Tyfone had the pleasure of participating as a Platinum Sponsor at American Banker’s Digital Banking Conference, held in Austin June 12-15, 2022.
As one might expect from a conference of this size and magnitude, there were plenty of buzzwords flying around that week. In case you were unable to attend, we’re happy to give you the 411 on the five most important buzzwords we heard that week. We will be taking much deeper dives on each of these in specific over the coming weeks, but here’s the cliff notes!
Open Banking
Remember about 20 years ago when account aggregators like Yodlee appeared on the scene? The concept was simple. You provide all your financial account logins and they would “screen scrape” your daily financial information to provide you with an aggregated view of all accounts. That’s what open banking is, except now the aggregators can access your financial information via APIs in real time rather than a daily screen scrape.
The risk if you play along is that you may end up providing your consumer data (i.e., your stash of gold) to potential competitors (the data-starved fintechs). On the other hand, if you don’t play along, you risk losing accountholders who want to take advantage of these services.
Cryptocurrency
Chances are, you probably have a pretty good idea of what cryptocurrency is. It’s digital currency enabled by a distributed ledger system called the blockchain. What you need to be aware of is how much money is flowing out of your institution and into cryptocurrency. It should be an easy report to run.
More and more financial institutions are deploying technologies that allow them to facilitate their accountholders’ cryptocurrency transactions in one way or another. You have options. Ignoring cryptocurrency isn’t one of them.
Distributed Ledger Technology, or DLT
DLT is simply a more descriptive way to describe blockchain, the underlying infrastructure that enables cryptocurrency such as Bitcoin. As defined on Investopdeia, “Distributed Ledger Technology (DLT) is a protocol that enables the secure functioning of a decentralized digital database. Distributed networks eliminate the need for a central authority to keep a check against manipulation.”
Decentralized Finance, or DeFi
Until recently, blockchain was used almost exclusively for cryptocurrency facilitation. As TrustToken CEO and co-founder Rafael Cosman put it, “Decentralized finance is an unbundling of traditional finance. DeFi takes the key elements of the work done by banks, exchanges and insurers today—like lending, borrowing and trading—and puts it in the hands of regular people.”
Where do traditional banks and credit unions fit into this scenario? That’s a good question, but unfortunately, one that has no clearcut answer at this point. Keep in mind, though, that banks and credit unions still possess that gold known as consumer data. That’s sure to be a valuable bargaining chip as the situation unfolds.
Banking as a Service, or BaaS
Every presenter at the Digital Banking Conference seemed to have a different definition of BaaS. What’s more, some of those differences weren’t exactly slight. What we were able to figure out is that the term BaaS encompasses two very different scenarios. In one, the financial institution is the provider of the service; in the other, it’s the consumer of the service.
In the “FI as provider” scenario, imagine a fintech that needs, among other things, a bank charter, BINs, Fed access, etc., in order to function. In this scenario, the FI can provide “banking as a service” to the fintech.
In the “FI as consumer” scenario, let’s suppose, for example, that your FI wants to launch a discreet digital brand without having to invest the time and money to start such a project from scratch. A fintech vendor can provide your FI with “banking as a service,” doing all the heavy listing while you provide little more than your charter.
So the question isn’t, what does BaaS mean? The question is, what does BaaS mean to you? It all depends on where you are and where you want to go.
