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Banking as a Service – An Overview
Banking as a Service – An Overview

With FinTech growing across industries, Banking as a Service is gaining more and more traction. Banking as a Service has several benefits to offer, ranging from enhanced user experience and innovative solutions to open banking and meeting the needs of SMEs. As the growth of Banking as a Service accelerates, there are several new trends rising in FinTech sector.

According to a report by Statista, 1.9 billion individuals actively used online banking services globally in 2020 and this number is expected to reach 2.5 billion by 2024.

As digital banking evolves to push banks towards more innovative tech solutions, Banking as a Service is providing the opportunity to take user experience to a whole new level. With its focus on delivering financial services through specialized innovation, Banking as a Service is an outstanding opportunity for both banks and non-banking institutions to provide exceptional financial services to their customers.

In this article, we will understand the need of Banking as a Service, how it works and its rising trends:

Why to Explore Banking as a Service

Organizations have been in search of ways to “embed” financial services into their products for a very long time. However, the ways to do that are usually a costly and time taking process. The usual requirements of launching financial services include:

  • MSB (Money Service Business) registration
  • Applying for MTLs (Monetary Transmission Licenses) that may take up to two years
  • Finding partner banks
  • Raising large capital to motivate the partner bank to initiate the evaluation process, which can take up to 18 months
  • Building in-house technology team, complying with regulatory requirements, periodic agency audits, etc.

All of this hasn’t bothered large organizations much due to the availability of ample resources to follow this path thoroughly from the beginning till the end. However, it has surely been a major hurdle in the way of small and growing businesses that wish to launch financial services. High upfront costs, requirement of significant investment capital, and a long timeframe have driven firms to search for an economical and faster solution.

By partnering with fintech firms to leverage innovative tech solutions, banks, financial institutions and companies that want to launch financial services can simplify their path.

Banking as a Service is a product of such partnerships, as it functions end-to-end over the web ensuring the overall execution of a financial service.

It functions as a digital banking service available on-demand; hence it is exceptionally helpful for small institutions that don’t have enough resources to go through the long and tedious process.

Banking as a Service is an incredible way to widely increase the reach of banking for companies capable of delivering valuable services to their customers around the world. With its plethora of benefits, it can be highly advantageous for both banking and non-banking organizations. However, it is crucial to understand that the relevance of these benefits depends on how well BaaS is implemented. It is important for organizations to study trends well and formulate detailed plans with all considerations before moving ahead with the initiative.

How Banking-as-a-Service Works

With Banking as a Service, providers offer a banking infrastructure to their clients via application programming interfaces (APIs). These APIs can be implemented and launched in a short time period without the need for significant capital or monetary licenses for most use cases. APIs form the banking core framework, and are the basis of a three-layered Banking as a Service stack:


On top of this, further customizations are layered to set up debit cards or credit cards, deposit accounts, and loans. However, it is noteworthy that the Banking-as-a-Service sector is evolving to incorporate a cloud-based stack, which can help organizations with banking licenses to remove the layers.

Rising Trends Helping Banking as a Service

Paying attention to rising trends in a sector can help organizations to stay on top of the game, identify potential opportunities, and guard themselves against potential threats. In the financial services sector, there are five significant rising trends that organizations must monitor to stay ahead:

  1. Increasing customer demand for simple and integrated experiences

    Today, customers are seeking simple, embedded, and direct experiences. So, building integrated financial ecosystems with multiple and integrated offerings can help organizations to increase their clientele.

  1. Rising demands from new fintechs and non-banks

    Every year, several fintechs are established. These fintechs, other nonbanking players and big tech companies can build and provide financial services but cannot become banks themselves due to the regulatory barriers. They require banking partners that can provide access to payments, lending and banking accounts. This leaves them solely with the option of Banking as a Service to offer embedded finance to their customers. Hence, they require end-to-end Banking as a Service infrastructure solutions paired with regulatory support. Gain insights on Embedded Finance.

  1. Increase in openness

    The development of banking APIs and universal access is being promoted well by open banking and regulatory trends. To comply with these trends and invest in IT modernization, several banks are considering new Banking as a Service models to recover costs and take the benefit of technology.

    In addition, several leading fintech companies like Plaid are driving significant changes in customer expectations related to data and account information portability. This plays vital role in increasing Banking as a Service projects and IT modernization across banking institutions.

  1. Increased adoption of technology capabilities

    Banks can scale Banking as a Service faster due to increased digitalization, use of APIs and automation in the banking sector. This can increase the reach of embedded finance for more companies.

  1. Changing trust levels in financial services

    Trust levels are changing constantly in financial services. While people are beginning to trust fintech companies more, there are several brands that have gained a higher trust level as compared to others. So, banks can enable white-label or cobranded financial services to distribute their products. This can be done by identifying markets or products tactically instead of fully enabling white-label across all products.

    Monitoring these trends and using them to strategically plan implementation of banking as a service can help organizations to launch financial services with reduced risks and challenges.

Let’s talk 

While Banking as a Service is an outstanding concept, its success majorly depends on the organization’s practices to implement it. Collaborating hands with technology partner who holds expertise in understanding the pain areas of banking domain and who also holds several years of experience in providing Digital Transformation Roadmap to banking and other financial institutions can be a great idea too.

If this article interests you and you are looking for exploring more ways how you can implement Banking as a Service in your organization please feel free to write us [email protected] - Let’s grow together.