What is BaaS? Banking as a Service Explained

An integration of different services into a single platform is an excellent way for companies to improve their customer service abilities. By offering BaaS solutions, banks can grow their customer bases by integrating their delivery services to various companies from different industries. In today’s digital economy, non-financial companies are leveraging banking-as-a-service to provide payment functionality to their platforms or apps. This allows these organizations to reduce their overhead costs as they don’t need to develop and maintain their own payment infrastructure. Banking-as-a-Service or BaaS describes an approach in which banks provide financial services through applications built on top of their APIs. The popularity of BaaS is because it allows businesses and consumers to reap the benefits of modern banking without having to physically engage with a bank.

Companies can create and sell products to customers directly using this new protocol, rather than using a separate product. With the new platform, they can offer a broader range of services to their customers and even tailor products like credit cards, loans, and insurance. BaaS, also known as mobile backend as a service , is a way of connecting mobile apps to cloud-based services.

New technologies are opening up legacy systems to emerging startups and third parties and, in some cases, putting data directly in the hands of consumers. Tech-savvy legacy banks can fend off the encroaching threat of fintechs by moving into the BaaS space to share their data and infrastructure. Banking-as-a-Service platforms provide more financial transparency options by letting banks open up their APIs for third parties to develop new services.

How Does BaaS Work?

Let’s dig into what these products are and how they work so you can make a wise purchasing decision. Connect and protect your employees, contractors, and business partners with Identity-powered security. Empower agile workforces and high-performing IT teams with Workforce Identity Cloud.

Imagine walking into a furniture store and being able to buy that dream bed for $2,000, and instead of paying cash, you get a loan at zero interest with four or six payments. In the past, you had to go to the bank or use your credit card, which carries higher interest rates, making the purchase more expensive, and applying for a card or loan can take days, an eternity. But with services such as BNPL , the furniture business can process your “loan” in minutes. This is just the beginning of the new era of financial technology, and it will radically change how customers think about interactions with their banks. Customers are already expecting to see more than traditional financial transactions in any interaction. By incorporating embedded finance into every customer interaction, banks are better positioned to meet customer expectations in whatever way they choose.

An overview of main BaaS services

BaaS is automated — once it’s set up, information is saved automatically as it streams in. You don’t have to proactively save, label, and track information. Rather, the convenience of BaaS allows you to concentrate on your work without worrying about data loss.

After all, the system is only as good as the solutions it offers for day-to-day operations. Established BaaS providers usually have an extensive library of APIs that cover every finance-related aspect their clients can imagine. But no matter what BaaS solution a company implements, it’s critical to ensure security at every level.

This fall, Penn LPS Online is accepting applications for its Bachelor of Applied Arts and Sciences degree, a fully-accredited, undergraduate degree—that’s online. By choosing the BaaS model, you can rebalance your development team efforts and release their time for other projects or tasks. The most common BaaS features are scalable databases, APIs, cloud code functions, notifications, and authentication. Pricing wise, there is a generous free plan available and paid plans to start at $25/mo. The free level is designed for development purposes, and production applications usually run a paid plan.

Top banking-as-a-service firms

Backend as a Service is a ready-to- use out-of-the-box solution that is a good choice for those companies that want to save time and efforts required for backend development. It’s great enough to boost app development, but this model offers average functionality. Backend-as-a-Service is a service model used to outsource back-end development for mobile and web applications.

• A few big banks, such as JP Morgan, have noticed and are starting to step into the fray.
• You wouldn’t need all four of these items to enhance your programs and your apps.
• On the other hand, custom backend development takes longer time to create but is highly scalable and flexible.
• In addition to offering paid access, the Open Platform team operates a sandbox testing environment, so interested companies can work through their proposals before fully signing up.
• Because they are mature ecosystems and are heavily regulated, banks ensure a highly secure and organized financial structure.
• Starbucks doesn’t touch the money directly; it acts as an intermediary, which allows it to avoid any regulatory services a bank needs to perform.

