Now that we discuss Backend-as-a-Service conceptually, let's see how this could actually be implemented. If you think about it, BaaS is essentially a system of middleware upfront. At the top layer, you have a whole ecosystem of new Fintech players. It could be credit tech like LendingClub or Prosper, crypto exchanges like Coinbase or payment providers like PayPal. They might be competing with each other, trying to get the most customers. At the very back-end, most of the customers need their bank accounts, loans and payments will be dispersed to and extracted from these bank accounts via payments on crypto exchanges are sent from there, so are all the digital payment solutions. Currently, the bank is working with these accounts as usual and providing the associated services like transfer, security, etc. Now, BaaS is the middle layer at it's core, BaaS is essentially a series of APIs that connect the top layer of different Fintech players to the bottom layer of different bank accounts so that these different front-end, back-end systems can communicate with each other effectively. So the concept of BaaS is inherently related to the concept of API. Now, for those of you who are not familiar with this concept and Application Programming Interface is essentially piece of code that makes different software systems talk to each other and efficiently share information between one another. Visually, you can think of the API as a universal power adapter, one that can take plugs of different types from different countries for example, and make electricity flow freely between them. For instance, some of the plugs could be bank accounts, credit card accounts, lending accounts, etc. On the other side, it could be Fintech plugs of all different shapes and sizes, could be credit tech, invest tech, crypto, or pay tech. Currently, the banks own these plugs, but the current market for the API is incredibly segmented. There's no universal adapter on the Fintech, so in order to work with banks which they have to, each Fintech player would have to develop it's own API to connect with a partner bank accounts. For example, PayPal would have it's own bank API, LendingClub has another and Coinbase another etc. They're connecting to the same bank account but instead of talking to each other, there are a lot of duplication and efforts and incompatibility here. But if you think about it, the front-end players are not really in the middleware business. They're in the business of product innovation and acquire new customers. So Back-end-as-a-Service essentially comes down to the banks assuming the API business from the front-end Fintech players, possibly by collaborating with each other as well. Once done, this essentially becomes the platform. When a new Fintech player comes in, instead of worrying about all these connections, it can simply focus on it's core competencies and connect to banks really quickly and the better the new player does, the more business he can contribute to the bank's back-end as a whole. Could this be done? Well, it's already being done to some degree, just not yet in a coordinated fashion. For example, take the city of Weir in Cherokee County, Kansas, population 617. In 2008, the Citizens Bank of Weir or the CBW bank went bankrupt during the financial crisis. It was since bought by a former Google employee and is now a leading player in the BaaS business. Specifically, it developed hundreds of APIs to integrate all kinds of Fintech connection points into it's banking platform which allowed for increased interoperability between different financial institutions, products and accounts regardless of the system. It was the first bank to actually publish them, often giving them the Fin Tech Startups for free. This allows these new players to rapidly connect to the back-end financial system and like the AWS, brought the potential challengers into a platform of shared growth and prosperity.
