SaaS means paying for applications as you use them, rather than buying them, through the internet. Applications such as customer relationship management systems can now be managed through web services such as Salesforce.com. Google is also becoming the biggest SaaS through its e-mail, wordprocessing and other applications. These services were previously expensive, but are now free or very cheap. That is where banking is going: a set of plug-and-play applications that people can stitch together to suit their business or lifestyle.
There is no logical reason why banking should not be delivered as SaaS. It already is for some people. For example, it would be possible to create a bank today with no bank involved. By using prepaid cards, it is possible to get a MasterCard and keep topping up without ever using a bank. Bank Freedom’s prepaid card, for instance, provides the convenience of a regular credit card without the hassle of security checks. There are limits to what can be done with such cards, due to anti-money laundering regulations, so other cards become useful, such as those backed with gold.
Digital Wealth cards, for instance, make it possible to create a prepay without limits. The card can be loaded using Wire Transfers, Western Union, MoneyGram, E-Gold, e-Bullion, Pecunix, WebMoney and Liberty Reserve, and allows $3000 a day or $90,000 a month to be withdrawn.
Alternatively, one could use PayPal, Google Checkout, Bill-Me Later and other services for payments, although most of these need a bank account to work with them. For savings and investments, the best deal comes from sites such as Zopa, the first of the ‘social lending’ web services. These sites offer borrowers and lenders competitive interest rates. With Zopa, I found the borrowing and lending rates excellent: 12.8% for the highest risks on my lending, which I can insure, versus 8.7% interest for the lowest risk borrowers. The UK’s best savings rates are 3.55%, and I can get a loan charging 11.9% or more.
Even corporates could do this, and some do by running their own bank internally. Using BaaS, they would build a full financial service using providers such as First Data, the Barter Network, PayPal, Google Checkout and related services. The point is, the old model of banking where everything is packaged together around a deposit account with a cheque book, is bust. That is why some banks are starting to white-label and break apart their traditional services so that corporates can just buy the bits they like.
For corporates and consumers, there will also be niche operators who use BaaS to offer new banking models as integrators. These integrators bring the pieces together and provide them in a more competitively priced model than traditional banks. This is the future bank, and old banks will need to reconsider their services to compete with this zero-margin model. Final thought: banking as a service. Think about it. Banking... as a Service. Now that would be nice.
Chris Skinner is an independent financial commentator and chairman of London-based The Financial Services Club.
