The Future of Banking is Headless
Welcome to the Headless Banking substack. The idea for this newsletter & podcast came from a medium article that I published in January 2020.
Headless Banking is the idea that traditional financial institutions as we know them will no longer be customer-facing in 10-20 years. Our children will never visit a bank branch or even login into online banking. In the future, we will all be banked by whatever service provider is most embedded into our digital lives. Right now we can see this happening with Apple Pay, Apple Wallet, Google Pay, Google Wallet, PayPal, Venmo, Zelle, Amazon, etc. It is clear these firms are striving to be our go-to for banking & payment services and why not it’s so easy to get a debit or credit card and make P2P payments on these apps. They even offer interest-bearing accounts and alternative investments in new asset classes such as Cryptocurrencies.
Obviously, these companies are not banks or even financial institutions so how does it work? On the backend, these services are all powered by traditional financial institutions called the “Sponsor Bank”. Read the fine print on your agreements and you’ll see the names of the banks providing your Apple or GooglePay services. It’s not just the big players that are using the Sponsor Bank model to build digital & user-friendly financial service experiences. Here’s a list of the 500 top US fintechs right now. Most if not all are partnered with a Sponsor Bank to provide their services.
This won’t happen overnight, people continue to visit branches and log in to online banking portals. However, in the not too distant future, this will seem quite silly. We will all bank with whatever fintech or platform app we enjoy the most.
This is the genesis of the term Headless Banking. The destiny of traditional financial institutions is to become the plumbing that enables fintech companies and software platforms to offer their clients financial services directly. Smart banks are adopting this model quickly. Each brand that the bank powers provide access to more clients, deposits, transactions, and ultimately more revenue for the bank. The fintech and software firms become marketing agents for the bank, it’s a beautiful model! The more brands the bank powers the more access these banks will have to the future of banking.
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