Banking as a Service (BaaS): How It Works, Benefits, & Examples (2024)

“BaaS,” or “banking as a service,” is a business model where licensed banks allow their data and digital services to be integrated, via APIs, into the products of other types of businesses. That allows those businesses to offer banking services without needing financial regulation and oversight.

What Banking as a Service Isn’t

Part of understanding the banking as a service business model is recognizing what it isn’t. There are a number of related terms and concepts to BaaS that aren’t quite the same thing. We’ll go over a few of the common ones below.

Embedded Finance vs. Banking as a Service

Embedded finance refers to the practice of a non-financial business offering methods of conducting financial transactions from directly within its products. The main difference between banking as a service vs. embedded finance is that BaaS is the behind-the-scenes infrastructure that makes consumer-facing embedded finance solutions possible.

Another way to think about the difference is in who uses each model, and why:

  • Embedded Finance: Used by a non-financial business in order to avoid disrupting the customer’s journey by them having to detour to a licensed financial institution to carry out financial transactions.
  • Banking as a Service: Used by a licensed financial institution to allow customers to access its services beyond its own website or physical branches (i.e. at non-financial businesses).

Banking as a Platform vs. Banking as a Service

Banking as a Platform (BaaP) is a business model where a registered financial institution builds off the APIs of non-financial businesses – usually Fintech companies – to offer a wider range of services. This is also sometimes called platform banking.

The difference between banking as a service and banking as a platform is that the two business models are basically the inverse of each other:

  • Banking as a Platform: Licensed banks build off the APIs of non-financial businesses to integrate non-financial services into their product(s).
  • Banking as a Service: Non-financial businesses build off the APIs of licensed banks to integrate financial services into their product(s).

Open Banking vs. Banking as a Service

Open banking is a set of rules and processes that govern how financial and non-financial institutions can share customer data through APIs. Like with embedded finance vs. banking as a service, the difference between banking as a service vs. open banking is that the former is made possible by the latter.

The other main difference between the two is in what is shared over an API:

  • Open Banking: API-based exchange of basic financial information between financial and non-financial institutions.
  • Banking as a Service: API-based exchange of financial information and functionality between financial and non-financial institutions.

So with open banking only, a person can organize and review their financial data on a non-financial platform. This is useful for simple budgeting tools, for example.

Add BaaS on top of that, though, and the person can actually make financial transactions on a non-financial platform – such as opening accounts or taking out loans – as if they were directly interacting with a licensed bank.

Banking as a Service (BaaS): How It Works, Benefits, & Examples (2024)

FAQs

Banking as a Service (BaaS): How It Works, Benefits, & Examples? ›

BaaS enables non-bank companies to offer banking products and services through partnerships with regulated financial institutions. These partnerships are facilitated through application programming interfaces (APIs) that allow third-party distributors to integrate banking functions seamlessly into their platforms.

What are the benefits of BaaS? ›

The Banking as a Service model enables banks to focus on their strengths while outsourcing non-core activities, resulting in the following benefits: 1. Increased efficiency: Banks can focus on their strengths and outsource non-core activities to BaaS providers. This enables them to increase efficiency and reduce costs.

What is an example of BaaS banking? ›

Examples of BaaS include initiating transfers between banks, depositing checks from a smartphone, and online shopping with a debit or credit card. Financial institutions act as the facilitator between third party providers and the end consumer.

How does a BaaS work? ›

The operational model of BaaS

Here's how BaaS operates on a basic level. A licensed, e.g., electronic money, institution provides the underlying infrastructure, including regulatory compliance and core banking systems to businesses, which go on to offer a variety of financial services to end customers.

What is Banking as a Service example? ›

Treasury Prime is an example of a Banking as a Service software company. That is, it enables new financial solutions by allowing the products and services of licensed banks to be leveraged by non-bank companies that need them.

What is BaaS in simple terms? ›

Backend as a service (BaaS) products handle the basic, repetitive tasks you need for smooth web or mobile applications. They free up time, allowing developers to focus on writing and maintaining the pieces users see and touch.

What is the purpose of BaaS? ›

BaaS is an end-to-end model that allows digital banks and other third parties to connect with banks' systems directly via APIs so they can build banking offerings on top of the providers' regulated infrastructure, as well as unlock the open banking opportunity reshaping the global financial services landscape.

What is the difference between BaaS and bank? ›

Banking as a Service (BaaS) is an emerging business model, within which licensed banks and fintech companies provide banking infrastructure, products, and services to other businesses; those offerings then reach end users through the banks' and fintechs' own applications and under their own brand.

What are the 3 main types of banking services? ›

They are commercial banks, thrifts (which include savings and loan associations and savings banks) and credit unions. These three types of institutions have become more like each other in recent decades, and their unique identities have become less distinct.

Who is a BaaS provider? ›

BaaS providers normally work directly with banks to provide the underlying service, and platforms can then use BaaS APIs to enable customers to hold funds, pay bills, manage cash flow, and access funding by working directly with the platform they've come to know and trust.

Why use a BaaS? ›

BaaS platforms offer a suite of features that typically include database management, user authentication, cloud storage, push notifications, server-side logic, and more, without the need for developers to manage or maintain the underlying server infrastructure.

What is the BaaS strategy? ›

The BaaS (Banking-as-a-Service) business model refers to a scenario in which banks that possess the necessary licenses for banking operations integrate their digital services into products developed by non-banking companies.

Why is BaaS popular? ›

Banking-as-a-Service is revolutionizing the way businesses offer financial services, providing numerous benefits such as enhanced customer experience, cost efficiency, and new revenue streams.

What are the benefits of Banking as a Service? ›

BaaS can help connect with a variety of APIs to allow third parties access to data in order to enhance services within various products. This enables customers greater control over their financial data, while also allowing financial institutions access to new areas of revenue.

What is the difference between BaaS and SaaS? ›

BaaS provides ready-made backend infrastructure and services. This lets developers work on their front-end development. SaaS delivers complete software solutions. You can access these solutions over the internet.

What is the difference between platform banking and Banking as a Service? ›

BaaS means a traditional bank offering a digital banking service as white label to a non-bank. Platform banking means a fintech business offering services to a bank. So in BaaS, banks are the sellers, and in platform banking, they're the buyers.

What are the benefits of skills based routing? ›

Skills-based routing leads to more personalized customer service, connecting callers with the most qualified service representative. This increases important KPIs like customer satisfaction score and first call resolution rate. It also leads to more calls handled overall, lowering queue wait times.

What are the advantages of bank based financial system? ›

Since the 19th century, many economists have argued that bank-based systems are better at mobilizing savings, identifying good investments, and exerting sound corporate control, particularly during the early stages of economic development and in weak institutional environments.

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