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SaaS vs. BaaS vs. Banking Software License: Which Is Better?

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Financial technology has become a catalyst for intensifying competition in the banking industry. Neo-banks are winning market share by serving customers at around one-third of the cost of incumbents. In itself, added cost-efficiency is excellent but not ground-breaking, as IT expenses make up only 6-8 percent of an average bank’s revenue. 

It is the capabilities of modern core banking systems that enable newcomers to disrupt stagnating markets and create value by rapid onboarding and retaining customers. Instant transfers, currency exchange at live markets rates, unlimited accounts, card to card payments, and many other wow-features foster loyalty in a competitive market. 

Source: Next-gen Technology transformation in Financial Services, McKinsey

According to a McKinsey survey, established banks have already taken note: some 70% of banks are exploring next-generation core banking platforms. Incumbents are increasingly concerned about the limitations of their inefficient software incapable of rapid changes and innovation. 

Banks worldwide are moving towards realizing substantial benefits by partnering with FinTechs like SDK.finance to upgrade their core banking software. As challengers and some incumbents move forward, banks remaining on the sidelines have three practical options to start their digital transformation: SaaS (software as a service), BaaS (banking as a service), or to get a banking software license

What is SaaS banking software?

Under the SaaS model, the core banking software is deployed on the service provider’s side, and the client accesses it through a web browser. SaaS banking software does not require the hardware infrastructure of a traditional banking software suite. Clients can compose their banking experience that will be available to them on-demand via an internet connection. 

What is BaaS banking software?

BaaS is an end-to-end process where a client can access and execute technical, business, and financial capabilities from a single service provider over the web. BaaS banking software comes with pre-installed service partners, integrations, and high-security mechanisms such as strong authentication to protect sensitive data throughout the entire process. 

What is a banking software license?

With a banking software license, a client can deploy a service provider’s solution on their infrastructure and customize the solution to their specific needs if they have a dedicated on-site IT team and hardware capabilities. Clients can develop new modules and customize front and back-end as well as add new integrations.

SaaS vs. BaaS vs. Software License

All three options offered by modern FinTechs are ahead of clunky and costly legacy systems used by most banks that require manual software delivery and low straight-through-processing rates. All have their pros and cons in terms of functionality, reliability, and cost-effectiveness that need to be considered before making any decision: 

Cost 

Under SaaS and BaaS models, clients pay a setup and usually a monthly fee for accessing banking capabilities over the web. For businesses without IT infrastructure and hardware, these models are the most cost-effective start to banking. Depending on a service provider, clients can build a package of features and integrations that they need without paying for unnecessary functionality. 

Although SaaS and BaaS do not require a large budget for the initial phase, the service cost will grow with the increased number of transactions and customers. After some time, these models can lose their cost-efficiency, and the transition to a banking software license model can be more effective.  

With substantial investment into a dedicated on-site IT team and hardware capabilities, clients can purchase a banking software license to entirely personalize their product. Hardware upkeep and maintenance, human capital, and security costs, among others, will result in significant and regular expenses. A considerable upfront cost and regular expenses can be more economical in the long term with enough scale. 

Following successful growth, core banking service providers like SDK.finance can help clients to smoothly transition from SaaS and BaaS models to a banking software license.

Time to market

The ability to roll out products and features quickly is a critical competitive differentiator in the current cluttered marketplace. SaaS and BaaS banking software is not restrained by the monolithic architecture of legacy technology, meaning that products can be launched in a very short time. BaaS banking software has an even faster time to market as it comes with more integrations than SaaS solutions, helping clients to capitalize on the latest developments in the marketplace. 

The banking software license products take considerably longer to launch as they require more customization on-premise. However, with a talented IT team, hardware standing by, and hands-on support from a core banking service provider, time to market can be shortened considerably. 

Functionality

SaaS and BaaS banking software features and integrations come ready out of the box, and clients can build the product they want before launch. These usually cover the most important features loved by customers and tools for running an efficient banking business. In some cases, service providers can develop and add more features at the client’s request, but otherwise, the capabilities cannot be readily expanded. 

