Skip to Content
6 minutes read

What Is Banking as a Service?

By Robert Kazmi
banking as a service
By Robert Kazmi
6 minutes read

Brands that want to offer banking services to their customers, such as credit and debit cards, turn to banking as a service offerings from financial institutions to avoid the difficulties of creating their own banking infrastructure and meeting the strict compliance and regulatory requirements of the industry. 

Embedding financial services in your organization’s offerings can enhance the customer experience and drive customer loyalty to new heights. Yet, while banking as a service is a burgeoning trend in many industries, many organizations still don’t fully understand the concept. 

This post will explain what banking as a service is and the benefits it can provide to an organization and its customer base. 

Banking as a Service: A New Way to Provide Banking Services 

Banking as a service is a term used to describe integrating a financial institution’s banking services into the products of non-bank organizations. Many people use the acronym BaaS to shorten banking as a service. 

We will also use BaaS in this post. However, it is important to note that in other contexts, BaaS is more frequently used as an acronym for Backend as a Service, which is unrelated to the topic of financial products. 

Non-bank businesses want to embed financial services into their products to offer customers banking services like debit and credit cards, loans, and other payment services without acquiring a banking license. 

API integration with financial institutions or BaaS providers makes banking as a service possible. Through this financial technology, a non-bank business never has to handle or touch a customer’s money.

This can also make banking more secure, meaning important banking information, like a credit card sort code, remains safe from prying eyes. 

The non-bank business acts as an intermediary between the customer and the financial institution enabling users to access financial services in a timely and convenient manner without burdening the non-bank business with the same regulations as a licensed bank. 

How Does Banking as a Service Differ from Open Banking? 

If you are familiar with the concept of open banking, you might wonder how banking as a service is different. Open banking and BaaS both rely on application programming interfaces to connect non-banks with traditional banks. 

However, BaaS integrates financial services, whereas open banking merely integrates banking data. Open banking is primarily used in financial management apps. These apps may also include information about financial products, such as when you should use a bank statement generator. These tools allow users to see a bank account balance or other data from a bank’s system, but they don’t allow users to access services like payment processing. 

Is Banking as a Service Embedded Finance? 

Embedded finance is the placing of a financial product within non-banking products. Banking as a service is an example of embedded finance. 

You might be surprised to learn that embedded finance is not a product of digital transformation. Prior to digital transformation, digital banks, and FinTech startups providing new banking services and products, embedded finance was primarily credit cards offered by airlines or retail chains. 

Other common examples of embedded finance include financing at retail stores and auto loans provided in a dealership. Embedded finance brings banking directly to a customer where they shop. 

Technology has enabled organizations to embed a wider variety of banking products in their sales and service offerings. 

The Benefits of Banking as a Service 

There are several benefits to implementing BaaS in your organization’s products and service offerings. The top benefits of BaaS services include the following:

  • Avoid regulations
  • Increase customer trust 
  • Access more customer data 
  • Improved User Experience 

Avoid Regulations 

Regulations and legal requirements around the banking sector are tight. As a result, obtaining a banking license is a lengthy, costly, and difficult process. 

Organizations that want to innovate and provide financial services to their customers cannot afford to be distracted by all of the requirements a banking license requires. 

Using a BaaS platform allows your organization to focus on its core competencies and avoid strict banking regulations while still offering financial services to its customers.

BaaS platforms handle compliance and regulations while your organization focuses on developing and delivering innovative solutions to its customers. 

Increase Customer Trust 

Banks and other established financial institutions have more than money; they have the trust of the consumer. BaaS services allow your organization to partner with reputable banks and lenders, which can help it grow the trust of its customers

Modern consumers are wary of digital security. When partnering with a well-known bank, your organization benefits from the consumer trust already established by that institution’s track record. 

As a result, it is important to partner with a bank or institution that has a good reputation and won’t damage your brand image with scandal or security breaches. 

Access More Customer Data 

When organizations partner with a BaaS provider, they gain access to a greater wealth of consumer data

Organizations can use this data to help them gain greater insights into their customers, products, and services. In addition, businesses can use this data to help them build new and innovative products and services that will please their customers. 

Improved User Experience

Organizations can utilize a BaaS platform to improve the User Experience of their product and service offerings. A better User Experience leads to greater customer loyalty and increased revenue. 

When organizations simplify services and offer value to their customers, they drastically improve the User Experience and make more sales. 

For example, if you operate an eCommerce website and integrate with a BaaS provider to offer interest-free financing on purchases, not only will the store provide a better User Experience by connecting customers with financial services, but it will also make more sales because now customers don’t necessarily have to pay upfront. 

Final Thoughts 

Banking as a service is a modern form of embedded finance. These services can greatly help your organization improve the User Experience by offering convenient financial services. 

If you are interested in learning more about banking as a service and how it can help your existing digital products, contact an experienced FinTech app development partner like Koombea.

Girl With Glasses

Want to Build an App?

Request a free app consultation with one of our experts

Contact Us