With Blockchain, BaaS offers capital access On-Ramp

In the attempt to change financial services, to expand financial inclusion, the promise to the challenger banks was that they would upgrade the way financial products could be designed and could come to market. But the contenders have some challenges of their own, as Mike Cagney, CEO of Figure Technologies, told Karen Webster.

Banking-as-a-service is becoming commoditized, with many FinTech players (and banks) around the world scrambling en masse to issue debit cards in digital packaging or bring basic checking services to consumers.

But they need to broaden their approach, he predicted. Cagney noted that currently none of the digital upstarts have been able to demonstrate that they can drive profits from exchanges, which he called a breakeven chase at best.

FinTechs that survive and thrive, he said, will be those that use their current operations (and, yes, exchanges) as a “beachhead” to build lending and closed-end payments businesses.

“The idea that exchange revenue is going to make you a lot of money — that’s not going to happen,” he said.

Setting up the lending beachhead

Cagney knows what he’s talking about. Figure Technologies itself has built a presence in providing core banking services – launching Figure Pay, a banking-as-a-service solution that includes a Visa debit card, along with built-in buy now, pay later (BNPL) and payday advance features. These services are offered across one platform targeting FinTechs, non-banks and retailers through the company’s built-in issuer processing services (via the Banking in a Box approach).

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But beyond these core features, Cagney says the Figure Pay platform provides FinTechs with a range of other credit solutions as capital markets partners.

For example, he pointed to Figure’s support of and partnership with Ready Life, a FinTech that leverages data — in this case, a prospective borrower’s track record of good rent payment history — to qualify buyers for home purchases. Specifically, Cagney said, the Ready Life platform, powered by the Provenance blockchain, allows consumers who pay their rent on time using the Ready Pay Visa debit card to qualify for mortgages without a credit score.

“[The FinTech issuer] Ready Life,” said Cagney, using credit as a cornerstone to building solid banking relationships, “doesn’t need a mortgage technology platform — they need a capital markets partner that can trigger the loans.” Loans are underwritten using data intelligence derived from the borrower’s use of The Ready Life Debit Card.

As he told Webster, the Ready Life/Figure Technologies relationship is an illustration of what’s to come: “The ultimate democratization of banking is going to be underpinned by blockchain — and the movement to a decentralized, rather than centralized, construct.”

Banks and Stablecoins – their own

Figure operates as a founding member of the USDF Consortium, a membership-based association of 11 FDIC-insured banks – which in turn strives to introduce bank-branded tokenized deposits that use the Provenance blockchain and banking network to settle in real-time without the friction associated with traditional counterparty processes .

“The USDF is going to provide a 24/7/365 payment rail for the bank.”

In terms of mechanics, a private blockchain and a bank-issued deposit token can traverse a permissioned private network of banks, enabling P2P and merchant transactions, allowing banks to offer real-time payment options to their consumer and merchant customers. Cagney believes that this will change the underwriting paradigm.

The tokenized deposits (through stablecoins) and blockchain, he said, could reflect some of the benefits and success — for community banks — of closed-loop networks seen with offerings like the Blocks Cash app. (Block is the parent company of Square.) Square’s success with the app, he said, comes largely from the fact that the app is used as “a means to an end. USDF’s vision is to have a critical mass of consumers shopping and interacting in an ecosystem that has the community bank at the center of it all and is practically free of intermediaries.

“What’s going to drive a huge change in banking,” Cagney said, “is going to be the rise of stablecoins.”

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