Build or borrow? BaaS lets tech firms offer varied financial services

In The Top Up this week, we look at how BaaS and tech firms are changing embedded finance and why DBS cut its CEO’s pay despite record earnings. [Read from your browser]( The Top Up 💵 Welcome to The Top Up! Delivered every fortnight via email and through the Tech in Asia website, this free newsletter breaks down the biggest stories and trends in fintech. If you’re not a subscriber, get access by [registering here]( IN FOCUS In today's newsletter, we look at: - How a new generation of banking-as-a-service (BaaS) players and tech providers are helping banks and their clients offer embedded financial services at a [fraction of the cost and time]( - How DBS’ year of record earnings was also a year of service disruptions - Digital bank operator TymeGroup’s [game plan]( for winning in the Philippines and Vietnam --------------------------------------------------------------- Hello {NAME} Today, many of us have the option of renting something instead of buying it - from clothes to cars, home appliances to houses. Similarly, many tech companies today - like ecommerce and ride-hailing platforms - want to embed financial services into their offerings, but they typically don't have the required licenses and the expertise to do so. One option for them is to "rent" the expertise from banks. However, as my colleague Melissa shares in this week’s featured story, many banks are burdened with legacy infrastructure and may not be in the best position to offer their services to these tech firms. That’s where tech providers like Audax come in. The company helps banks that are looking to work with these businesses offer financial services to users. Or, firms can also choose to work directly with fintech-as-a-service providers like Hugo Hub to enable different financial services. New digital bank entrants launching using a banking-as-a-service (BaaS) model can do so with a lower customer acquisition cost: around US$20 instead of the typical US$100, or at least that’s what Audax CEO Kelvin Tan says. The theme of whether to own/build something or to rent it from someone else continues in this week’s Hot Take, where I look at how DBS has taken a different approach to managing its data compared to its peers UOB and OCBC. -- Simon  --------------------------------------------------------------- THE BIG STORY [Out with the middlemen: more firms tap banks and BaaS providers for embedded finance]( Using banking-as-a-service solutions, digital banks can lower the cost of acquiring a new customer from US$100 to US$20, tech provider Audax claims.  --------------------------------------------------------------- THE HOT TAKE DBS faces digital travails despite record earnings Here’s what happened: - Southeast Asia’s largest bank [reported]( a record net profit of S$10.3 billion (US$7.7 billion) in 2023, with better-than-expected fourth quarter net profit. - Despite this, DBS CEO Piyush Gupta’s variable pay was slashed by 30%, deeper than the group management committee’s 21% cut. This was due to a series of digital disruptions in the bank’s home market. - The bank is returning more cash to shareholders, with an increased dividend payout and a bonus issue of shares. Here’s our take: DBS reported a good set of results for the fourth quarter and full year 2023, sending its shares up by 2.5% in the trading session that followed. Typically, such news would be accompanied with pay increments for senior management. However, in this case, the bank’s senior management saw their variable compensation collectively reduced by 21%, with Gupta seeing a larger cut amounting to US$3.1 million. This followed [several disruptions]( to DBS’ services in 2023, prompting the Monetary Authority of Singapore to [prohibit]( the bank from pursuing new business ventures for a six-month period. During an outage on October 14, [2.5 million payment and ATM transactions]( were affected as a result of a technical glitch at a data center operated by Equinix, which is a global provider of network communications services. The outages were quite an embarrassment for DBS, which has been [named]( the “world’s best digital bank” and the “most innovative in digital banking” by various publications. As society becomes increasingly digital, it is vital to get the basics right. To be fair, DBS isn’t the only bank to suffer from such outages. The October 14 disruption also affected Citibank, which uses the same data center. Singapore banks [UOB]( and [OCBC]( also saw their online services disrupted last November. Notably, these financial institutions diverge when it comes to how they manage their data. Fifteen years ago, DBS chose to outsource the running of its data centers, while OCBC and UOB [manage their own](. There’s no right or wrong answer to which approach is better. On the one hand, companies like Equinix and SingTel specialize in running data centers, an expertise that banks don’t typically have. As Gupta [previously said]( it would be “very hard” for a bank to manage data centers as well as be a professional operator, as a bank’s core job is not to manage physical infrastructure. DBS’s October outage was the first to be caused by a data center issue, he noted. On the other hand, one can argue that data management is now so intrinsic to running a bank that it is vital for them to have this expertise in-house. OCBC has [said]( that it made the choice to own its data centers because of the need for “absolute control” over its security and design. In a world of increasing specialization, where companies can outsource everything from payments to HR to external players, firms have to determine the right balance to strike between doing something in-house versus having a third party - who is ostensibly better placed - perform the function.  --------------------------------------------------------------- NEWS YOU SHOULD KNOW Also check out Tech in Asia’s coverage of the fintech scene [here](. 1️⃣ [SoftBank cut down most of Paytm stake before RBI crackdown: report]( According to the Vision Fund’s executive managing partner and CFO, Navneet Govil, SoftBank had sensed concerns about the increasing uncertainty in India’s regulatory landscape as well as the license status of Paytm Payments Bank, the fintech firm’s banking affiliate. 2️⃣ [Nium secures in-principal payment licenses to expand in India]( The license will allow the company to roll out new financial products - in addition to prepaid forex cards it already offers - in India. 3️⃣ [Temasek exits Policybazaar investment for $290m]( Prior to the sale, the investment firm held a 5.42% stake in the insurance platform. 4️⃣ [Validus banks new funding to boost SME financing in Vietnam]( The capital injection from Japanese firm Reazon Holdings follows a US$20 million investment from private equity firm 01Fintech in December 2023.  --------------------------------------------------------------- FYI  1️⃣ [Tyme Group’s game plan for winning digibank race in Philippines and Vietnam]( The banking group’s Philippine arm aims to turn profitable by October 2025, tapping into Gokongwei Group’s retail network to onboard customers. 2️⃣ [Syfe’s revenue up by 2.5x in FYE 2023, but still a fraction of its adjusted loss]( Syfe’s decision to operate in Singapore, Hong Kong, and Australia stemmed from the presence of a substantial number of mass-affluent consumers in these markets.  --------------------------------------------------------------- That’s it for this edition - we hope you liked it! Do also check out previous issues of the newsletter [here](. Not your cup of tea? You can unsubscribe from this newsletter by going to your “edit profile” page and choosing that option in our preferences center. In the meantime, if you have any feedback or ideas, feel free to get in touch with Terence, our editor-in-chief, at terence@techinasia.com. See you soon! P.S. Don't miss out on the biggest tech news and analysis. Add newsletter@techinasia.com to your address book, contacts, or safe sender list. Or simply move us into your inbox. Too many emails? Switch to a different frequency or get new content through our [preference center]( or [unsubscribe](. You can also break our hearts and remove yourself from all Tech in Asia emails over [here](  Copyright © 2024 Tech in Asia, All rights reserved. 63 Robinson Road, Singapore 068894