BANKING-AS-A-SERVICE (BAAS) EXPLAINED AND HOW FIRMS USE IT

What is Banking-as-a-Service (BaaS)?

Banking-as-a-Service (BaaS) is a modern financial technology model that allows non-bank companies to provide banking services using the infrastructure of licensed banks through API (Application Programming Interface) integration. At its core, BaaS bridges the gap between traditional banking systems and the digital-first solutions offered by fintechs and other industries.

Under the BaaS model, licensed financial institutions open up their banking infrastructure through white-labelled digital banking services, which can be accessed by third-party businesses. This enables companies to offer financial services such as payments, loans, digital wallets, account management, and even debit or credit cards without having to go through the lengthy and costly process of obtaining a banking license themselves.

How BaaS Works

BaaS platforms typically include:

• API-based integration: Businesses connect to a bank’s infrastructure using secure APIs.
• Regulatory compliance: The underlying licensed bank ensures all services remain within legal financial frameworks.
• Service provisioning: Non-banking providers can offer features like account creation, KYC (Know Your Customer) verification, and transaction monitoring under their own brand.

The concept is closely related to open banking, but it extends further. Whereas open banking allows third-party access to financial data, BaaS allows third-parties to provide financial functions and services.

Who Provides BaaS?

BaaS is delivered primarily by chartered banks and specialised fintech providers that have obtained the necessary licences. Examples of BaaS providers include Solarisbank, Treezor, ClearBank, and more globally recognised names such as Stripe and Adyen, which operate in embedded finance ecosystems.

These providers deliver a stack of services including ledger management, compliance layers, payment processing infrastructures, and risk management tools that companies can build upon to launch new financial products quickly and compliantly.

Why It Matters

The emergence of Banking-as-a-Service marks a significant shift in how banking products are developed and distributed. It democratises access to financial infrastructure, enabling innovation and allowing even non-financial firms to enter the finance space. BaaS is particularly relevant in today’s market, where customers expect seamless, integrated digital experiences that combine financial services with everyday activities.

How Businesses Are Using BaaS

Companies are leveraging BaaS platforms to embed financial services into their own offerings, enhancing customer experience and unlocking new revenue streams. This trend is known as embedded finance, and it is gaining momentum across various industries from tech firms to retail chains and gig platforms.

Use Cases by Industry

• Retail and eCommerce: Brands are introducing branded financial products such as buy-now-pay-later (BNPL) services, branded credit/debit cards, and loyalty-linked accounts, improving customer retention and generating additional income.
• Gig economy platforms: Companies like Uber and Deliveroo enable drivers and couriers to receive instant payments, manage earnings, and access financial products such as loans and savings through integrated apps.
• Technology startups: Fintechs and SaaS providers use BaaS to bring digital banking features to market rapidly, without becoming regulated banks themselves.
• Telecom and utilities: Large network providers are experimenting with offering accounts, payments, and small loans, harnessing existing user bases to provide integrated services.

Revenue Opportunities from BaaS

By using BaaS, companies can monetise their customer base beyond traditional methods. Some typical commercial benefits include:

• Interchange fees from card transactions
• Loan interest and commission-based earnings
• Subscription models for premium financial features

In addition, customer data gathered through financial activities can be used to improve personalisation and engagement, generating further value through targeted marketing and customised product offerings.

Speed and Scalability

One of the biggest advantages of BaaS is speed. Launching a fintech product through a traditional bank setup could take years. BaaS platforms offer ready-to-integrate solutions that dramatically shorten go-to-market timelines.

Scalability is also key. As businesses evolve, BaaS platforms make it easy to add new features, expand to other geographies, or adjust compliance mechanisms according to local regulations, because the BaaS provider handles much of the complexity behind the scenes.

Low-Budget Innovation

Especially for startups and smaller firms, BaaS reduces upfront costs. By sharing infrastructure, providers only charge for services used – often on a pay-as-you-go basis. This allows for incremental product development and testing without massive upfront investment.

Opportunities and Limitations of Using BaaS

Banking-as-a-Service has unlocked transformative opportunities, but it also comes with potential hurdles. Understanding both sides can help firms better navigate the landscape when considering a BaaS strategy.

The Key Advantages

• Faster time to market: Companies can launch financial products in months rather than years.
• Increased customer engagement: Offering financial services within apps or platforms makes customer experiences more comprehensive.
• New revenue streams: Services like BNPL, cards, and loans can generate fresh sources of income.
• Brand enhancement: Providing seamless digital finance boosts brand loyalty and trust.

For consumers, this results in more convenience, accessibility, and customisation. For example, a food delivery user can now get instant earnings access, store balances, or sign up for a branded prepaid card – all within a familiar interface.

Risks and Drawbacks

• Compliance complexity: Although the underlying bank holds the licence, the frontend provider must adhere to financial compliance obligations such as anti-money-laundering (AML), KYC, and data privacy rules.
• Reliance on third-party providers: Dependence on BaaS platforms for critical infrastructure creates risks if those providers face outages or regulatory issues.
• Security demands: Integrating financial services intensifies the need for robust cybersecurity practices and user data protection.
• User trust: Customers may be unaware of the underlying banking partner, which can lead to confusion or trust issues if problems arise.

Regulatory Considerations

BaaS complicates the regulatory framework slightly, as layered responsibilities exist between the BaaS provider, the licensed bank, and the frontend business. Regulatory bodies in the EU, UK, and US are starting to scrutinise this sector more closely due to concerns relating to consumer protections, financial stability, and security.

In the UK, the Financial Conduct Authority (FCA) oversees financial conduct, and firms offering financial products through BaaS arrangements may still need to be registered or authorised, even if the licensed bank handles most compliance tasks.

Future Outlook

Despite challenges, BaaS is expected to grow at a strong pace. A combination of digital transformation, customer demand for embedded finance, and improved fintech developer tools will likely fuel adoption. As regulation clarifies and standards emerge, more mainstream firms will enter the space, from SMEs to global giants.

Already, major names such as Apple, Shopify, and IKEA are experimenting with embedded financial offerings powered by BaaS. As fintech infrastructure becomes more modular and interoperable, BaaS may become as ubiquitous in digital services as cloud computing has been in software.