What is BaaS? Everything you need to know about embedding banking as a service tools
Bundling embedding banking tools into your platform is an accelerating trend. Big companies like Walmart, IKEA, and Mercedes are using software to offer customers banking services on their platform. These capabilities not just limited to the big players; they are easily accessible to small to mid-size companies as well.
When companies use embedded banking they are integrating banking tools into non-financial platforms and apps to increase product stickiness, customer loyalty and revenue streams. More and more companies are capitalizing on this new technology; Analysts expect the embedded finance market to expand three-fold to $138 billion by 2026.
So where do you start, if you would like to explore how embedded banking can impact your business? The answer is that you need to find the right banking as a service (BaaS) partner to help you integrate tools that increase ease of use and bring value to your customers.
BaaS providers like Treasury Prime build software to integrate financial products into third party apps. Not all BaaS solutions work in the same way. Some have only one bank partner for you to choose from, others have multiple. Some integrate more deeply with their bank partners than others; and some BaaS providers facilitate direct relationships between businesses and banks, while others act as the main point of contact.
Here are all the basics you need to know about BaaS so that you can figure out what solution and approach with embedded banking work best for you.
What is banking as a service (BaaS)?
Banking as a Service (BaaS) — sometimes called Banking as a Platform (BaaP) or banking Software as a Service (banking SaaS) — enable businesses to offer financial products by matching them with bank partners. That could mean a more comprehensive integration, where an entire app is based around accounts; or it could be more peripheral, such as making it possible to just view bank account info from within the app.
Any embedded banking service requires specialized software designed to integrate with banks. That’s where API banking technology — the centerpiece of BaaS — comes in. So, what is API banking exactly? A banking API or “application programming interface” is a piece of software that acts as the interface between a bank’s core system and that of the enterprise business or fintech partner. One reason the banking API is so important is that a lot of banks are working with older systems. The API overlays a modern interface over the bank’s core so that businesses can connect to its infrastructure. When you work with a BaaS provider, you leverage their API to open accounts with a partner bank.
To read our ultimate guide on how to offer embedded banking products, download our white paper.
How you can grow your business with API banking
Once you find a great BaaS partner and link your app to a bank, you can create a payments ecosystem on your platform. Here are some examples of the features and services you can now offer your customers.
- Bank account opening and servicing: Treasury Prime supports commercial and retail account opening, and all that this entails. That means supporting both on-core and FBO accounts, with ledger and virtual account services as well. Account services include check issuing, balance history and monitoring, bank statements, transaction history, account controls, and remote deposit capture. Accounts are the heart of successful fintech offerings, and serve as a foundation for other key features.
- Payments: We support several payment rails, including: ACH transfers, wire transfers, bill pay, book transfers, and debit card payments. These options give you versatility to offer the right tools to your customers, while also creating opportunity for different revenue streams.
- Debit cards: We have a complete toolset for issuing custom virtual, physical, & tokenized debit cards. Features include card controls and limits, digital wallet tokens, and the option to customize cards. Build customer loyalty by offering rewards for using the cards — whether to purchase your services or for outside transactions. Earn interchange revenue from transactions as well.
You have the ability to customize and white label all these services as you see fit.
The role of bank partners
Choosing a partner bank is an essential step in your embedded banking journey. Banks are motivated to work with enterprise partners because it helps them expand their deposit market share and reach new customer audiences. When selecting a partner bank, you want to make sure:
- The bank works with your industry. (This is especially important if your business is in an emerging industry such as cryptocurrency or cannabis, or if you are in a highly regulated area like healthcare.) The BaaS provider should be able to match you with a bank that is experienced in your industry, so it’s important to find a BaaS provider that has a deep bench of bank partners with strong relationships. Treasury Prime works closely with 10 bank partners and has a growing bank network.
- The bank is communicative and interested in engaging with you directly. You need a partner who understands your plans for growth, and will plan for the future with you.
- The bank (or other partners in online banking, such as the BaaS provider) can support the services you are looking to offer. For example, if your aim is to offer savings accounts, you want to make sure your partners will facilitate this.
What to look for in a BaaS provider
The best BaaS providers are transparent and put your needs first. The more flexibility the BaaS provider offers, and the more options, the better. Also important: You want a partner who connects you with other great partners. That of course includes partner banks, but can also include specialized services to help with compliance essentials like Know Your Customer (KYC.)
BaaS providers may offer a combination of the following three options for opening accounts:
- Individual on-core accounts for your customers: In this setup, your customers or clients end up with their own individual accounts directly on the bank’s core. This approach is less customizable, but easier to set up “out of the box.” For a lot of non-fintech companies seeking to embed bank accounts in their services, this can work great — but the drawback is that you are also limited to the bank’s offerings.
- Individual FBO account for you: You could have the option of working with an FBO or “for benefit of” account, which is where your business has a single account directly on the bank’s core, and within that umbrella account, you and the BaaS work together to offer multiple virtual accounts to your customers. This approach is more customizable, but requires more involvement from you, the business. You will also need to be more proactive about sharing information about your customers’ activities with the bank for compliance purposes, and you may need to work more extensively with your BaaS provider and compliance companies to ensure you stay in step with regulations. Treasury Prime works with top providers such as Unit21 and Alloy.
- Single FBO account for all businesses: This is the riskiest approach and Treasury Prime does not advise it, but some BaaS providers do use it. Under this approach, the BaaS has one FBO account on the bank’s core and pools all of its business partners into this account. That means if just one of these businesses runs into a risk issue, all of the other businesses can be subject to that same risk, which could lead to accounts being scrutinized or even closed.
- “What’s your approach to banking as a service?”
- “Do you facilitate a direct relationship between fintechs and banks?”
- “How many bank partners are you integrated with?”
- “What is the full list of services you offer?”
- “How fast can my fintech get to market with your BaaS services?”
- “What can I expect in terms of implementation and compliance support?”
- “How many fintechs have you brought to market — and who are they?”
- “Why are your clients happy with your service? And can I speak to some of them?”
- “What is your account and pricing structure?”
- “What makes your offering different from your competitors?”
Make sure the provider has these qualities and abilities:
- Gets you to market fast: Faster time to market lets you take advantage of your new embedded features sooner. Treasury Prime customers can launch their products in weeks.
- Deep technology integrations: Deep integration with bank cores helps ensure the BaaS provider’s API is always up to date, and that changes on the bank’s end don’t lead to a broken experience for your customers.
- Works with multiple bank partners: Not every potential partner bank is going to meet your unique needs. You want a BaaS provider who gives you options, so you can access tailored solutions. A BaaS provider with multiple bank partners can also transfer you to a new partner should the need arise.
- Facilitates direct relationships with great banks: No matter how much you like working with your BaaS provider, there is no substitution for communicating directly with your partner bank. When customers run into account issues, or when you are looking to experiment with new features, it always helps to have a direct line with the original account source.
- Connected with great fintechs: You can tell a lot about a BaaS from what fintech solutions leverage their platform. Review the provider’s case studies to learn how other partners are using their platform.
- Competitive pricing: Embedded banking can be complex, and can involve highly regulated services, so you never want to go the “cheap” route with a BaaS provider. That said, you do want a route that matches your size and usage. Look for providers with flexible pricing options such as usage-based pricing.
Your business strategy and priorities are unique, and so is your journey with embedded banking. BaaS provider Treasury Prime is here to support you — whether you’re just exploring, or you’re ready to dive in. Developers can experiment with Treasury Prime’s API in our Sandbox, and our sales team is always available for your questions. Contact us.