Banking-as-a-Service (BaaS)

Banking as a service is the process by which non-banking institutions are able to offer banking services without needing a license by essentially leasing a bank’s infrastructure. It is a white-label service in which banks offer access to financial services through an API. It can be considered part of the embedded finance revolution.

A BaaS solution has 3 parts. The first entity is the underlying bank which offers access to banking services through an API. These services include viewing the balance, depositing money, giving loans and  transfer of funds. The second or intervening entity is the API or webhook that exposes the bank’s data to third parties. The non-bank institutions requiring the service is the last piece of the puzzle. This could be a neobank, a fintech institution, an e-commerce company or a traditional company like an airline. 

Banking-as-a-service is often confused with other offerings in the banking industry. These are open banking and platform banking. Open banking also involves connecting a bank with another institution through an API. However, the purpose of open banking is merely the transfer of data but not the use of other banking processes such as lending or transfer of money. A good example of this is a personal finance app that only accesses bank data to offer saving and budgeting advice. Platform banking, on the other hand, is the inverse of banking-as-a-service. In this model, the bank integrates its services onto other apps such as fintech apps or ecommerce apps to facilitate smooth operations by consumers. 

BaaS is here to stay because of the myriad advantages it offers to banks, customers and non-banking institutions.Banks are able to offer their clients convenient services without having to fully restructure their systems to keep up with constantly changing technology. Consumers now have access to convenient and competitive banking services through banking-as-a-service platforms.A company that wants to offer services that involve banking does not have to go through the time-consuming and expensive process of acquiring a banking license. They can now partner with a bank to offer white-labelled services. 

This page was last updated on June 12, 2024.

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