence growth
engine to unlock small business growth, manage risk and drive
engagement throughout the life of the small business enabling the
bank to become the trusted partner.

Open Banking Actionable Predictive Simulation

Data Aggregation Insights Modeling Enable human-AI
Aggregate multiple Engage the collective augmentation by allow-
Create order and mean-
data sources (banking power of machine and ing business owners
ing from data to deliver
and non-banking) to industry intelligence to visualize alternate
a valuable diagnosis
provide a holistic view to educate business outcomes and perform
of business activities
of ‘business health’ owners on various ‘what if’ analysis of the
helping business owners
and deliver actionable options for addressing AI models presented,
to understand what’s
insights in real-time for opportunities empowering them to
happened and why, and
the business owners. and prescribe a make informed choices
enabling the next-best-
action. recommendation. for their business.

Eco-system Automation Track & Trigger

Synergy Allow Temenos Automate the
Infinity VCOO to monitoring of Small business owners are very comfortable with
Enable industry
collaboration learn and automate information and whatever their business is. What they are less comfortable
the predictable, channels to identify
opportunities for the
repetitive aspects of and alert business with is how to run a business. We tried to build a platform
SME community of
your bank. Accelerate the operation, freeing owners to opportunities that acts like that COO they never had. It brings together
business owners to or risks for their timely
connectivity amongst
spend time growing attention, serving as information that business owners typically have to deal
the SME’s themselves
and professional their business instead a ‘real-time business with, and we turned that into advice. The Temenos Infinity
of running it. coach.’
service providers to VCOO gives them that helping hand that is hard
encourage growth
and tap into expertise. for a small business owner to find.”
Using aggregated
data, banks can
provide education and Jeff Wright
data-driven industry SVP Equipment, Digital & Client Solutions,
benchmarking to
SMEs to support Canadian Western Bank
and maximize SME
success.

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Embedded finance and
Banking-as-a-Service (BaaS)
5
As open banking morphs into open finance and open finance
becomes integrated into digital ecosystems or platforms blurring
industry boundaries, we come closer to an open data economy.
Then, banking gets subsumed into cross-industry digital
ecosystems through Banking-as-Service (BaaS) models. Built on
the foundations of open banking frameworks, BaaS has come
into its own since the COVID-19 pandemic. It is the provision
of complete banking processes (deposits, loans, payments) as
a service from specialist cloud-based API platforms that use a
licensed bank’s secure and regulated infrastructure to enable
delivery of financial services at the point of customer need:
embedded finance.

BaaS offers a radically different approach to financial services—

one that deconstructs the old, traditional model and places its
building blocks in the hands of a wider range of stakeholders.
By doing so, it accelerates the democratisation of banking and
its transformation into a platform economy. The end-customer
benefits from the provision of banking and financial services
into a personalized end-to-end customer journey designed to
address their particular unmet need, delivered at the appropriate
touchpoint with real-time, intelligent and contextual experiences.
At the same time, they can be reassured that the service is
provisioned ultimately from a licensed, regulated entity, protecting
their financial and data assets.

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 BaaS value chain
BaaS differs from traditional white labelled banking
service provision fundamentally because it is a technical
and operating model driven by a loosely coupled plug Brand or BaaS License
& play API platform and operating model built on Consumer of provider holder
configurable components. BaaS Banking capability
API (and/or embedded BPO)
It offers stable BaaS revenue streams to the providers:
pay-as-you-go in the test phase and then standard
Bank API
subscription-based as the brand scales and matures
its services. The provider can also benefit from data
sharing deals in lieu of or in addition to revenues to Embed banking
gain customer insights to personalize own offerings if services into own Offer E2E banking
applicable. Self service consumption implies low cost portal by paying the business processes Offer core banking
of sale compared to traditional bilateral partnerships BaaS provider to to the brand via APIs business processes to
involving RFPs, contracts and bespoke connectivity. BaaS provide access to offered from specialist the BaaS provider (and/
their systems and cloud API platforms or brand via APIs)
players offer access to a sandbox and API documentation
functionality
aimed at developers, build working apps at speed often
via APIs
offering the first transaction in a matter of hours and
scaling operations in days.
BaaS = Business Process + Software

of respondents say BaaS

of respondents say more of respondents say BaaS is a way to extend reach

76% 92% 80%

likely to use BaaS as is a faster way to bring into new geographic
a route to market since products to market than markets than building
COVID-19 building in-house in-house

