How does Banking as a Service Work?

How does Banking as a Service Work?

We are experiencing a historical leap in financial technologies. Both financial consumer behaviour and businesses’ offerings have been altered. Two main technologies are leading these developments; Open Banking and Banking as a Service.

We will focus on Banking as a Service and cover a variety of examples showing how it works in today’s world. Each example will show the versatility of BaaS and how it is becoming a dominant presence in the world. Also, the advantages of BaaS will be discussed to explain why consumers and companies are increasingly drawn to it rather than the traditional banking system.

Banking as a Service Examples

There are many ways BaaS can get used to benefit companies and consumers, and several are covered in this section. These are the ones that are the most common:

Debit and Credit Cards

Formerly, credit and debit cards could only be issued by traditional banks. However, today companies have the opportunity to issue their own, white-labelled, credit and debit cards thanks to the capabilities of Banking as a Service providers. This has been done by companies large and small, such as Apple Card being a notable example.


Some companies might wish to offer loans to their customers for financing purposes. These can include airlines, which may offer one-click loans for easy travel. Also possible are Buy Now Pay Later (BNPL) arrangements. These are instant financing options and allow customers to schedule payments over time, often across a set number of months.

Customer Identification

In a world where fraud still exists at a very high level, payment failure can have far-reaching consequences. It will also harm the reputation of the company that suffered the breach in security. Onboarding processes, such as KYC and AML, are also crucial for an institution to conduct financial operations.

BaaS platforms can facilitate verification before they’re used for payment processing, significantly reducing the likelihood of fraud. This verification can come in the form of two-factor authentication, plus ID checks, and other forms of verification.

Also, paving the way for wealthtech, companies can offer investment services via user-friendly mobile applications. This kind of service enables regular users to invest in stocks with an utmost ease and simplicity which would otherwise become a highly complex action.

Advantages of Banking as a Service

Just as BaaS has many use cases, it also has many advantages. A selection is covered in this section:

Customer Insights

Banks typically pick up customer habits and financial needs as part of transaction tracking. Using this information, banks often create bespoke offers for customers. These receive higher response rates.

When a business collaborates with a BaaS provider and conducts their financial operations via BaaS platforms, they get the chance to receive enhanced customer data. Such data informs future business decisions and special offers provided for customers.

Cost Reduction

Besides revenue generation, Banking as Service providers can also reduce the outgoings of a business. There is no need for expensive investment in technological solutions or time-consuming occupations to acquire licences and comply with regulations. BaaS provider bundles up all the requirements to facilitate financial operations. In other words, ready-made solutions reduce the time and the cost of implementation.

Multiple Streams of Income

BaaS providers enable companies to tailor innovative transactional offerings for their customers. This can create a brand new stream of revenue. Via BaaS, a car dealer can have the opportunity to sell insurance along with the car itself or an e-commerce website can offer Buy Now Pay Later plans and help their customers with instant financing options.

European Merchant Bank is one of the banking as a service providers that offers such services, enabling FinTech companies and merchants to enhance their financial capabilities in a fast, profitable and secure way.

Leave a Reply

Back to top