How Banking-as-a-Service is Shifting Banking Relationships and Empowering Companies
Banking-as-a-Service (BaaS), the growing sector within Fintech, is fueled by the open banking movement that encourages banks through regulation and initiatives to open access to their data and application programming interfaces (APIs) to third-party providers. The banks that are embracing these policies have the advantage as they stand to gain more from monetizing their APIs and partnering with fintechs than those that do not. BaaS is changing relationships across the industry, shifting banking and opening new doors for fintechs who can get to market faster than ever.
What is BaaS?
Imagine you own a distribution company and you want to offer your drivers a branded debit card for their personal expenses when they’re driving and off-the-clock. With BaaS, the distribution company can offer banking services like debit cards without having to be a bank. According to Business Insider, “BaaS is an end-to-end process that allows fintechs 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.” BaaS makes it possible for shared digital-based banking relationships between banks, fintechs, and companies.
There are three types of players in BaaS today:
- Retail banks that also offer BaaS — Banks that open their systems and APIs to third parties.
- Pure BaaS providers — Digitally-savvy banks that only offer BaaS services.
- BaaS platforms — Fintech platforms that offer companies access to traditional banking services via API.
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