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Jessica Ellerm wrote about `Something as a service`, the new fintech paradigm while looking at Raisin`s offering. This prompted a discussion with Richard Turrin and Aki Ranin around Saas models for banking. Richard is a proponent of `Buy versus build` which allows for rapid deployment. Aki is a proponent of shared infrastructure because it allows for economies of scale and expansion in additional markets.

Increased Saas model adoption and APIs, make it difficult to predict whether incumbent banks or Fintechs are becoming the plumbing of financial services. For me, we actually need to reconsider whether this should be a question at all.

Two or three years ago, the `dump pipe` debate was hot and terms like Big banks becoming Dumb Pipes or Dumb pots, were trending as discussion topics in articles, conferences and debates[1].

`The “dumb pipe” debate originated from the telecom industry and there is a lot of literature on the subject. The grandfather of the debate is David Isenberg who in 1997 published the seminal paper The Rise of the Stupid Network.` Excerpt from Andra Sonea`s post On banking “dumb pipes” and “stupid networks”

We have been using the `dumb pipe` term because it works in the attention economy which is dominated with trendy jargon. But we each map the term to a different concept.

We are actually even biased. When we look at a Fintechs with a B2B Saas offering like Mambu, then we may think that it if Mambu powers an incumbent bank to offer lending, then maybe the bank is at risk of becoming a dumb pipe. On the other hand, when we realize (if we do at all), that Mambu is powering N26, we don’t classify N26 as a bank with a high risk to become a dumb pipe.

Mambu is a great example of a Fintech specialized in a Saas core banking offering. It powers up Oak North bank, which is the No.1 UK challenger bank. It is the heart and brain of the ABN Amro`s digital banking spinoff, New10, that focuses on SME lending; and more.  Mambu does not offer the banking license (a different approach to Solaris Bank). Just by looking at these two examples – Mambu and Solaris Bank – that have unbundled financial services in different ways; we have to pose the question `Where is the value being creating?`

  • Powered by Mambu means: Go to market fast with a Saas cloud-native solution – Client has the banking license; Fintech has the tech – Who is the dumb pipe?
  • Powered by Solaris Bank means: Get into banking with a Saas cloud-native solution – Client can offer banking services without a banking license of its own – Baas – Fintech has the license and the tech – Who is the dumb pipe?

The `dumb pipe` threat was native to the digitalization phase of unbundling as the disruptive force that was going to dominate. Now we are in a re-bundling phase and fintechs are growing their stack of offerings, incumbent financial institutions are transforming their offerings, and tech companies are also stepping in. From Sofi moving from lending into wealth management and Habito powering the mortgage offering of Starling bank; to Kabbage powering Santander`s business loan offering, to Motif launching structured products for Goldman Sachs; to Goldman powering the Apple card and Solaris bank powering Alipay`s acceptance in Europe.

I hope you are convinced that we can’t spot easily dumb pipes in this kind of world. If business expansion is powered through a Saas cloud offering, then the next question to ask is whether this powers your ability to offer advice by analyzing what is processed in the pipes and whether it enhances your brand through strengthening your trusted relationship. As the re-bundling continues and the commoditization of transactional banking services also continues, the

Last man standing will be Brand and Advice[2].

If you use Saas offerings towards offering advice and enhancing your brand, then there is no reason to fear becoming a dumb pipe.

Last minute footnote – As I am finished posting this article, a Linkedin post from Richard Turrin grabbed my attention about Tencent`s investment in a UK startup, Truelayer which is tech company leveraging APIs within the PSD2 and Open banking progressive European regulatory frameworks, to give access to financial services.  TrueLayer powers neo bank Monzo.

[1] Are Banks Destined To Become The Next “Dumb Pipes”? via Tech crunch

Banks May Be Turning Into Dumb Pots Of Money via Forbes

The Big Banks Are Becoming `Dumb Pipes`; As Fintech Takes Over via CBinsights

[2] Inspired, copied and stolen from Gary V`s tips from his the recent at The Financial Brand Forum’s. See 9 Priceless Tips For Financial Marketers From Gary Vaynerchuk

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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