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UK mobile money app Monese has secured a $35 million investment from HSBC to support the continued growth of its cloud-native banking-as-a-service (BaaS) platform.
The investment brings Monese’s total fundraising to $208 million and is part of a broader strategic partnership that will focus on its platform as a service business.
According to Taylan Turan, group head of retail banking and strategy, wealth and personal banking at HSBC, the bank will also benefit from Monese’s BaaS capabilities as HSBC looks to “deliver digital wealth and banking tools at pace and scale” in combination with its own global wealth and banking resources.
With this investment, HSBC joins existing investors Kinnevik, PayPal ventures, Investec, Augmentum Fintech, and Outward VC as Monese’s strategic partner.
Monese’s last capital raise came in 2021 when it raised $90 million in Series C led by Investec. As part of the funding, Investec adopted Monese’s Baas platform.
Monese is a mobile-only alternative service provider to traditional banks. It offers instant accounts, business accounts, joint accounts, savings accounts, a contactless debit card and money transfer services via its app.
Banks embrace Baas offering
HSBC’s venture into Monese builds on the bank’s ongoing investment in its BaaS offering.
In October 2021, the bank announced its collaboration with enterprise resource planning software provider Oracle NetSuite to launch the HSBC Baas offering via the latter’s SuiteBanking solution.
At the time of the announcement, Barry O’Byrne, CEO, of global commercial banking at HSBC, had described embedding HSBC’s solution into customers’ platforms as “central to our strategy of supporting our clients’ growth across all regions.”
In July 2022, HSBC teamed up with Finastra to make the bank’s FX services available to mid-tier banks via the latter’s FusionFabric.cloud platform under a Baas experience.
HSBC is not alone in adopting a BaaS platform to improve service.
BBVA began offering its full suite of BaaS products in the US in 2019, while Goldman Sachs partnered with Stripe in 2020 to offer its banking products via the latter’s banking-as-a-service software, Stripe Treasury.
Revenue boost from BaaS attracts FIs
Banking-as-a-service offers financial institutions an opportunity to reach a greater number of customers at a lower cost.
According to an analysis by consultancy group, Oliver Wyman, the BaaS technology stack reduces the cost of customer acquisition to a range between $5 and $35, in contrast to a typical cost range between $100 to $200.
Firms have been looking to leverage the low-cost customer acquisition potential by looking for partnerships with fintech companies to expand their customer base.
A 2021 survey of 290 US-based senior bank and credit union executives by Cornerstone Advisors revealed that nearly two-thirds of financial institutions have partnered with at least one fintech company in the past three years, while 35% have invested in a fintech.
The survey also revealed that of those respondents who did not partner or invest in fintech, 37% planned to partner with one in 2022 and 18% expected to invest.
Cornerstone also estimates that the Baas market could grow to more than $25 billion in annual revenue in 2026. The consultant suggests that sponsor banks could generate over $40 million in annual revenue based on one million consumer accounts and 300,000 commercial accounts.
The potential revenue stream makes BaaS offering an attractive venture for financial firms to consider.
Research company Gartner predicts that 30% of banks with greater than $1 billion in assets will launch Baas for new revenue by the end of 2024.
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