Temenos: How SaaS for BaaS is putting banks back in charge

Kanika Hope is the Chief Strategy Officer at Temenos

Embedded finance and consequently banking-as-a-service (BaaS) are on an exponential trajectory of disrupting the banking value chain, mainly in retail and SME.

Global giants like Goldman Sachs, JPMC and Standard Chartered are all offering BaaS to ecommerce platforms or Big Techs whilst smaller banks especially community banks in the US are offering BaaS via BaaS enablers like Mbanq and Marqeta.

Yet this BaaS opportunity is one that many incumbent financial institutions, often struggle to capture, because of constraints imposed by their legacy monolithic IT architectures. To break this legacy logjam, banks must accelerate their digital transformations using disruptive technologies.

Temenos supports the Banking as a service (BaaS) value chain by directly providing all providers of BaaS, whether the BaaS enabler in the middle or the license holder, with the underlying technology and banking capabilities required to service the consumers of BaaS, the brands and the fintechs. BaaS exposes license holders to the risk of providing regulated banking products to customers they don’t own directly. Our mission to provide software for regulated banking operations and processes continues in the banking-as-a-service world and to ensure all parties in the banking-as-a-service value chain are compliant.

The platform – SaaS for BaaS

Temenos’ open platform for composable banking has the breadth and depth of functionality from product engines to financial crime, payments and origination that enables banks or license holders to not only run their own business but also provide BaaS to brands with the same underlying platform. Our open product capability allows the rapid creation of non-banking products such as insurance to meet the diverse needs of the brands. Furthermore, we partner with BaaS infrastructure providers including API aggregators such as Tink as well as payment initiators and card issuers like Marqeta and Paymentology through the Temenos Exchange where their solutions are pre-integrated and available to our clients.

Moreover, Temenos’ SaaS offering, the Temenos Banking Cloud leveraging the full power of the hyperscaler cloud providers, complements and supports the BaaS plug-and-play model of consumption to enable the providers of BaaS to cater to the diverse needs of multiple brands and to elastically scale to support their growth. With continuous updates or evergreening, the BaaS enablers can consume new features as they become available to develop their brand-specific propositions at their own pace and desired frequency. The Temenos Banking Cloud offers banks the opportunity to rapidly launch their BaaS
proposition through a parallel SaaS stack that can be set up quickly. Those banks already running Temenos can leverage our SaaS offerings to run their own business as well as BaaS from the same stack.

The Architecture

The Temenos open platform facilitates BaaS from a single-instance, multi-entity architecture with in-built intelligence and inheritance of product definitions. This allows the license holder to support multiple brands, ringfence the customer base of each brand, have direct visibility over all end customers and leverage data and analytics within each brand and across all brands. Temenos is working with one of the largest BaaS providers in the US who will be leveraging Transact to support their multiple and well-known brands.

This single-instance, multi-entity architecture offers operational efficiency and maximum leverage of the technology stack and shared compliance overhead. At the same time, it allows the license holder control and flexibility over key software decisions such as upgrade cadence, isolated extensions, and rollout of new features in order to manage risk and compliance as a regulated entity.

The principles of product hierarchy and inheritance at the license holder, BaaS enabler and brand levels allows the license holder control over risk and exposure centrally whilst allowing the brands to offer attractive and relevant products. The master is set at the license holder level and can be over-ridden selectively at the brand or fintech level. Product inheritance allows faster time-to-market for the brand-specific products. Our platform’s open product capability helps the license holder facilitate brand-specific products, often with features that are not supported by the license holder’s legacy systems.

The Technology – 7 key attributes

The Temenos open platform for composable banking has all the seven distinct technology attributes that Banking-as-a-service demands.

1. Openness and interoperability: Beyond the basic ability to consume and provide external APIs to brands, fintechs, other BaaS enablers and aggregators and complementary technology providers per regulatory and industry standards in the markets they operate in, banks and BaaS enablers must be able to adapt their APIs rapidly to changing open banking and other regulatory requirements. Developer portals with advanced API documentation and ease of use as well as pre-integration to an ecosystem of third-party technology providers are a prerequisite for open
   banking and BaaS. The digital journeys of brands providing embedded finance are necessarily simple and slick. Our platform offers APIs focused on building best-in-class digital experiences.
   
   
2. Modularity: BaaS enablers need to support a plug and play BaaS model where different brands require different products that must be deployed, upgraded and supported independently.
   
   
3. No code / low code hyperpersonalization: Ultimately, BaaS is about the brands’ ability to hyper-personalize the banking products they embed in their own client propositions and journeys. These digital journeys are highly personalized and the corresponding banking product journeys need to be at par with these in terms of personalization. Therefore, the license holder as a regulated entity needs to control the brand-level “customization” whilst providing the utmost flexibility. This delicate
   balance is achieved through the platform’s advanced configuration and extensibility capabilities with a ready-to-consume developer experience and standardized tooling, maximizing re-use of best practices.
   The license holder can use no code configuration to set up parameters for each brand and can also use the extensibility framework to provide code extensions or to facilitate integrations. Code extensions allow complex pricing and product conditions and complex compliance rules and limits. Moreover, these are protected through continuous updates. The brands can use the no code configuration to further tweak their products within the limits set by the license holder. They can use the extensibility framework for integrations but for code extensions are limited to the BaaS provider or license holder.
   
   
4. Hyperscalability, resilience and availability: For providers of BaaS, the ability to add or remove brands easily and to elastically scale according to business volumes is key. A payments platform giant launched their “Buy Now Pay Later“ embedded lending product on the Temenos Banking Cloud, reaching 200M loans across multiple countries in just over 3 years, proving the massive scalability of the platform. The moment economy in the world of embedded finance is all about being available 24×7 and brands consuming BaaS require industrial-strength resilience with near zero risk of outages.
   
   
5. Security: This is arguably the most important requirement as the BaaS value chain involves customers’ personal and financial data being shared through a complex web of stakeholders, albeit with their consent. Hence, the underlying technology must have comprehensive security spanning authentication, authorization, access control and non-repudiation, covering all data privacy requirements.
   
   
6. Data aggregation: BaaS requires timely and relevant reporting at brand and license holder level to maximize revenue potential of the ecosystem and ensure compliance. Hence, the providers of BaaS must aggregate and analyze real-time transactional data to provide insights for the brands so they in turn can develop personalized propositions for their end-customers.
   
   
7. Agility and time to market: For BaaS enablers, agility in terms of scaling their APIs on demand or to rapidly personalize products for the brand or to help the brand expand into new geographies becomes key. The depth and breadth of available functionality localized for different markets is a key advantage to rapidly meet the needs of diverse brands. Also, the fact that the license holder can derive product definitions, configurations and APIs all from the same platform greatly reduces time to value.
   
   

Download the Temenos white paper: Harnessing the Power of Technology for Banking-as-a-Service – Temenos