The banking software license solution is not restricted and can be freely and easily customized with new functionality at any time. It is worth noting that following multiple changes to an on-premise core system, the service provider won’t be able to update it to a new version. Although BaaS/SaaS solutions are not as customizable, they are frequently updated by vendors to include the latest advancements and integrations. With time, a customized platform may become outdated when compared to the latest version of SaaS banking software.

Support

Day-to-day support for SaaS and BaaS solutions is usually included in the service provider’s monthly fee. The provider ensures that systems run smoothly using their teams and respond to any queries clients may have. 

Clients with on-premise licensed banking software have to dedicate resources to support their solutions. Service providers offer initial support so that internal teams can accumulate knowledge to speed up maintenance and problem resolution in the future. 

Security

SaaS/BaaS cloud-based banking platforms are hosted on remote servers operated by the service provider. Established vendors invest significant resources to develop and maintain a secure and modern infrastructure because multiple clients rely on their services every day. As a result, cloud banking providers often deliver a higher level of security than on-premise alternatives. 

The security of a banking software license solution depends solely on the client. Depending on the investment into technical infrastructure, the level of security can vary greatly. It is a critical part of an on-premise banking setup that needs to be evaluated before launching any product.

SDK.finance enables companies to choose the right model for their needs: SaaS and BaaS banking software or source code with a license. 

If you have a dedicated on-site IT team and hardware capabilities, you can implement the SDK.finance banking platform on-premise. To get the quickest start and high flexibility, then the SDK.finance cloud banking platform is the best way for you.

Contact the SDK.finance team directly to learn more about what type of banking software will be perfect for your business needs.

The list of SDK.finance solutions includes Digital Retail Bank, Microsoft Power BI payment dashboards, Voice Banking, Money Transfer, Currency exchange.

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Source: https://sdk.finance/saas-vs-baas-vs-banking-software-license-which-is-better/

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Zip Co raises $400 million for international expansion

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Zip Co (ASX: Z1P) has priced $400 million of senior convertible notes to fund expansion into new regions on the back of major growth in the US.

Co-founder and COO Peter Gray says the move will keep shareholders happy, with the notes set to mature in 2028.

“We are very pleased with the strong global demand for this offering,” says Gray.

“This transaction further diversifies Zip’s sources of capital and allows us to pursue our global growth aspirations while reducing potential dilution of existing shareholders. Another fantastic outcome for Zip and its shareholders.”

The $400 million in convertible notes mirrors the approach recently taken by buy-now pay-later (BNPL) competitor Afterpay (ASX: APT).

However, Zip’s latest raise doesn’t come close to the whopping $1.5 billion secured by Afterpay’s settlement of convertible notes due in 2026.

The offering is being marketed to eligible investors and the notes are set to be listed on the official list of the Singapore Securities Trading exchange. Settlement is expected on or about 23 April 2021.

To read more, please click on the link below…

Source: Zip Co raises $400 million for international expansion

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Source: https://australianfintech.com.au/zip-co-raises-400-million-for-international-expansion/

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FinSS and Salt Edge partner for CDR Compliance solution in Australia

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Australia is at the forefront of giving consumers greater control over their data via Customer Data Right (CDR). With phase two of the regulatory adoption quickly approaching, Australian data holders are welcoming a new CDR Compliance solution on the market. The technology solutions expert FinSS Global joined forces with Salt Edge, a leader in developing open banking compliance products, to enable local data holders to meet all the strict CDR requirements within less than 2 months.

As the Australian Government is committed to enforcing the regulatory adoption by the market, with the financial sector being the first one, institutions are now racing to become CDR compliant in 2021. That’s why FinSS Global and Salt Edge are aiming to help banks, credit unions, building societies, EMIs, neobanks, and other financial institutions follow strict regulations while protecting customers’ data and privacy under open banking.