Later, many major banks such as Citibank, JPMorgan Chase, Wells Fargo, and Barclays began providing APIs to developers. With current API offerings from private banks like HDFC, ICICI, and Kotak and recent BaaS FinTech startups like Zeta, Setu, and Yap, the API space is booming in India. APIs are the building blocks of a digital banking core framework.

What is banking-as-a-service?

This is a specific type of service that is created for users to develop, host, and adopt their own blockchain-based software. A cloud-based provider makes sure that the infrastructure operates properly 24/7 and does not become unavailable in the most critical moments. These providers create clean, modern APIs with ease and simplicity in mind. But the options and solutions fintechs offer are growing exponentially, with technology growing by leaps and bounds. The API integration often comes from another provider, an API banking platform, which acts as the middleman between the bank and Mint.

A key component of consumer-directed finance or open banking, BaaS creates opportunities for everyone, including brands, fintechs, banks, and consumers. Banking as a Service is an innovative banking model that integrates full banking processes directly into the customer experience of non-bank businesses. These financial apps aggregate all of your financial data from your different accounts in one place, making it easier to manage your money.

You Want to Cut Down Testing and Maintenance Costs

In short, Banking as a Service (or white-label banking) is a system that allows non-bank businesses to embed financial services into their products. For example, companies that are not licensed banks may offer loans or payment services to customers by integrating digital banking into their systems. To make this possible, banks can either create their own platforms or work with third-party providers offering BaaS solutions.

A real-world example of how to scale up a game using a BaaS

Instead of using mobile middleware, BaaS creates a unified application programming interface and software developer kit to connect mobile apps to back-end services like cloud storage platforms. This includes key features like push notifications, social networking integration, location services and user management. Founded in 2016, solarisBank’s business model lets customers seamlessly integrate financial services into their offerings through modern RESTful APIs. There are many BaaS providers in the market, each offering different features and pricing plans. Some of the most popular ones are Firebase, Parse, Backendless, Kinvey, and AWS Amplify. These providers offer various backend services, such as authentication, database, storage, push notifications, cloud functions, analytics, and more.

How do you automate API testing with Postman scripts and runners?

While the COVID pandemic has dramatically impacted banking as we know it, it has also helped digital banking to gain rapid acceptance. Rapidly growing FinTechs in India are thriving and offering financial products that meet most consumers’ needs. To help understand how banking-as-a-service works, we will use an analogy. You’re facing stiff competition and want to grow your customer base.

You Need to Launch the Minimal Viable Product

Backend as a service products handle the basic, repetitive tasks you need for smooth web or mobile applications. They free up time, allowing developers to focus on writing and maintaining blockchain-as-a-service (BaaS) definition the pieces users see and touch. Recapping, the brands such as Uber, Square, and Starbucks offer different services through their platforms, such as debit cards, payments, and loans.

Read our post on fintech app security solutions to get more info. Because they are mature ecosystems and are heavily regulated, banks ensure a highly secure and organized financial structure. They also guarantee compliance with current laws in the sector and are a source of essential customer data. It often happens that companies do not complete their part of the contract. Many of them go bankrupt and stop providing the services they are supposed to, so you must always be ready to make a backup and quickly find another option. Recently there has been a movement away from fees; for example, Ally Bank announced they were doing away with overdraft fees, and many banks started following Ally’s lead.

Treezor is an API-based white label core banking platform that operates as a “one-stop shop payment solution” both receiving and issuing payments and covering the full payments scope. Bankable helps its partners meet the technological and regulatory challenges of developing disruptive financial services. Providers provide their banking license, and products, operations and/or technology for use by aggregators, other banks, and non-financial companies . BaaS offers an external service provider to set up all the necessary blockchain technology and infrastructure for a fee. Once created, the provider continues to handle the complex back-end operations for the client.