Google’s growing portfolio of bank partnerships is signaling a trend among legacy institutions that co-branded Banking-as-a-Service (BaaS) might be the easiest way to maintain market share in a world gone increasingly digital.

Many banks new to the business of BaaS are providing the necessary back-end tech and banking rails to their competitors rather than compete with the fintechs, challenger banks and big tech companies that are moving into banking.

Google grows its bank reach

Seattle Bank, which has $730 million of assets, is one of the latest banks to back Google’s Plex accounts, new consumer bank accounts that Google unveiled last week in beta. The West Coast bank joins existing partners Citibank, BankMobile, BBVA USA and several others in backing Plex, which is slated to launch in 2021.

“This collaboration allows Seattle Bank to offer a superior consumer experience that complements our existing commercial and private banking business,” Seattle Bank President and CEO John Blizzard told Bank Innovation in an email, adding that the digital accounts will help it better meet business owners, who rely on their mobile devices, with “interwoven banking needs.”

The $3.6 billion Green Dot is another new addition to Google’s growing ranks of financial institutions. Pasadena, Calif.-based Green Dot is not new to the BaaS space, as some of Google’s other partners are, but this collaboration comes on the heels of a growing customer desire for innovative banking practices, said Mike Tekulve, Green Dot’s senior vice president and head of BaaS.

“Fewer people are pursuing a traditional banking relationship, and not all banks are equipped to offer people the experience they’re asking of their banks,” Tekulve told BI. “People want their banking integrated into the flow of their lives and now have options that align with how they expect to pay for things,” he said.

BaaS providers have gained steam in recent years and, as demand for online banking continues to grow, new market entrants are more often partnering with licensed banks. Challenger bank Chime, which leverages banking licenses from The Bancorp Bank and Stride Bank, doubled its number of users year over year to 10 million in September, and Revolut, which launched in the U.S. this year, partnered with Metropolitan Commercial Bank to launch its financial products. Varo Bank, too, made waves this year as the only banking fintech to gain a national bank charter in the United States.

Old dogs learn new tricks

Financial institutions looking to increase their revenue through partnerships with Google are not necessarily service providers, Aite Group Research Associate Francisco Alvarez told BI. Instead, they are working in a hybrid model.

Alvarez compared the dynamic to Cambr, a joint BaaS venture between technology parent company StoneCastle and software company Q2, before Q2 dissolved the partnership in May.

“While Cambr wasn’t the depository institution, they were the technology provider and primary seller of the solution and thus the BaaS provider in the scheme of things,” Alvarez said. “The banks Cambr used were more so operating in the background and leveraging their strengths — which were bank licensing to hold deposits and compliance ownership.”

On that front, digital banking service Movencorp last week united with Q2 to offer virtual bank-in-a-box technology to banks, which can be deployed in as little as 30 days, according to a Moven press release. The end goal is for any financial institution to have its own digital banking app up and running in as little as a few weeks said Paul Walker, BaaS general manager at Q2.

Other institutions however, like Green Dot, can be considered the banking-as-a-service provider, Alvarez explained, adding they are “both the tech platform and the depository institution. They’re vertically integrated, and thus a lot of ways to slice and dice these types of programs.”

Traditional banks are feeling the pressure from the rise of BaaS. Large institutions, such as Goldman Sachs and Standard Chartered for instance, are developing new software and platforms to capitalize on the momentum.

Standard launched Nexus, its BaaS solution, in mid-March after the product was incubated in-house by SC Ventures, the bank’s innovation, fintech investment and ventures arm. The $754 billion bank is starting out in Indonesia — the fourth most populous country in the world has an 88% e-commerce adoption rate — with plans to roll out the service in Asia, Africa and the Middle East, Standard said.

Likewise, Goldman Sachs is revamping its strategy to include partnerships with banks on the consumer spectrum, Chief Strategy Officer Stephanie Cohen said during the company’s Investor Day earlier this year.

“It allowed us to take products and services that we built for our own clients, and then give it to other clients, so that they can embed financial products into their ecosystems,” Cohen said. “This strategy will drive top line growth, and it will create scale efficiencies.”

It’s not just the incumbents breaking into the BaaS space; smaller, newer establishments, like the $130 million Piermont Bank, are also getting in on the action. The New York City-based bank this month teamed up with API developer Treasury Prime with the goal to create a next-gen banking package for fintechs.

“We’re trying to charter the second wave of innovation and bring financial technology to commercial banking,” said Wendy Cai-Lee, founder and CEO of Piermont Bank, a commercial bank that launched last year. “The first waves are more rent-a-charter type of setup,” she said, adding that the opportunity value of BaaS lies not only in creating a foundation for digital consumers, but in saving time and resources for the bank as a whole.

“I want to figure out, how do I minimize hours spent in the back, in the middle, in the data analytics, interval monitoring the process so that the head counts can be focusing on client interaction,” Cai-Lee said.

The idea of redirecting efforts and allowing the technology to take over is visible in Goldman Sachs’ strategy, too. Since launching its digital-only consumer bank service Marcus in 2016, the New York City-based finance mogul has developed a three-pronged approach to expanding its consumer offerings: partnering, acquiring and building its products in-house, Cohen said. As the company builds out the Marcus offerings, Goldman is looking to free up its engineering talent on other ventures.

“This is a major departure from how we would have built new products, just a few years ago,” Cohen said. “It frees up our engineering talent to focus on things that are really unique and differentiated rather than commodity infrastructure.”

New playing field comes with obstacles

While the potential exists, the obstacle smaller banking solution companies will likely run into is direct competition with larger corporations, Aite’s Alvarez said.

“We’re going to continue to hear more technology startups leverage these kinds of solutions,” Alvarez said. “They’re in the right place. Their biggest upward challenge right now, in my opinion, is to get a big-name corporation to partner with them. Then, everything from there skyrockets.”

Partnerships with headliner companies are essential to educate new clients on the capability of the technology and what it brings to the market, Alvarez explained, noting that the larger institutions already tested and regulated. Established banks are taking a similar marketing approach in their own co-branded BaaS strategy, pairing up with leading tech companies like Google, Amazon and Apple.

As fintechs continue to expand banking offerings and big tech moves further into financial services, the BaaS territory is evolving. Banks in the space, both new and established, are riding the coattails of household names and emerging into the forefront with their hybrid, co-branded models.

“We’re just scratching the surface of what’s possible with BaaS partnerships and, as a platform business, the rising tide of BaaS is lifting all boats, so we and our partners are able to share in the successes,” Green Dot’s Tekulve said.

—With assistance from Bianca Chan