The strategic danger of BaaS-FinTechs

Starling Bank is starting a BaaS-offering. From the press release: “Starling as a Service” will enable businesses to build their own financial products on Starling’s award-winning banking platform, such as savings or current accounts, integrated digital wallets, kids’ cards and debit cards. Starling handles the technical and regulatory demands behind the scenes, leaving businesses to take care of their customers with innovative embedded banking solutions. There are several reasons why this move makes sense: Diversification: Starlings recent annual report showed that lending was their biggest revenue driver. Marketplaces, however, although growing, played a smaller roll. This indicates a lack of competitive advantage given the fact that the latter category would be able to differentiate Starling from incumbents and neo-competitors. Escaping competition: Moving into BaaS is a great way to escape competition with Revolt, N26, and Co. Industry demand: There is an every increasing evidence that non-financial companies want to offer financial products. However, there are also three reasons why that move does not make sense: Building a bank and an API at the same time is hard Lack of long-term competitive advantage because building a bank is harder than building an API Lack of competitive advantage compared to platform-approaches like