Digital Themes

Banking-as-a-Service

What is Banking as a Service (BaaS)?

Banking as a Service (BaaS) allows licensed financial institutions – either with physical presences or those that are entirely digital – the ability to implement different banking technology solutions online from trusted service providers through application programming interfaces (APIs) that can be quickly launched. 

While traditional banks are limited to interacting with customers within physical spaces, a BaaS model allows for interactions to take place anywhere with internet access. As a sub-type of Software as a Service, SaaS, banking as a service platforms allow financial institutions to choose the software and services that work best for their bank’s systems and goals, without the need to create their own infrastructure. BaaS provides banks the ability to complete their digital transformation in a safe and secure way underneath their existing banking license.

Banking as a service includes a wide range of financial technology, services that can be utilized by banks and fintechs, that is generally already designed with the end user in mind. Some of these financial services include a digital banking service, open banking, and digital debit cards. 

BaaS platforms also allow for financial institutions to securely integrate their services with other non-bank businesses such as airlines or social media platforms to incorporate new streams of revenue. This type of service platform benefits from having existing infrastructure and security measures that are in place from the service provider, rather than having to be created by the financial institution.

What are the business benefits of Banking as a Service (BaaS)?

With BaaS, financial institutions can expect:

  • Fast time to market and lower initial costs: Banking as a service is designed for banks and fintechs to be able to quickly choose and implement a variety of pre-existing software options that they can customize to meet their needs without having to build everything from the ground up.

  • Open banking: While already required in some countries, open banking is reverberating through the rest of the world. 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.  

  • Digital banking: Banking as a service can be utilized to create a virtual bank system with digital bank accounts, core banking, corporate banking, and personal banking solutions, such as MyBank. Rather than being tied to brick-and-mortar locations, digital banks give consumers access to their finances when and where they need it.

  • Customized ecosystems: The ability to select the services that the financial institution needs, as well as the ways to implement and utilize them, is a vital component of banking as a service. Complete control of data flowing through the banking platform is vital to capital optimization, and banking as a service can allow for a clear pipeline of data through different services.

  • Security and regulatory compliance: BaaS can require two factor authentication for user log on, as well as monitoring and maintaining compliance with different laws and regulations. Additionally, most reputable banking as a service providers have increased security around servers, requiring security clearance to even enter the premises.
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