Banking as a Service: What is it and how does it work?

The financial industry is one of many that is affected by technological developments. COVID-19 was a real game-changer leading 60% of banks to the closure or shortened opening hours of branches.

The financial industry is one of many that is affected by technological developments. COVID-19 was a real game-changer leading 60% of banks to the closure or shortened opening hours of branches.

Beyond that, the Digital Banking Maturity 2020 report reveals that after the pandemic, numerous leaders in the banking sector adapted new digital features, such as account opening (34%), remote identification & verification (23%), and contactless payments (18%).

Banking-as-a-Service is a tool that helps banks to win the digitalization race. This model accelerates the adoption of financial services, as well as the emergence of new digital retail banking channels. If the BaaS model intrigued you and you are down to know more about how it functions and boosts the tech ecosystem, keep reading.

What is Banking as a Service?

Banking-as-a-Service, also generally abbreviated as BaaS, follows the same model as Software-as-a-Service, Mobility-as-a-Service, or Blockchain-as-a-Service. It’s when you pay for banking applications and services as you use them instead of building them on your own.

Thanks to this, companies can operate under the license of the bank and offer various services that can be customized with their own brand. In short, you do not have to develop new applications or platforms from scratch anymore. Banking as a Service fully got you covered.

How does BaaS work?

Let’s imagine a retail brand wants to offer loans to its customers, create bank accounts or issue branded cards. How can the company do it without holding a banking license or having a team of developers to build a solution to meet this need? Moreover, the financial products also involve the technical and regulatory requirements that are very complex to manage and keep the record of. This is where different financial players come into play, including digital banks, fintechs, and others.

Digital banks serve companies as providers of the required elements (banking license, compliance, risk management, a user interface, provision of the actual product, etc.). Usually, depending on the BaaS partner capabilities, this list can vary from one provider to another

Facilitated by Application Programming Interfaces (APIs), fintech companies such as Crassula provide their customers access to the systems needed to provide financial products. Usually, businesses pay a fee to access the multidimensional regulated infrastructure, and by this, they save time and money during the banking application development process.

Enablers are technological companies helping to embed BaaS services into third-party platforms or applications. The role of enablers such as Crassula is to deliver value by adding innovative features and enhancements to a banking product.

What are the benefits of the BaaS model?

Delivers superior customer experience

Building an easy-to-navigate digital app is not enough to satisfy banking customers. Today’s consumers’ expectations are exceeded higher than ever before. But don’t lose your heart. BaaS can become a provider of improved financial wellness of your customers. With the help of it, traditional banks can assemble products and customize them in a way that is relevant for their digital-oriented consumers.

Adapts to the market changes

This model and the solution it offers are evolving at a quick pace. The BaaS players can respond to changing demand, new marketing opportunities, or technology advancements faster and answer the needs of the business with a more detailed view of their financial situation.

Provides vital insights

The BaaS platforms are also huge repositories of valuable data. They help businesses gain a deeper understanding of how their audience thinks and acts. Analyzing customer habits allows companies to really understand what their consumers want and need and tailor your financial offerings to these expectations.

The bottom line

As more and more companies enter the banking space, the pressure to retain consumers and their spending increases. Before, offering a financial solution for a company was far beyond affordable and complicated. Now, Banking as a Service allows anyone to join the pool and position one’s business for success. Don’t miss the boat!