Banking-as-a-Service is a newcomer to the FinTech ecosystem. It enables companies to provide banking services without a traditional banking license. A simple example to imagine this is to compare it to the service that Amazon provides to customers through its own payment infrastructure. Buyers can complete their purchase through their Amazon Pay account rather than via their bank.
BaaS providers have several elements in common. In this article, we will reveal them to enable readers to understand the details. That way, readers can decide whether a BaaS provider is appropriate for their business model.
But it is worth keeping in mind that it is relatively new technology with a very high growth potential, so new players are entering the market each day. As BaaS becomes widely known, it will influence the investment decisions of more and more investors.
Using a BaaS provider cuts out the need for processing payments using a specific financial institution. This means registration, license acquisition, regulatory compliance and detailed accounting.
BaaS providers generally handle all these with their infrastructures for the companies they work with. It means a business can focus on growth rather than behind-the-scenes financial and regulatory requirements which takes both considerable time and money.
Speed is always a priority in many cases. Banking as a Service provides considerable gain in time. For example, a new company offering could be set up and integrated on a Banking-as-a-Service infrastructure within a week. The time and cost would be lower than traditional banking methods, which is a huge, even game-changing, benefit.
Scope Of Owned Services
Banking as a Service also helps companies to extend their scope of service. For example, insurance can be embedded into a seller’s services. This way, customers can buy their goods and get their insurance at the very same time. Conventionally, third-parties and insurance agencies are needed to be included in such processes which makes it less convenient for the customers. Apart from offering convenience, it also creates a new revenue stream for the business.
Banking-as-a-Service is a new technology and requires computing power, regular monitoring, and financial resources to maintain. This makes it important to check that any preferred BaaS providers can keep track of clients’ business activities, even when they’re onboarding new clients. In this way, the service can be scaled up or down according to the needs of integrated businesses.
Good BaaS providers have a strong reputational history. This means an array of positive customer testimonials and reviews. By looking at these, customers can find the information they need to decide whether a provider is trustworthy or not. It is also better to examine if the providers’ previous experience matches with yours. This provides peace of mind when signing up.
One reputable bank, European Merchant Bank (EMBank), is setting up space for FinTech firms to enhance their business scope with banking as a service.