Source: Future of BaaS Survey by

Open Banking Expo and Equinix 2021

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1. The Brand or Consumer of BaaS is the 2. The BaaS provider is the company that 3. The License holder rents its license to
company that owns the end-customer provides one or more modular banking the BaaS provider and gives access to the
and wants to embed banking services services through APIs to the customer- underlying rails and compliant products.
seamlessly into its customer context and facing organizations. It typically partners Some incumbent license holders offer own
experience. Its primary aim is to build its with regulated banks. However, some BaaS BaaS services directly to the brands as an
own core differentiating digital and/or niche providers hold licenses themselves and add-on business line. BaaS partnerships
proposition at speed and scale without offer banking services to own client base. help these players grow their balance sheets
having to secure a banking license or invest For these, BaaS offers the opportunity profitably as the brands have the ability to
in regulated banking infrastructure. It selects to diversify revenue streams even if acquire new customers cheaply and rapidly
best-in-class capabilities from multiple BaaS cannibalizing own business and also through their differentiating propositions.
providers in a plug-and-play on-demand enables them to use insights from BaaS BaaS provides them a means to collaborate
model. Brands can be from virtually any to personalize own offerings. Solarisbank, rather than compete with new entrants
sector though at present, the majority are one of the first BaaS providers offers over (cannibalization offset by potential loss of
fintechs or the platform giants. An example 180 Restful API endpoints that provide market share). The Asia-focused UK bank
of a brand is Singapore’s Grab, which began frictionless banking services as modules Standard Chartered launched nexus,
as a ride-hailing service similar to Uber to non-banking enterprises, or even other its new banking-as-a-service solution in
which has embedded payment services into banks. March 2020 aimed at digital platforms and
its app. These are sourced from the Dutch ecosystems like e-commerce, social media
payment company Adyen, which holds a or ride-hailing companies to enable them
banking license and provides e-commerce, to offer loans, credit cards and savings
mobile and point-of-sale payments through accounts co-created with the bank to their
an API-driven platform. customers under their own brand name.

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The rise of BaaS is hardly surprising given that open banking APIs are maturing across the
globe and the platform economy with integrated experiences in demand. This has been
enabled by the rapid adoption of disruptive technologies (Cloud/SaaS/ Microservices)
in banking, all of which are prerequisites for this model. Finally, tough macroeconomic
conditions exacerbated by the COVID-19 pandemic have constrained funding for the fintech
brands and worsened profitability and margins for incumbent banks. The former cannot
afford to build the banking infrastructure or obtain a license themselves; the latter are looking
for new revenue streams. Therefore, the BaaS market is expected to grow significantly and
reach $3.6T by 20304.

The BaaS stack – Typical BaaS processes

Embedded journeys
Start and run
Buy, insure, Ecosystem of House discovery Start and run
e-Commerce
service services business a small business
Brand / BaaS

and purchase
Consumer

and run my car (e.g. Apple) (e.g. Shopify) (e.g., Square)

Intelligent services

Holiday Building Paying bills Auto switch Plan for

affordability a savings pot when paid utilities buying a home
provider
BaaS

Financial products
Loans Cards Deposits Payments Securities

Capabilities

Credit Card Identification & Other Risk &

License

KYC
holder

Scoring Issuing Authentication Compliance

Transactional rails
Domestic /
International Card Bond Equity
Treasury
payments networks markets markets

