Future of Banking: Architecture for New Business Models

Fintech 03-Jun, 2024


As technology continues to reimagine traditional banking, a new era emerges—one that promises innovation, disruption, and a reimagined financial landscape.
The convergence of technology and traditional banking has given rise to innovative business models; these models, including Banking-as-a-Service (BaaS), Banking as a Platform (BaaP), Open Banking, and Embedded Finance, are pivotal transformations driving the industry towards a more distributed and collaborative banking ecosystem. 
In this article we explore these new concepts, to understand a possible future architecture of banking, and also discuss the technological challenges banks face in this transition as they are poised to accelerate their technological transformation for being banking 5.0 ready. 
1. Banking-As-A-Service (BaaS)
Concept: Banks offer their products to third parties (FinTech) for white or grey labelling and distribution.
Use Case: A FinTech company aims to launch a bank offering savings accounts and other financial products to their clients. They can quickly do so by partnering with a BaaS platform provider, who has the necessary license and operational processes. This allows the FinTech company to focus on customer acquisition, experience, servicing, and retention.
Why BaaS: BaaS offers partners opportunities to launch innovative products, enhancing customer experience and loyalty. For providers, it expands distribution channels.
Future: Expect more innovative products, embedded financial services, and a broader range of financial service distributors.
2. Banking As a Platform (BaaP)
Concept: The reverse of BaaS – banks consume services from niche FinTech’s to enhance customer experiences and services.
Use Case: A bank could partner with a FinTech to embed services, like ID screening or facial recognition, directly into their offerings, streamlining processes like customer onboarding.
Why BaaP: This model enables banks to leverage external innovations, bypassing legacy system limitations, and improving efficiency and customer experiences.
Future: Banks will increasingly rely on external products and services, moving from niche solutions to broader commoditization.
3. Open Banking
Concept: Open Banking allows third-party access to banking customer data through APIs.
Use Cases: A FinTech provides a mobile app that consolidates financial information across banks for better financial planning and decision-making.
Why Open Banking: This model promotes transparency, competition, and improved services for consumers.
Future: There will be a greater push towards data sharing and consumer control over their data.
4. Embedded Finance
Concept: Financial services are integrated into non-financial platforms.
Use Cases: Car share companies issue bank accounts and debit cards integrated within their apps, facilitating seamless transactions for drivers.
Why Embedded Finance: It allows for product bundling and a seamless user journey, enhancing the customer experience and generating revenue for retailers and financial service providers.
Future: Financial services will increasingly operate in the background, delivered through third-party retailers and service providers.
Key Takeaways – The Future of Banking
The future of banking is shaped by a border free, distributed and collaborative business model, where:
• Innovation in financial products creation and distribution is no longer limited to banks.
• Financial products can be sold by any entity, not just banks or financial services companies.
• Customer service can be provided by entities other than the original product or service provider.
The new banking model, driven by technological innovation, is transforming the financial sector into a more distributed, collaborative, and customer-focused ecosystem. Banking-as-a-Service (BaaS), Banking as a Platform (BaaP), Open Banking, and Embedded Finance, democratizes financial services, allowing fintechs, technology providers, and non-financial businesses to offer banking services. This will drive competition and also promotes financial inclusion, making financial products more accessible to the underserved. It encourages innovation in financial services, with technology enabling the creation of more sophisticated and consumer-centric financial solutions. The models brings transparency and competition, potentially reducing transaction costs and improving customer service through more personalized and seamless experiences. The future banking architecture aims to provide an integrated, efficient, and convenient financial services ecosystem, similar to the evolution observed in e-commerce.
Future Banking Architecture/Model
This section outlines a high-level architecture for a bank to enable a distributed and collaborative financial services ecosystem. Drawing parallels with e-commerce, it highlights the roles of supply (product creation, bundling, etc.), acquisition (customer sourcing), and demand/consumption (customer touch points) as crucial elements for banks and financial institutions aiming for an integrated, customer-centric future.
Challenges for Banks to make the Shift
As banks and NBFCs adapt to new business models like BaaS, Open Banking, and BaaP, this  will necessitate architectural changes. Key challenges that may impact this include:
1. Legacy Core Applications: Difficult to integrate, scale, and costly to maintain.
2. Monolithic Architecture: Lacks the flexibility and agility required for a distributed model, compounded by tightly coupled system dependencies.
3. Manual Operations: Despite digital advances at customer touchpoints, many back-office processes remain manual, hindering end-to-end digitization.
As we enter a new era in banking characterized by BaaS, BaaP, Open Banking, and Embedded Finance, it is evident that the industry is moving towards a more collaborative model. This shift emphasizes a customer-centric approach, where technology serves as a bridge between traditional and digital banking, enhancing consumer and business empowerment. Despite the challenges, particularly in integrating legacy systems and embracing new technologies, the potential for a more innovative, accessible, efficient, and personalized financial future is immense.

Get in touch with us at Coreium to brainstorm over a Zoom call or coffee, we would love to explore how our fintech wisdom could transform your business challenges into growth solutions. 



Niraj Sanghavi | Coreium