The Australian “Big Four” incumbent has partnered with regtech startup FrankieOne to offer the latter’s identification service through its Banking as a Service (BaaS) platform, Australian Financial Review reports. FrankieOne’s suite of know your customer (KYC), fraud, and identity services will enable Westpac to offer faster onboarding to clients of its BaaS platform, which is built on cloud-native technology from 10x Future Technologies.
Westpac’s move to become more competitive at providing banking services for others contrasts its inward focus on the experience it provides for its own customers. A deeper focus on its BaaS offering could divert resources that may otherwise be dedicated to enhancing its own retail banking offering. If Westpac can rake in deposits from its BaaS clients’ end customers and become an exclusive partner for other profit-generating offerings from those BaaS clients—such as mortgages—as well, then this strategy could pay off. But if it can’t, then it runs the risk of slipping behind competitors that are more locked in on their own retail banking services—such as CommBank, which just announced it’s launching a new buy now, pay later (BNPL) solution toward the middle of the year. Interestingly, Westpac isn’t alone in its newfound focus on BaaS: Neobank Volt announced in September that it would roll out a BaaS platform in partnership with Microsoft and Lab3.
The Australian regulatory environment for banking licenses will be an important tailwind for Westpac, as it recently became significantly more hostile. The Australian Prudential Regulatory Authority (APRA) is working on stricter, updated rules for financial services companies seeking to become authorized deposit-taking institutions (ADIs). These include clarifying rules around capital requirements and demanding that new entrants achieve a limited launch of both an income-generating product and a deposit product before receiving an ADI license. The addition of these obstacles in a regulatory environment that was previously very friendly to aspiring licensed banks could drive an increasing number of fintechs into the arms of established BaaS providers like Westpac and Volt, which can provide a license and plug-and-play technology to get upstarts off the ground quickly.