Source: 11:FS; Temenos analysis General Regulatory

ledger reporting

4. According to Bain Capital Ventures and 11:FS, assuming 40% of payments, 20% of lending
and insurance volumes move from traditional banking to embedded finance by 2030
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Buy Now Pay Later: Disrupting
traditional consumer lenders
The concept of consumer credit and instalment loans has been
revolutionized in the Banking-as-a-Service era by the “Buy A leading payments provider launched
Now Pay Later (BNPL)” offering that seamlessly embeds into
the buying user experience. This is changing the economics of its BNPL product on the Temenos
traditional lending from lending spreads taken from customers to lending platform, scaling to 22M
earning commissions from merchants. The trend has arisen from accounts in just 9 months, the fastest
the 20% boost to POS lending at the expense of physical cards
since the COVID -19 pandemic. It appeals both to financially and most successful product launch
stressed and/or younger consumers who feel unfairly charged by in the company’s history. 70% of their
credit card companies as well as to merchants as it helps them customers say they love the product with
acquire new customers faster and cheaply, improve loyalty and
increase average order value. 50% using it again. There has been a 15%
uplift in merchant engagement as well.
BNPL-related purchases are projected to grow 400% from $24
billion in 2020 to $100 billion in 2021. Leading BNPL players
include Klarna, Paypal and, Afterpay while smaller players
like ChargeAfter, QuadPay, Uplift and Sezzle are also doing
extremely well. The acquisition of Afterpay by Square for a record
$29 billion endorses the success of the model. It also signals
consolidation in the BNPL space or possible acquisition of these
players by either incumbent banks or by large e-commerce
retailers or platforms. BaaS partnerships around BNPL are also
emerging. Apple has just announced the launch of a new service
called Apple Pay Later in partnership with Goldman Sachs as the
lender, that will let consumers pay for any Apple Pay purchase
in instalments over time. This extends their relationship with
Goldman Sachs who have provided the Apple Card credit card
since 2019.
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Technology implications of
Open Banking and BaaS
Open banking has been slow to take off, even in the most
advanced markets like the UK and Europe. Banks’ misgivings
Characteristics of technology to
support Open Banking and BaaS
6
as well as consumer acceptance to share banking data and
lack of interoperability of API standards across countries
were cited as major factors. But above all, the constraints Openness &
posed by legacy IT architectures at incumbent banks have Interoperability
impeded them from adopting open banking. A few months
Agility and
into the launch of open banking in the UK, a study on time to market Modularity
the performance of the Open Banking APIs revealed that
several banks were failing to deliver adequate service quality
levels to consumers for the basic APIs required by the Software
Competition and Markets Authority. This included availability -as-a-Service
and latency broken down into DNS, handshake, connection, Data (SaaS) No/Low code
aggregation & hyper-
upload, download and processing times. The challenges of data quality personalization
legacy infrastructures were noted in the report. Those that
came bottom of the league were among the largest and
best resourced banks in the UK.
Hyper-scalability,
Banks require a modern digital technology architecture to Security resilience &
succeed in open banking. Those running functionally rich availability
core banking systems built on distributed cloud-native
IT architectures leveraging containers, microservices and
open APIs are able to not only provide differentiating digital BaaS partnerships and direct provision takes these
experiences for their own customers but are also able to requirements to a whole new level for incumbents and new
establish open API marketplaces to exploit opportunities entrants alike. Innovative software providers in combination
from open banking, whether to generate new revenue with public cloud infrastructure players provide just such a
streams from own and 3rd party product innovation or from technology platform for the world of open banking and BaaS.
entering new markets or monetising APIs.
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Openness and interoperability: Beyond Modularity: Open banking itself has No/Low code hyper-personalization:
the basic ability to consume external APIs specific use cases that must be supported Open Banking and provision of BaaS are
and provide own APIs to 3rd parties as per stand alone. With the plug and play pay- predicated on personalizing the banking
regulatory and industry standards in the as-you-go service model of BaaS, a services to meet the specific needs of the
markets they operate in, banks and BaaS microservices-based architecture that brand or embedded finance portal and allow
providers must be able to adapt their APIs allows independently deployable services to them to differentiate their offerings . This
rapidly to changing open banking and other be launched quickly becomes necessary. requires software augmented with hyper-
regulatory requirements. Developer portals parameterization for maximum flexibility,
with advanced API documentation and ease with preconfigured, extensible and re-
of use as well as pre-integration to an eco- usable features as well as developer-friendly
system of third-party technology providers is technical tooling.
a prerequisite for open banking and BaaS.