The CDR Compliance solution has a holistic approach and is made up of components and configuration items such as an API for sharing consumer data together with a sandbox for ADRs’ testing, a Consent Management API to assure end-customers’ full visibility and control over their granted contents, a dashboard for the data holder to have full control and access to insightful statistics, an ADR Developer Portal for seamless integration and interaction with bank’s channel, a Multi-factor authentication solution for end-customers’ security, ADR verification, and much more.

The solution is based on a SaaS model which makes it easily deployable and also reduces the amount of technical implication and skills required from data holders. Salt Edge handles all the maintenance, regular updates according to new changes in the CDS requirements, and even assists with passing the Conformance Test Suite (CTS).

Open banking represents just the first phase of Australia’s strategy in making the sharing of any kind of customer data easier. That’s why the CDR Compliance solution is flexible and can be tailored so that it fits any industry or business case requirements including the addition of payment initiation possibilities.

Dallas Newton, CEO and Co-Founder at FinSS Global, said, “We partnered with Salt Edge in 2020 because we believed their experience with PSD2 in the UK and Europe and some of their solutions could be of significant benefit to the smaller Australia Financial Institutions looking for help in their CDR Compliance journey and participation in the emerging CDR Ecosystem. This resulted in us working closely with Salt Edge to adapt their SaaS-based PSD2 “Compliance in a Box” solution for the small to medium banking domain in Australia and our launch of the CDR Compliance Solution. We are excited to be working with Salt Edge and reach our target market, and we look forward to leveraging a functional, secure, cost-effective, hosted solution to rapidly have data holders join the CDR Ecosystem.

Lisa Gutu, Head of Business at Salt Edge, commented, “While helping out businesses across the globe to set their strategy in leveraging open banking, we understood that all of it might often seem like a regulatory and technological burden for institutions. That’s why together with FinSS Global, we’re committed to guiding Australian financial institutions towards a seamless CDR compliance journey.”

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Source: https://australianfintech.com.au/finss-and-salt-edge-partner-for-cdr-compliance-solution-in-australia/

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What happened to reduce RFR trading?

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  • March 2021 saw 8.8% of all derivatives risk traded versus an RFR.
  • This reduced from the previous levels around 10%.
  • The pre-cessation announcements last month do not appear to have accelerated RFR Adoption.
  • There was an increase in the amount of IBOR-related activity last month.
  • Overall for Q1 2021, the total amount of RFR activity was about the same as Q1 2020.
  • We also take a look at CCP conversion plans, Open Interest and Client activity.

The latest ISDA-Clarus RFR Adoption Indicator has just been published for March 2021. It saw a decrease to 8.8%, somewhat lower than the ~10% level that it has hovered around for the past 3 months.

  • The overall Adoption Indicator was at 8.8%, lower than the 10.0-10.6% readings of the prior three months.
  • There were declines in the adoption of RFRs in each of the six currencies that we monitor.
  • USD SOFR trading declined to 4.7% from 5.1% of the total.
  • GBP SONIA trading declined from 45.8% to 44.9%. At least this has remained at relatively high levels.
  • CHF and JPY (SARON and TONA RFRs) saw just 6.4% and 2.4% of overall Rates risk traded as RFRs.

LIBOR Risk Traded

With the pre-cessation announcement last month, this blog expected a speeding-up of RFR Adoption to show in the data. Instead, we saw an increase in LIBOR and other indices traded. March 2021 saw the largest DV01 and largest notional traded in ‘IBOR type products since last March:

DV01 of IBOR-linked products:

And notional of IBOR-linked products:

It is worth noting that March 2021 is an This blog looks at IMM dates in detail.” class=”glossaryLink ” target=”_blank”>IMM month, therefore associated with the rolling of contracts from March to June (or further out). When we look at other IMM months in our time-series, we do not typically associate these with an increase in the amount of IBOR-linked activity (despite the roll) or with a decrease in RFR activity.

RFR Risk Traded

All of this increase in IBOR products was set against a decrease in DV01 traded of RFR-linked products last month:

At least the total amount of RFR risk in Q1 2021 was almost the same as Q1 2020 (within 2%).

