Banking as a Service (BaaS) Definition
Banking as a Service (BaaS) refers to a business model where banks and other financial institutions leverage their existing software and systems to create a seamless banking platform that can be used by third-party companies. Essentially, BaaS providers give third-party businesses the opportunity to build their own banking services by leveraging the provider’s back-end systems and APIs.
Banking as a Service (BaaS) Key Points
- BaaS is an end-to-end process that enables third parties to connect with banks’ systems directly via APIs.
- It simplifies the roll-out of new financial products by third-party providers.
- BaaS differs from white-label banking, where third parties sell products and services without having direct access to the bank’s infrastructure.
What is Banking as a Service (BaaS)?
Banking as a Service (BaaS) serves as a key tool for the digital financial ecosystem. It is a model facilitated by open banking, where financial institutions open up their networks to third-party developers through APIs. This enables the creation of additional banking services and promotes collaborations between banks and fintech or even tech-forward non-financial companies.
Why is Banking as a Service (BaaS) Important?
BaaS is significantly transformative for the banking and fintech industries. It paves a way for financial institutions to create innovative services and new revenue streams. BaaS also helps to foster partnerships between traditional banks and fintech companies, allowing them to offer a wider range of services to customers.
Who uses Banking as a Service (BaaS)?
BaaS is beneficial for both traditional financial institutions and fintech start-ups. Traditional banks can use BaaS to offer improved services to customers and gain a competitive edge. Fintech companies, on the other hand, gain the benefit of being able to access and use established banking infrastructure to create innovative financial services.
When is Banking as a Service (BaaS) used?
BaaS is particularly useful when a company wants to launch a new financial service or product but does not possess the necessary banking processes or infrastructure. A company can utilise BaaS to connect with a bank’s systems and get their product to market faster and more efficiently.
How does Banking as a Service (BaaS) work?
BaaS works by utilising APIs to connect third-parties to a bank’s systems. The bank provides its infrastructure -services such as payments, KYC processes, credit scoring, and more- to the third-party. These third-party companies can then use this infrastructure to launch their own banking services or products, without needing to build the systems behind these services themselves.
