The rebirth of Banking-as-a-Service in Europe — Why we invested in Griffin
The European BaaS opportunity remains largely untapped
Launching and maintaining financial products is often long and complicated. To offer financial products, non-regulated companies typically need to work with specialised infrastructure providers and licensed partners. Banking-as-a-service (“BaaS”) platforms enable non-bank businesses to offer financial products to their clients. Their capabilities typically include accounts, payments, cards or lending.
McKinsey estimates that the addressable market of BaaS providers in the UK and the EEA will reach €100 billion by 2030.
- The continued rise of Fintech is forecasted to represent €15 billion to €20 billion in value. BaaS platforms can give Fintechs and payment businesses access to payment rails, client money and safeguarding accounts, cards and lending. They also provide underlying tech infrastructure and facilitate compliance and financial crime prevention. Working with BaaS providers enables fast go-to-market and facilitates product additions and geographic expansion.
- The accelerating adoption of embedded finance, that integrates financial products into the client journeys of nonfinancial players, is estimated at €75 billion to €85 billion in value. With the shift to digital, offering superior experiences and complementary financial products is a key differentiator for brands and marketplaces. Embedded finance offerings, as launched by Amazon, Apple, Samsung and Ikea, support conversion rates and add revenue streams.
Banks can generate revenues through BaaS distribution channels, by allowing Fintechs and brands to leverage their license to offer regulated products. However, traditional banks’ BaaS activities remain limited. Acceptance criteria and onboarding processes may be strict. Their systems are often inadequate to screen and monitor BaaS clients and transactions. Banks’ openness to offer BaaS services can change with evolving risk appetite and regulatory requirements, such as the increasing focus on third-party risk management. In the current environment, banks are experiencing pressure to simplify business activities and to improve margins. Their tech stack and resources may also restrict product development, data access and customer service.
First BaaS entrants and EMIs raised awareness for embedded finance offerings, with mixed results, due to compliance and cost structure challenges, and limited differentiation. A new phase is starting where modern full-stack BaaS platforms with banking licenses will dominate. This new generation of BaaS providers is uniquely positioned to serve Fintechs and payment companies, as well as brands and marketplaces. Besides offering a full banking product suite, these platforms are underpinned by modern core financial infrastructure and APIs, bringing flexibility and scalability to banking. Having a BaaS model from inception results in their compliance, risk and reporting processes being tailored to this segment.
Getting back to the “Bank” in “Banking-as-a-Service”
BaaS offerings are on the rise and the term is widely used. However, there are essential differences between licenses and resulting capabilities:
- E-Money Institutions (EMIs) can issue and redeem e-money, with e-wallets or prepaid cards, and provide payment services. They are prohibited from paying interest linked to the length of time e-money is held. They are required to safeguard funds, either through segregated accounts at banks or with insurance. EMIs cannot offer deposit, credit or investment services.
- Banks can accept deposits and benefit from protection by the UK’s Financial Services Compensation Scheme. They can offer interest bearing accounts, payment services, cards, credit and lending products and investments.
EMIs can provide e-money and payment capabilities, and benefit from faster licensing and go-to-market timelines. However, their clients may still need to work with third-party licensed sponsors, which creates complexity. Dependencies on banks to provide license access and safeguarding accounts impacts economics, client experience and stability. Traditional banks’ risk appetite or strategy can change, as evidenced by the offboarding of some Fintechs coming from EMI partners.
Banking license holders benefit from broader product scope, deposit management capabilities and enhanced economics. The ability to hold deposits provides additional monetisation and superior unit economics. The regulatory authorisation process, however extensive and challenging to complete, represents a significant barrier to entry. Modern platforms offer modular product offerings, supported by microservices, immutable, scalable infrastructure and APIs. New generation tech stacks enable superior product flexibility, client experience and data analytics.
As the industry matures, some early entrants are facing regulatory challenges in Europe and North America. Issues are arising in relation to high-risk client profiles or inadequate compliance or financial crime prevention. Platforms that are designed with compliance and risk management as core principles have a competitive advantage, for both regulatory and client engagements.
Enter Griffin
Griffin was launched by experienced technical founders with a vision to build a truly modern BaaS platform with a license. David Jarvis was software engineer at Airbnb, Xamarin and Standard Treasury, where he worked on supporting banks with building developer platforms. Allen Rohner was co-founder and CTO of CircleCI, a leading continuous integration and delivery platform, where they first worked together. They are supported by an executive team with solid experience in Fintech (Form3, Starling Bank, Monzo, N26, GoCardless) and with established financial institutions (Natwest, Barclays).
In March, Griffin concluded the authorisation process and received a UK banking license, subject to restrictions while it completes the mobilisation phase. It became the UK’s first full-stack BaaS platform with a banking licence.
Griffin’s comprehensive product offering is tailored to enable seamless digital finance experiences. It initially includes deposit, safeguarding and interest-bearing savings accounts, access to the UK’s major payment rails and direct banking. FX payments, credit, secured lending and cards will follow.
The platform is API-first, based on immutable architecture that is both scalable and resilient. It is tailored to enable developers to easily build and embed products. Automated and compliant onboarding is facilitated by extensive client screening (fraud checks, PEP, sanctions, identity and biometric verification), as well as AML and transaction monitoring modules. The integrated ledger and data insights facilitate real-time monitoring and reporting.
With the license in place, commercial activities are accelerating. Griffin is focusing on serving established Fintechs, EMIs, Payment Institutions and wealth tech businesses. It will support embedded finance for brands and marketplaces. Its modern platform is also seeing interest from established financial institutions looking to enhance their infrastructure.
With its banking license, extensive product offering and modern platform, Griffin is uniquely positioned to lead a new era for Banking-as-a-Service in Europe. We look forward to supporting Griffin on their mission to transform banking experiences.
