With these tailored financial services, platforms become a one-stop destination, enabling customers to manage all aspects of their business in a single place. With BaaS, APIs connect licensed financial institutions and nonbanks/fintech providers. But any company can’t simply provide banking services; it must own a banking charter, and such a charter is challenging to obtain. Acquiring a banking license imposes not only significant capital requirements, but more importantly, compliance with strict regulations. Platform banking involves a bank acting as a platform to bring customers access to a variety of third-party financial services.

Through embedded banking, non-financial companies can greatly enhance their capabilities by offering user-friendly finance services such as cashless payment, embedded lending and buy now, pay later programs. Embedded banking entails a range of financial services such as embedded payments, embedded lending, embedded insurance, embedded investments, embedded card payments, and other embedded services. Open banking is similar to BaaS in that it allows non-bank businesses to lease banking services. Nevertheless, these two distinct models were created for specific reasons. While BaaS enables businesses to provide pure banking products via their interface, open banking allows businesses to access their customers’ data without transferring banking operations.


The first term to understand is Banking as a Service, a type of business model describing companies providing banking-related services. Banks and financial institutions can sell their licenses, services, and software to third parties. When the company purchases these services or software and uses them to serve customers, they’re able to provide banking-related services, or Banking as a Service.

Banking as a Service vs. Banking as a Platform

Fintechs and digital banks are challenging traditional banking institutions, but legacy banks can use BaaS to turn this potential threat into an opportunity. Fintech startups get the unique opportunity to implement their financial solutions within tight timelines, on a reasonable budget, and without obtaining a banking license. The BaaS layer provides the necessary two-way data flow between banks and end customers. Together, these factors enable non-financial companies to build new products using banking services such as deposits, money transfer, payments, currency exchange, lending, and more.

Banking as Service

Banking as a Service links these businesses with online customers to the systems of licensed banks via an API connection for integration. It often uses third-party BaaS platform providers with middleware software and financial applications. Traditionally, if you wanted to offer financial products and services, you’d face some https://globalcloudteam.com/ challenges – not least of all, meeting the significant regulatory obligations. Combining multiple services would have involved juggling a handful of different integrations. Using BaaS, you can partner with a single financial services provider and pick and choose the services you need, and the locations you’re operating in.

Banking as a Service vs. Banking as a Platform

Shopify is a leading global commerce company, providing trusted tools to start, grow, market, and manage a retail business of any size. Dealing with financial services is an essential part of running a business, yet most of today’s financial services aren’t designed for the needs of independent business owners. Shopify Balance offers Shopify merchants a fast, simple, and integrated way to manage their funds, pay bills, and track expenses. This gives them easier access to financial products and greater control over their finances.

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Diversity matters because it enables fintechs to become better at what they do. To ensure your funds are safe Paynetics follow a process known as ‘safeguarding’ which is a regulatory requirement for all EMIs. In this process Paynetics keeps your money separate from its own money and place it in a safeguarding account with a Bank. Legacy platforms are changing to SAAS model and end customer is the winner. As the image below shows, BaaS can have multiple layers of services, and the client can choose to adopt a couple of layers, or a single layer into their business.

These regulations include Know Your Customer , anti-money laundering , OFAC sanctions lists, and data privacy and security. For Banking as a Service to function as expected and banks to remain in regulatory compliance, RegTech should be part of the BaaS process. While BaaS and embedded finance are linked, they are not the same thing. BaaS is the tech stack that sits behind the scenes, covering all the relevant regulatory requirements and the technology that delivers financial services via an API. Embedded finance describes the customer-facing layer that sits on top of this infrastructure.

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Customers benefit from this frictionless experience and access to world-leading financial products just when they need them most. Businesses benefit from higher engagement and retention and additional revenue streams. Due to the network effects, financial service providers benefit from a far wider and more easily accessible pool of customers than through traditional channels. BaaS is a model where licensed banks integrate their digital services directly into the products of non-banking businesses. The best way to explain this further would be by an example – take, for instance, an online electronic store, which is facing sharp competition from its peers.

Approaches such as this can eliminate human error and empower your teams to focus solely on growing your business. That’s without mentioning the significant regulatory hurdles a non-banking business would have to overcome, possibly requiring an entirely new team. Long story short, embedding banking services used to be an expensive and time-consuming proposition.

Know Your Customer Requirements: What Bank & Lenders Need To Know

Instead of having to rummage through their wallet for cash or their credit card, a customer utilising an app with an integrated payment infrastructure simply clicks a few buttons to make their purchase. The benefits for businesses and FSI clients are similar to embedded finance; access to vast swathes of data; additional revenue streams; fast route to market. While the BaaS providers benefit, again, from a considerably banking as a service platform larger customer base. Now, with the rise of banking-as-a-service solutions, platforms are beginning to evolve yet again to “SaaS 3.0″—offering additional embedded finance features to customers beyond payments. Banking as a Service startups play a significant role in the financial services industry by providing a platform for non-traditional players to enter the market and offer new and innovative products and services.

  • Consumers could go in to collect information about their various bank accounts and see everything in one place.
  • By working with a BaaS platform, a company can adopt payment capabilities without getting a banking license of their own.
  • They provide the actual API layer that sits on top of the bank’s system that enables the flow of data between the bank and the TPPs.
  • Rigorous proprietary data vetting strips biases and produces superior insights.
  • The Securities and Exchange Commission is responsible for much of this regulation.