This trend seems a bit meta, as many of the clients for banking-as-a-service tools are they themselves banks. It may prove difficult to explain to a fintech outsider why a bank would want to launch a challenger bank (the answer: to compete with banks!).
Despite this, however, banking-as-a-service sits at the core of fintech. Banks and fintechs focus on their core competency and integrate solutions from third parties into their own.
There are two major drivers that are transforming this historically vanilla concept into one of next year's hottest fintech trends. The first is the push toward open banking. As explained above, there is more data being created in the digital realm than ever and, because of this, consumers want to share their data across platforms. This interoperability is altering customer demand and incentivizing fintechs to integrate additional functionality into their existing services.
The second driver is the sudden increase in the number of challenger banks. Late last year and into 2020, we have seen not only a record number of challenger banks launch, but also a record amount of VC funding allocated to challenger banks. While most consumers are maintaining their relationships with their traditional bank, they are also opening accounts at challenger banks such as Chime and N26.
These digital-first banks often have attractive features such as credit building tools, early paydays, and fee-free overdrafts. To compete, some banks are launching challenger banks of their own. Enterprise technology company Moven and digital banking services provider Q2 recently partnered to create a "bank-in-a-box" concept that aims to help banks improve their digital offerings and retain their digitally savvy customers.