In This Newsletter
BaaS
Queen Elizabeth II and FinTech
Milken Institute Asia Summit
BaaS
Banking as a Service (BaaS) is when non-financial businesses seamlessly integrate financial services into everyday retail experiences. Any time a company offers layaway, a car dealership offers financing, or an airline offers access to credit, they use banking as a service.
This practice in the US dates to early store credit offered to American consumers in the late 1800s. A major American brand famously first adopted BaaS in 1923 when the Ford Motor Company offered buy now pay later (BNPL) services for its Model T. Three years later, Ford would incorporate its bank, offering auto loans to consumers. Today, the internet and increased mobile usage have enabled a resurgence of BaaS solutions. Major brands and internet-enabled FinTech startups have partnered with established financial institutions to offer new financial services.
Apple has been leading in this BaaS renaissance. With its built-in loyal user base and worldwide network of online devices, Apple has been able to build a financial services empire. In 2014, it launched its payments service Apple Pay to facilitate in-app purchases. By 2015, iPhone owners could use Apple Pay for in-store purchases around the US. Apple introduced its credit card in partnership with Goldman Sachs in 2019. This year, Apple expanded its cardholder services, offering the ability to buy Apple products on the card and pay them off in six interest-free installments, venturing into the BNPL market. The company has been able to use its ecosystem of products to create a convenient series of immersive financial tools, making the computer manufacturer one of the world’s largest payment processors surpassing Mastercard in transaction volume this year.
Starbucks is another unsung financial giant. According to the Wall Street Journal, the company has been able to encourage customers to preload gift cards with a combined $2.4 billion through its mobile payments app and rewards program. In effect, Starbucks is a depository institution where account holders redeem their deposits as coffee instead of cash and earn rewards points instead of interest. Starbucks’ unearned income would make it larger than the 85 percent of American banks that have less than $1 billion in deposits. The $2.4 billion in unearned income on Starbucks’ books serves as a no-interest loan that adds substantial flexibility to the company’s capital structure. This mobile payments platform may help springboard Starbucks into the metaverse as it prepares to launch an NFT line this spring, as CNBC reports.
As more American brands and banks partner with FinTech companies to offer financial services throughout the consumer experience, regulators like the Office of the Comptroller of Currency (OCC) are keeping pace with the explosive growth of the BaaS sector. The financial institutions that enter BaaS partnerships should be able to perform due diligence and bear compliance costs as they acquire massive new customer bases through these partnerships. Meeting these standards might be challenging for smaller and less tech-savvy banks. Fintech Business Weekly reports that the recent OCC agreement with Blue Ridge Bank demonstrates that regulators are moving to provide more direct and transparent oversight of BaaS providers.
Queen Elizabeth II and FinTech
As the world mourns the recent death of Queen Elizabeth, royal mints in the 15 commonwealth realms that shared the 96-year-old monarch as a head of state are preparing to issue new bills and coins featuring the likeness of King Charles III. As the BBC reports, coins featuring the Queen are expected to remain in circulation for many years after her death, just as coins featuring her father, George VI, remained in circulation well into the 1960s.
Over the Queen’s reign, the British pound has undergone enormous change. Since the ‘50s, the pound has lost its global reserve status to the USD as the British empire decolonized. In 1971, the pound was one of the last major currencies to decimalize, abandoning its medieval denominations of florins, shillings, and pence. And since 2021, the Bank of England has begun research into the role of a future British CBDC, the digital pound.
As the British and commonwealth economies become more digitalized and the use of cash continues to fall, it is unlikely that the image of King Charles III on the pound will rise to the same global prominence as that of the late Queen. No face will again symbolize currency for so much of the world’s economy.
Milken Institute Asia Summit
This month will mark the ninth annual Milken Institute Asia Summit in Singapore. We are excited to shout out some excellent FinTech speakers participating in the event’s curated discussions and purpose-driven meetings. Two Sigma’s Kenny Lam, Airwallex’s Jack Zhang, Zest Money’s Lizzie Chapman, the Monetary Authority of Singapore’s Sopnendu Mohanty, and many more thought leaders in FinTech will be speaking on a variety of topics, from Web 3.0 and Defi to sustainable finance. You can learn more about our programming, meet our speakers, and register at the Asia Summit’s website.