With Blockchain, BaaS Provides On-Ramp Access to Capital

In an effort to change financial services, to expand financial inclusion, the promise of the challenger banks was that they would disrupt the way financial products could be designed and could come to market. But challengers have their own set of challenges, as Figure Technologies CEO Mike Cagney told Karen Webster.

Banking as a service is becoming commoditized, where dozens of FinTech players (and banks) around the world have rushed, en masse, to issue debit cards in digital wrappers or bring basic verification services to consumers.

But they will have to broaden their approach, he predicted. Cagney noted that at present, none of the digital upstarts have been able to demonstrate that they can reap benefits from the exchange, which he called a balancing act at best.

The FinTechs that survive and thrive, he said, will be those that use their current operations (and, yes, the exchange) as a “beachhead” to develop closed-loop lending and payment businesses.

“The idea that exchange revenue is going to make you a lot of money – that’s not going to happen,” he said.

Setting up the loan bridgehead

Cagney knows what he is talking about. Figure Technologies itself has established a presence in the provision of basic banking services – launching Figure Pay, a banking-as-a-service solution that includes a Visa debit card, as well as integrated buy-it-now, payment later (BNPL) and salary advance. These services are offered on a platform for FinTechs, non-banks and retailers through the company’s integrated issuer processing services (via its Banking in a Box approach).

Read more: Figure teams up with Visa to improve the Banking in a Box platform

But beyond these essential features, Cagney says the Figure Pay platform provides FinTechs with a range of other credit solutions as capital markets partners.

As an example, he pointed to Figure’s support and partnership with Ready Life, a FinTech that leverages data – in this case, a potential borrower’s track record of good rental payment history – to qualify home buyers. Specifically, Cagney said, the Ready Life platform, powered by the Provenance blockchain, allows consumers who pay their rent on time using the Ready Pay Visa debit card to qualify for mortgages without a review of their credit score. credit.

“[The FinTech issuer] Ready Life,” Cagney said, using credit as a cornerstone around which to build strong banking relationships, “don’t need a mortgage technology platform — they need a capital markets partner who can issue the loans. Loans are underwritten using data collected through the borrower’s use of the Ready Life debit card.

As he told Webster, the Ready Life/Figure Technologies relationship is an illustration of what’s to come: “The ultimate democratization of banking is going to be underpinned by blockchain – and the move towards decentralized rather than centralized construction .”

Banks and Stablecoins – theirs

Figure is a founding member of the USDF Consortium, an association of 11 FDIC-insured banks, which in turn is working to introduce bank-issued tokenized deposits that use the Provenance blockchain and banking network to install in real time. -time without the friction associated with traditional counterparty processes.

“The USDF will provide a 24/7/365 payment rail for the bank.”

In terms of mechanics, a private blockchain and deposit token issued by a bank can traverse a private authorized network of banks, enabling P2P and merchant transactions, allowing banks to offer real-time payment capabilities to their consumer customers. and merchants. Cagney believes this will change the underwriting paradigm.

Token deposits (via stablecoins) and blockchain, he said, may reflect some of the advantages and success – for community banks – of closed-loop networks seen with offerings such as Block’s Cash App. (Block is Square’s parent company.) Square’s success with the app, he said, comes primarily from the fact that the app is used as “a means to an end.” USDF’s vision is to have a critical mass of consumers transacting and interacting in an ecosystem that has community banking at the center of everything and is virtually free of middlemen.

“What is going to bring about a huge change in banking,” Cagney said, “is going to be the advent of stablecoins.”

New PYMNTS Study: How Consumers Use Digital Banks

A PYMNTS survey of 2,124 US consumers shows that while two-thirds of consumers have used FinTechs for some aspect of banking, only 9.3% call them their primary bank.

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