More banks may work with the company in order to piggyback on a network of fintech companies’ capabilities to expand their businesses catering to millennials or to emerging Asia’s mass unbanked populations.
Eugene Green, COO, says Baasis will derive fees from a network of fintech companies whose applications will be used by a single bank in a variety of markets; the bank partners, in turn, will pay Baasis for the multiple connections.
Creating infrastructure for banks
LifeSREDA, a Singapore-based venture capital firm dedicated to fintech investments, is the main backer of Baasis; unlike its other portfolio companies, LifeSREDA has financed Baasis at the seed stage because it views the company as a long-term, strategic play, said Igor Pesin, partner at the VC.
The two share office space in Singapore’s industrial warehouse-feeling One North complex. They are all Russians, as the “Party like a Russian” sign at the entrance warns. But the hipster vibe belies the ambition of creating a pan-Asia digital bank.
However, whereas in Europe and the US, ‘neo-banks’ have attempted to disrupt traditional banks, Baasis wants to work with an established bank exclusively in each market and serve as an intermediary to a suite of fintech companies. Its goal is to have three Asia-Pacific bank partnerships live by the end of this year, and most of the region (probably excluding India and China) within three years.
Neither the technology nor the end customers will belong to Baasis, however. It is interested in creating the architecture instead, leveraging banks’ existing licenses, compliance capabilities, capital and customer data. For banks, the argument goes, this is a way to get access to a broad set of fintech capabilities that can let them penetrate new markets efficiently.
For example, whenever a partner bank updates its legacy systems (to meet new regulations, for example), Baasis would adapt to the change, so that its fintech partners don’t have to. That provides continuity to fintech companies, making it easier for them to continue developing software using bank APIs.
Baasis won’t own the customer, but their middleman position gives them access to data about flows. They don’t see individual customer data, but can see anonymous, macro trends around where customer money is flowing. “We are still figuring out what to do with this information,” Green said.
From P2P to pan-Asia digital banking
The business concept emerged from prior experience. Green was involved in a Russian online payments startup to originate capital from Germany, where interest rates are low, and match it to small- and medium-sized Russian companies willing to pay much higher rates. The business collapsed when the US and European Union raised sanctions against Russia after it annexed Crimea in 2014.
The idea of online lending as an arbitrage stuck, however, and Green and his partners set up Baasis in Singapore in 2016 to match Singaporean lenders with borrowers in the Philippines. (“Baasis” is actually a word, meaning the starting point for an argument or a hypothesis.) They realized to attract more serious funding (or from a VC’s perspective, to realize an investment in one) required a startup to show growth in multiple markets, given Asia’s small, fragmented environment.
As the Baasis team looked to new deals in places like Vietnam or Indonesia, they decided there was an opportunity for more than just peer-to-peer lending among a few markets. Moreover, the technology investment to link to multiple markets was cumbersome and repetitive. “The digital technology was our own, but we found ourselves having to constantly reinvent the wheel,” Green told DigFin.
Therefore in late 2016 the startup decided to license the technology of Crealogix, a listed Swiss company that vends software directly to banks. “But our specifications and our vision are different” from those at Crealogix, Green said.
Where Baasis has been developing technology to support its integrator role is to address know-your-customer rules, which is crucial to its business model. Baasis has been working on technologies for facial and voice recognition, even though some of these electronic means of authentication are not yet recognized by many regulators.
Baasis has spun this development work off into a new division, which Pesin calls “a startup within a startup”; Green says the company is still in talks with regulators about what is possible, but hopes to launch a pilot program in the second half of this year.
Getting a bank to work with a startup is slow and expensive. Green says it takes about a year to get the key executives at a bank to agree, and can cost $200,000 to $400,000 for the seeding to implement a systems integration. And this has to take place for each market.
This was another reason for Baasis to pivot into infrastructure, rather than developing specific services such as P2P loans. Moreover, once the infrastructure exists, it can be expanded to other industrial verticals where it’s necessary to connect with banks: airlines, telecoms, supermarkets, utilities.
These additions can let banks tap new customer segments, he argues, while it also allows fintechs to reach multiple banks and scale their own businesses across borders. The combination could lead to ‘banking as a service’, a spin on the business model of software as a service.