Voice of the Industry

The path to BPaaS: To build or buy?

Thursday 22 September 2022 13:03 CET | Editor: Oana Ifrim | Voice of the industry

Ulf Meyer, Managing Director of SWK Bank, explains why BPaaS is necessary for financial institutions

The digital transformation requires more standardisation, automation, and flexibility. Instead of doing all in-house, more and more decision makers opt to source systems and processes from outside experts. The most consistent way improving your CIR by up to 15% is through Business-Process-as-a-Service (BPaaS). 

Challenging times are here to stay

Banks are facing major challenges. European Institutions need to retain profits against uncertain interest rates and tight regulations. All while bloated product portfolios, error-prone manual processes and antiquated IT architecture drive up the cost of operations, and severely limit their maneuverability in a time of ever-demanding customers. These factors are forcing banks to increase their efficiency – i.e. to account for the costly IT transformation ahead. One important source to gain is the back office. This is because manual processes have significant disadvantages. These include, first and foremost, the far too low degree of automation, which results in long decision-making times for the customer, susceptibility to human error, as well as considerable operational risks and, last but not least, the lack of scalability.

Banking-as-a-Service (BaaS) helps to face these challenges efficiently

The outsourcing of systems and processes offers advantages for institutions of all sizes. Small and medium-sized financial institutions in particular benefit from efficiency advantages. Because of economies of scale, the BaaS provider can deliver back-office processes more cost-effectively than a smaller bank itself. Larger ones, meanwhile, can harmonise their product and process landscape more efficiently. By drawing on the expertise and technological competence of an external specialist, it is possible to offer innovative products and expand into new foreign markets without having to build up the necessary resources and competences. Put simply, BaaS allows to concentrate on the differentiators and leave the rest to others.

From a new core banking platform to Business-Process-as-a-Service

Banks have several options for integrating external solutions into their operating models. They can replace infrastructures such as the core banking platform with complementary satellite systems – on-premise or in the cloud (IaaS). Further, institutions can also source software as-a-service that lays on top of this infrastructure and enables the operation of business processes with a higher degree of standardisation and native automation (SaaS). Business-Process-as-a-Service (BPaaS) extends this notion beyond pure software to the interplay with human agents in the context of specific business tasks, such as loan application checking and originating. Compared to traditional business process outsourcing (BPO), these offerings are marked by modular services containing standardised pieces of business logic, which are executed by software for the most part with only limited human intervention. This could result in a straight-through processed (STP) rates of 85%, depending on the process.

Business-Process-as-a-Service helps to leverage further efficiencies

In their digital transformation, banks repeatedly come up against the limits of their legacy systems' ability to change and integrate. Migrating to a SaaS platform is therefore a first step. However, outsourcing back-office tasks to a specialised partner promises even greater efficiency gains. From our successful work with leading national banks, savings banks and Fintech Unicorns, we know that your decision how to manage the back office is therefore strategically important. Where we take over the loan or deposit processes, our partners are usually faster to market, occupy leading positions in credit rankings, or can offer the best deposit conditions for their customers through cost advantages. 

The Case for Business Process as a Service 

These numbers can certainly be measured. According to a leading German financial services consultancy outsourcing can improve an institutions’ cost-income ratio by up to 15% and more. All driven by the ability to offload the development and operation to an external provider, the resulting cost-sharing advantages and the greater degree of automation. Especially the latter is an extremely powerful cost lever: increasing the share of automated tasks from 30 to 80%  more than halves the required personnel, according to the bespoken consultancy. To give but one example, our proprietary workflow management tool we called "Smarta" enabled us to handle the average credit account opening process three times faster for our partners. And that's just the beginning.

Adopting Banking-as-a-Service Solutions

However, the decision for BPaaS remains a major challenge for each individual institution. Common practices foresee a three-step process when assessing your BaaS approach. First, you should understand which aspects of your business are truly differentiating and which can be sourced. To do this, you should develop a target picture of core business requirements and evaluate the strategic fit of alternative approaches. Second, you should match your requirements with the capabilities of one or more selected external providers. The third and final step is the actual implementation of the model. 

You can find out more about us and our approach in this issue here.

About Ulf Meyer

Ulf Meyer is Managing Director of SWK Bank since 2013 and responsible for Marketing & Sales, Business Development, Legal and Auditing. Before he spent more than four years at SWK Bank in various managerial roles and additionally as an authorized signatory (Prokurist). Ulf Meyer is also managing director of krefa service gmbh, a subsidiary of SWK Bank and Chairman of the Board of Directors of good finance AG in Switzerland.

About SWK Bank

SWK Bank is one of the leading direct banks for loans and fixed-term deposits and considered a pioneer in digitalisation and innovation. The bank employs 150 people, with total assets of EUR 2.2 billion in 2021 and is offering fast application processes with TÜV-approved security  as a Banking-as-a-Service partner for other banks and fintechs. 

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Keywords: BaaS, fintech, digitalisation, financial institutions
Categories: Banking & Fintech
Companies: SWK Bank
Countries: World
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