International money transfer companies are now offering services which are very similar to the ones offered by banks. Global money transfer companies are competing with each other to offer new services to their customers. Since, services offered by them go beyond what they were doing only few years back, it is hard to make a difference between banks and money transfer companies.
This aggression on the part of money transfer companies notwithstanding, they are unwilling to become formal banks. None of big money transfer companies seems inclined to be a bank. At least not now.
What they lack for not being a bank, they compensate it by getting behind the scenes assistance from little known companies. Such assistance, known as Banking as a Service (BaaS) also gives them technological support needed to provide banking-like services.
BaaS helps payment companies overcome many challenges. Two specific core challenges that payment companies have been able to overcome with the help of BaaS are: now, they are offering many core banking services right from checking accounts or lending products without involving a regulated entity in the process. Second, they don’t have to put in place a kind of technology related infrastructure that fintechs usually maintain to provide a range of financial services.
Banking as a Service helps money transfer companies to save time and resources.
Let us talk about fintech.
Big the fintech companies, bigger are the challenges they face. Different countries have different banking and finance related regulations. Even technology used in countries differ from each other. Fintech companies with cross-border dealings and international ambitions have to spend lots of resources and time to cut through the maze of regulations and technology.
When it comes to regulations, money transfer companies have to make sure they are not sending money to wrong people in wrong places. They have to ensure that right people are getting legal money. Any illegal money coming from dubious sources will land them in trouble. They have to move money, and the entire process of this should not violate Know Your Customer (KYC) and Anti-Money Laundering (AML) rules.
Cross-border payments companies, more than many others in financial services, are well-versed in compliance and regulations. However, since they are well aware of these rules and regulations, they hesitate to offer traditional banking products, especially in the cases which involve cross-border transactions.
Fintechs have been able to expand in Europe and UK, because in European countries they don’t faced many hurdles in obtaining the right to hold money on their clients behalf.
But same is not the case with the US. Traditional banking and traditional Money Service Business license are still two different things in the US.
This explains why Banking as a Service is most developed in the US. Fintech companies in the US are powered by Banking as a Service.
In the US many technology companies are offering banking as a service. Utah-based Galileo is one such company. 95% of digital banking in North American is powered by Galileo and 70 of the top 100 Fintech companies globally are clients of the firm.
Galileo is neither a bank nor a regulated entity. However, many banks depend on its support. Galileo’s main strength is API through which it offers all the technology required to offer banking services.
Whatever task a bank is supposed to perform, Galileo does. Marinating a ledger, tracking and managing frauds in financial transactions, settlement authorization, it does everything without being a bank.
Companies like TransferWise and Ramitly are powered by the technology-related support provided by Galileo.
The biggest benefit of such alliance is fintech-based companies have been able to concentrate on improving customer experience. Regulatory side or the technology side can be outsourced to companies whose primary focus is to take care of these things.
Apart from TransferWise and Remitly, there is another company which owes its success to Galileo is Chime. Chime, one of the new digital banks, has now broken into the top tier of all banks in the US, has much of its technology powered by Galileo.
Technology-led Banking as a Service companies are set to enter many emerging markets. They are going to disrupt fintech in countries like Mexico, Colombia and Brazil.
Apart from geographic push, there will be many new off the shelf Banking as a Service products in the US and elsewhere.
Galileo Instant product as reduced a typical setup time from 18 months to just two weeks. UK-based Railsban is also planning to revolutionize fintech sector with its powerful product.