A couple of decades ago, the idea of paying for a taxi ride without accessing a net banking platform or even the mobile banking app would have been considered impossible. Today, we don’t even think twice about it. In fact, today, we expect frictionless and on-demand access to banking services at every step. The emergence and rapid uptake of new banking models like Banking-as-a-Service (BaaS) and embedded banking have transformed the way customers access financial services and there is no going back from here. But as more banks navigate these new business models and engage in API-powered partnerships, they must figure out effective pricing and product fee models for the banking ecosystems. After all, pricing is not just about the product itself, it also about co-created value and partner integration. Traditional fee and pricing structures no longer align with the modern API-based banking ecosystem and banks need flexible, intelligent pricing engines to thrive in this new world.
API-Driven Collaborative Financial Ecosystems
In a BaaS ecosystem, fintechs and even non-financial third-party organizations can integrate with banks via their APIs to embed financial services within their business offering. This is how we can pay for our taxi rides on the Uber platform itself without having to open our banking app. Increasingly, organizations are expanding BaaS-based financial offerings to include not just payments but also lending, account creation, insurance, and more. As customers take the center stage in the business of banking, more organizations are orchestrating ecosystems where they co-create innovative offerings and share value with their partners. These relationships transcend the traditional vendor client relationship as banks and their partner organizations manage the customer experience together. This calls for a more complex pricing strategy.
Partner Pricing in a BaaS Ecosystem
In a Baas ecosystem, revenue must be distributed amongst all stakeholders and partners based on their contribution to the value chain. There are several new pricing models emerging for such ecosystems. These include:
- Subscription models: In this case fee terms are agreed upon between various stakeholders who are assured of regular and predictable revenue streams.
- Tiered fees: Here usage or service tiers are determined and fees assigned for each of them. Partners are paid based on usage.
- Usage based pricing: In this case partners are paid based on usage of service – the higher the usage, the more the fees.
- Dynamic pricing models: Here pricing and fees are dynamically adjusted based on customer behavior, or partner performance metrics.
The Case for Middleware Revenue Engines
The problem is that most banks deployed powerful product-centric core banking systems decades ago, that are still in use for pricing. These systems are not flexible or agile enough for value sharing in a BaaS ecosystem. They are restricted by product silos. Every instance of custom pricing is saved as a separate product variant on the system, creating unnecessary complexity which can result in billing errors. Partner-driven offers are difficult to track, and these systems are simply not scalable enough to implement newer partner pricing models like usage based pricing or dynamic pricing.
As more banks venture into BaaS and embedded banking models, they need pricing engines that can seamlessly and accurately manage complex pricing agreements between ecosystem partners. Replacing or modernizing core banking systems is out of the question for most banks as it is a time-consuming, expensive, and highly risky proposition. But they can opt to deploy robust, cloud-native, microservices-based middleware revenue management systems. These platforms sit over the legacy core and separate the system of engagement from the system of records. Such a platform can unify disparate product information to reduce complexity and simplify pricing execution. It can manage partner agreements accurately and execute dynamic pricing agreements without errors. And it can also help banks test and deploy new pricing models without touching the core. As a result, banks can go to the market faster with co-created and co-managed offerings, ensure fewer disputes, and accurately track partner performance and profitability.
In the modern API driven banking landscape, pricing is no longer a back-office function. It is a strategic tool for value creation and ecosystem play. If banks want to orchestrate and participate in the growing BaaS economy, they must modernize pricing strategies to ensure better partner engagement and collaborative growth.