Banking as a Service Explained

Banking as a Service is an innovative field that has triggered finance to expand beyond the boundaries once set by traditional banks. Companies and merchants can now collaborate with BaaS providers to become their own banks with their own branding. This cuts out the banks and allows financial operations to be conducted via their own websites or mobile applications.

In this article, we will explore in detail and cover some of the advantages that BaaS brings to businesses and merchants with some examples of BaaS in action to give readers a better understanding.

What is Banking as a Service?

BaaS can be described through an example: If an airline has plenty of competition and wishes to retain customers, it can grant loyalty points every time a credit card payment is made. The credit card can be a company-branded one, encouraging customers to associate their reward points with the brand.

Or let’s think of a mobile phone manufacturer selling not only the phone itself but also the insurance at the point of sale without making the customer deal with third parties for insurance.

Both examples reflects financial operations that are once monopolised by traditional banking systems. Formerly, if a company wanted to offer such services, they had to be ready for a set of cumbersome procedures to be partnered with banks.

BaaS platforms enable such financial capabilities conducted by a business or merchant. It also makes them avoid getting a banking license, which is challenging to receive. It costs money and time as there are strict regulations to follow and papers to organize. Without the obligation to acquire a license,  a company or merchant gets the chance to improve and focus on the service they offer to customers.

Advantages of Banking as a Service

BaaS enables transactions to get processed in a single touchpoint without a customer visiting an external website. This keeps the customer engaged with a specific brand, increasing their chances of making more purchases from that brand.

Banking-as-a-Service also increases the payment processing speed for customers, giving them a better experience and leaving them with a positive impression. It also ensures that money can be sent and received securely and quickly by being processed on behalf of the entity using the BaaS platform.

Banking services can also be mixed and matched according to specific needs, which grants more flexibility than traditional banking arrangements.

Examples of Banking as a Service

BaaS comes in useful across a range of circumstances. These include verifying identity, lending money, processing payments, and enabling companies to conduct their own financial operations.

Verifying Identity

BaaS platforms can enable customers to access specialist software called an API. In this case, it connects to the verification platform of a bank, enabling ID checks to be performed from within the company or organization using BaaS.

Lending Money

Specific sectors of the economy rely on selling high-ticket items. These include travel and eCommerce businesses. Customers often prefer long-term financing options, which BaaS platforms facilitate in a very short time without any third-party.

Payment Processing

Taking payments using company-branded credit and debit cards becomes possible using BaaS platforms. These are also called white-label cards, and they’re custom-made for the company using the Banking-as-a-Service provider. Likewise, digital wallets are also made possible via Banking as a Service infrastructures.

One of the prominent challenger banks, European Merchant Bank EMBank, provides a banking as a service infrastructure that covers all of these examples and provides the advantages given within the article.

Leave a Reply