Banking as a Service (BaaS) provides companies with the ability to rent different parts of a bank.
The parts of a bank made available for rent can include:
- Regulatory licenses – banking licenses are expensive and time consuming to obtain – some BaaS providers allow clients to use the BaaS provider’s license.
- Staff – including compliance staff, risk staff and operations staff.
- Customer-facing software – digital banking platforms and other customer facing software can be white-labelled.
- Internal software – for transaction processing, risk management, operations and other purposes.
Banking as a Service has the potential to allow fintech firms to compete directly with banks – reducing the large amounts of capital required to start and run a bank – that has historically acted as a barrier to entry for fintech firms and others.
This could also see other types of firm that have large customer bases and/or highly trusted brands – such as Google, Amazon, Apple, Microsoft, telecom companies and large retailers – starting to provide banking services directly to their customers.