Banking As a Service

A trend which is rapidly growing in a gathered pace over the last 18 months or so is BAAS i.e., Banking as a service. Many of us are now familiar with the concept of software as a service ( SaaS ) , which is the licensing and delivery model that allows users to do various activities like subscribing to specific programmers, applications over the internet than just having to buy them outright and install them on their computers. This plug n play method has been proven to be helpful for the software providers too. this banking as a service is one such banking equivalent for the plug and play technology. BaaS is an on demand service which enables users across the world use have access to their financial services over internet form being in any part of the world. It is done by the banks’ offering up their systems to third-party service providers. Such as fintechs (financial-technology firms), that are looking to provide retail-banking offerings, typically through the use of application programming interfaces (APIs). Actually some even name it as “APIficiation” of banking.

Positioning themselves on the top of existing infrastructure of regulated licensed banks, third parties are able to provide numerous banking offerings to their customers. This makes a way for the service providers virtually in any sector to embed a wide range of their financial services into the suite of offerings for the customers and for themselves to conveniently access those financial services despite not necessarily belonging to the underlying bank.  This flexible approach of plug and play to the banking sector is probably one of the best aspects of BaaS. Providers can just pick and mix from a wide variety of products and then personalize it suit the interests of their customers , creating a new financial platform of their own. BaaS is classed as a platform that exists under the umbrella framework of Open Banking and not to be confused with each other, especially while the Open Banking customers are transacting directly with their chosen banks, it is the service provider or the brand entity with which customers interact on BaaS platforms.

Singapore’s Grab, which began as a ride-hailing service similar to Uber, has now joined with payment services and have their own wallet built into their app now. . There is another company, the Dutch payment company called Adyen, which provides e-commerce, mobile and point-of-sale payments through an API-driven platform.

Digital financial-services company 11: FS identifies three key layers that constitute the BaaS stack: Brand: The company that is aiming to embed financial services into its customer offering;

Service provider: The company supplying modular financial services to brands as a service;

License holder: Typically, a licensed bank that partners with providers and rents out its license as service. This enables partner brands to provide complete financial services.

The customers receive best of the both worlds like the convenience of financial services through an on-demand digital platform and the depth and robustness that come from a licensed, regulated banking institution and that is the benefit they look for. Now we are seeing these concepts being embedded in various aspects of our life.

Fintechs provide and continue to promote the democratization of finance, and BaaS will most certainly help in the same direction. It offers a different radical approach to the financial services, the one that remodels the old traditional banking methods and its building blocks are in the hand of a wider range of stake holders.