For RFR-specific markets, we saw:

  • A near-record amount of SOFR DV01 transacted at $954m. This was up by 6% compared to last month and only bettered by the “big bang” month of October 2020.
  • A record amount of futures (ETD) RFR risk traded. It was over $1bn DV01 for the second month running (across all currencies).

LIBOR Open Interest

Recall that the RFR Adoption Indicator monitors new trading activity in the month. You can read about the full Indicator construction in the white paper here. Therefore it is worth checking how open interest at CCPs has developed recently in IBOR-linked products. With a quarter-end included, we are used to seeing a reduction in notional outstanding:

Showing;

  • Oh dear, notional outstanding of IBOR-linked products now stands at roughly $160 TRILLION.
  • This is higher than year end 2020, and roughly the same as the $161-163Trn we saw in the same weeks last year.

There was part of me that hoped the increase in IBOR-linked activity we saw last month was due to risk-offsetting trades in LIBOR, that would result in reduced open interest once compression had taken effect.

Unfortunately, the data does not back this up. It looks like much of the IBOR activity was new trade activity, not risk-reducing activity related to legacy positions.

Where is the Client RFR risk?

Looking at the Open Interest in OIS we have seen a reduction in Client-related open interest in OIS across the six currencies:

And across all of the RFRs, there has been a reduction in Open Interest in Swaps whilst Open Interest in Futures has stayed constant:

CCP Conversion Plans

LCH has recently announced that any outstanding LIBOR trades (excluding USD) will be converted later this year to vanilla RFR trades (plus historic spreads as calibrated by ISDA). This means that the trades will not use the ISDA Fallbacks.

From their most recent circular, the applicable dates for RFR conversion of existing LIBOR trades are:

  • 3rd December for CHF and JPY.
  • 17th December for GBP.

Interestingly;

  • Conversion will not be free. I assume to encourage market participants to voluntarily convert ahead of time, there will be a fee applied. The fees have not yet been made public.
  • From 30th September, there will also be a monthly fee of £5 per contract applied to all outstanding CHF, GBP and JPY LIBOR contracts.

Full details are here. CME have also just published a proposal today, that includes the very same dates.

I do not know how significant the fees will be at LCH or whether other CCPs will also charge.

However, given the data for March, is there an argument to be made that bilateral LIBOR risk will find its way into clearing to access these conversion services? A back-to-back LIBOR in bilateral space versus LIBOR in clearing would at least move the LIBOR conversion into vanilla RFR products. However, we will also see changes in IM etc associated with this.

One to keep an eye on in the data…..

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Source: https://www.clarusft.com/what-happened-to-reduce-rfr-trading/?utm_source=rss&utm_medium=rss&utm_campaign=what-happened-to-reduce-rfr-trading

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Local trading app Superhero says it’s no Robinhood clone

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Millennial-focused share trading platform Superhero says it’s not a clone of the popular but controversial US app Robinhood, insisting it is subject to far more stringent regulation than its overseas peer.

Superhero, which launched in September last year, has secured $25 million in funding from billionaire Alex Waislitz’s Thorney Investment Group, Phil King’s Regal Funds Management, Afterpay co-founder Nick Molnar, Zip co-founder Larry Diamond and Finder co-founder Fred Schebesta.

The latest funding round values the fledgling startup at more than $100 million and Superhero, just like Robinhood, is tapping into the surge in retail investors into the market, which fuelled the GameStop short selling frenzy in the United States.

Robinhood played a key part in helping Reddit posters buy GameStop stock, driving up its price, but then controversially moved to restrict their purchase to contain market volatility. With the episode highlighting the power trading apps can exert in distorting the financial markets, Superhero’s co-founder and chief executive John Winters said while the platform was built to remove barriers to sharemarket investing it wasn’t looking to be a clone of Robinhood.

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Source: https://australianfintech.com.au/local-trading-app-superhero-says-its-no-robinhood-clone/

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