Temenos was the only provider that was able to deliver on all three What really differentiates Varo is our technology platform.
of our key requirements: cloud, interoperability and open APIs, We architected around cloud and open APIs and as we were
with its world-class core banking system that will scale with us as evaluating a core banking provider it was really important to find
we grow.” a partner like Temenos who can support us. It’s a highly scalable
platform, it’s a secure platform and it’s a platform that the
Minerva Tantoco regulators were comfortable with.”
Co-Founder and CTO, Grasshopper Bank
Colin Walsh
Founder & CEO, Varo, US

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Data aggregation & data quality: Agility and time to market: Hyperscalability, resilience Security: Arguably the most
High volumes of open banking For banks, open banking and availability: When banks important requirement, open
data must be aggregated and means rapidly and seamlessly open up for data access to banking exposes customers’
analysed for the bank to develop connecting to third parties in third parties, the volume of personal and financial data to
personalized propositions or digital eco-systems. For BaaS queries on the customer and increased risk of unauthorized
to provide insights to their providers, agility in terms of transactions data they own, access as a complex web of
ecosystem partners. The scaling their APIs on demand increases severalfold. HSBC has stakeholders now hold this data,
scalability of cloud platforms in order to rapidly build new met the surge in demand since albeit with their consent. In the
enables banks to collect, products for the brand or to they launched open banking in UK, the implementation of Open
store, analyse and distribute help the brand expand into the UK and European markets Banking APIs has led to spikes in
this data in real-time such as new geographies becomes with public cloud. Open banking reported cyberattacks on financial
to authenticate credit card key. Today’s software packages also cements the need for banks services firms. Cybersecurity was
transactions initiated through come with thousands of to make systems available 24*7 also cited as the top investment
APIs. configuration, migration and and provide real-time access focus area by respondents in a
extension APIs and design-time for the end-customers of third 2020 survey conducted by the
tooling to allow banks and other parties. Brands consuming Economist Intelligence Unit (EIU).
providers of financial services BaaS require Industrial-strength Public cloud infrastructures and
to design and publish specific resilience with zero risk of modern cloud-native software
APIs, enabling rapid incremental outages Therefore, a scalable packages provide comprehensive
implementation. The depth and and resilient platform afforded security services – authentication,
breadth of available functionality by the public cloud infrastructure authorization, access and non-
localised for different markets is providers like Microsoft Azure repudiation.
also a key advantage to rapidly and AWS becomes key.
meet the needs of diverse
brands.

Software-as-a-service (SaaS) further enables banks and other providers of financial services to consume, manage and maintain packaged
software in a secure, continually evolving, self-service platform while allowing them to develop their specific banking models through
advanced configuration and extensibility capabilities at their own pace and desired frequency. For BaaS providers catering to the diverse
needs of multiple brands, SaaS complements and supports the BaaS model of consumption.
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Conclusion
At Temenos, we believe that the banking industry is moving
inexorably towards open banking as it spreads across the
world and proprietary data and proprietary relationships
get relegated to the past. New digital ecosystems with
embedded finance and banking-as-a-service are gaining
traction driven by open APIs. Therefore, banks are having to
re-think their business models in order to provide compelling
new propositions to their customers in order to stay relevant
and dominant in an industry served by a complex web of
players. Their success in the world of open banking and
BaaS is predicated on modern cloud-native and API-first
technology – digital transformation becomes an imperative
and not a choice to compete in this brave new world.

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Author
Kanika Hope About Temenos
Chief Strategy Officer Temenos (SIX: TEMN) is the world’s leading open platform for
composable banking, creating opportunities for over 1.2 billion
people around the world every day. We serve two-thirds of
the world’s top 1,000 banks and 70+ challenger banks in 150+
countries by helping them build new banking services and state-
of-the-art customer experiences. The Temenos open platform
helps our top-performing clients achieve return on equity three
times the industry average and cost-to-income ratios half the
industry average.

For more information, visit www.temenos.com