Best Fintech Banking as a Service (BaaS) Providers
Banks need to be where their customers are. Increasingly, that place is on their phones and computers. Consumers expect to be able to do everything digitally. Meanwhile, banks have merged, consolidated, and closed brick-and-mortar branches.
BaaS Tools and Big Tech
Banking as a Service (BaaS) tools allow financial institutions to adapt to this digital shift and offer customers an omnichannel experience. BaaS providers also enable banks to connect with third-party financial technology (Fintech) services, to their mutual benefit. This creates more revenue streams, increasing margins, and deeper customer loyalty.
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What is Banking as a Service?
Banking as a Service (BaaS)—sometimes called Banking as a Platform (BaaP) or banking Software as a Service (banking SaaS)—refers to services that enable banks to provide digital services to customers or integrate with other digital services.
Provide digital banking services to customers
BaaS providers build web and mobile applications for banks so that customers may access their accounts remotely. Example: A credit union contracts a BaaS provider to build a new mobile app for consumers to manage their checking and savings accounts.
Integrate customers with other digital services and technologies
BaaS providers enable third-party FinTech apps to integrate with banks. This is sometimes referred to as API banking. Example: A peer-to-peer payments app uses a bank’s BaaS API to allow customers of that bank to send money directly from their account via the app.
What is Fintech?
Short for financial technology, Fintech refers broadly to technology for financial operations. Types of Fintech other than BaaS include payments apps, apps for day trading, and neobanks or online-only banks. Top Fintech companies include PayPal, Stripe, Square, Gravity Payments, and Affirm. BaaS is sometimes called “Fintech Banking as a Service” because it is a subcategory of Fintech.
What does BaaS mean for banks and their partnerships?
Banking as a Service (BaaS) providers enable banks to improve customer experience, expand geographic reach, reach new audiences, capture deposit market share, and increase transaction fee revenue. Here’s how:
Improve customer experience
Banks are slow-moving, highly-regulated institutions. They are great at keeping money safe, but may struggle when it comes to building a digital experience that users love. Contracting a BaaS provider helps banks on this front.
- A BaaS provider can build a top-notch general digital banking experience for customers.
- BaaS providers enable banks to connect with fintechs, which provide superior digital experience for specific use cases.
Expand geographic reach with digital banking
When customers can perform all banking services digitally, they don’t need to visit a brick-and-mortar branch. That means banks can serve people regardless where they are located.
Reach new audiences
BaaS providers make it easier for banks to connect with fintechs. Fintechs can introduce banks to new audiences in a few ways.
- Fintechs are often fast-growing companies, and banks can benefit from their marketing and customer acquisition.
- Fintechs offer services banks may not have the capacity to create, such as investing platforms for small customers.
Capture deposit market share
Fintechs are great at building experiences customers love, but they are not chartered banks and cannot hold money. BaaS enables banks to take on new deposits that flow through fintechs.
Increase transaction fee revenue
When people use Fintech services to spend money, that money has to come from somewhere. By integrating with fintechs, banks can take advantage of potential revenue from transaction fees.
What does BaaS mean for fintechs?
Fintechs need banks. Banks can hold deposits and provide FDIC insurance, while fintechs generally can’t. The challenge of working with banks is that they have long sales cycles, sometimes too long to accommodate the urgent monetary needs of early stage startups. BaaS banking services can help solve this problem.
A banking platform as a service that is already integrated with banks can offer a faster sales cycle so non-BaaS fintechs can connect with banks on a quicker timeline. A BaaS platform may be able to enter into agreements with fintechs independently, or will at least have an established relationship with banks that smooths the deal making process. BaaS providers can also help fintechs to connect with more banks at once.
Aside from the ease of working with a BaaS provider versus working directly with a bank, there’s the dual expertise of BaaS companies. These are companies that need to understand both how to build great technology, and the intricacies of banking regulations in order to succeed.
What should banks look for in a digital transformation provider?
Banks have a tendency to look at Banking as a Service (BaaS) as just an IT line item, but the truth is that BaaS is a critical piece of a bank’s overall business strategy. A premium BaaS platform will understand a bank’s governance and compliance requirements, integrate deeply with all the bank’s systems, work well with other fintech apps, and provide superior cybersecurity.
Banks should look for BaaS partners that understand the bank’s governance and compliance requirements, and that can align their product with key regulations like the Banking Secrecy Act (BSA). One way to determine whether a BaaS provider meets this criteria is to look at the professional experience of top executives and managers. Do they have extensive experience working for banks?
Integrates well with the bank
Banks should look for a BaaS provider that is capable of integrating deeply with the bank’s systems. When a BaaS platform is not well integrated with a client bank, small changes to the client bank system can break the user experience.
Integrates well with fintechs
Banks should seek out a BaaS provider that integrates well with fintechs. Banking fintechs or offering services through them enables banks to gain deposit market share and other benefits.
Just as banks need aggressive and adaptive cybersecurity teams, they need to make sure their partners adhere to the same high standards. A hole in the armor of your banking software provider is a hole in the armor of your bank.
What should fintechs look for in a BaaS provider?
Fintechs should look for a Banking as a Service (BaaS) provider that will get them to market fast, that integrates deeply with partner bank systems, and that is connected with great banks.
Gets you to market fast
BaaS providers with easy-to-use, well-documented APIs make it easier for fintech developers to get products into the hands of consumers faster.
Deep technology integrations
Fintechs should seek BaaS providers that integrate deeply with bank partners’ systems. You want to be able to access the full breadth of banking capabilities. You also want to be sure that a small change in the bank’s system will not cascade into a broken experience or outdated information for your users.
Connected with great banks
One of the big benefits of working with a BaaS provider is speeding up your fintech company’s connection with banks, so you want to work with someone whose system is connected with the right institutions.
Do your research on how BaaS providers calculate their charges. Depending on your company, you may get a better deal from either usage based pricing or flat fees.
Treasury Prime is fully integrated into core banking systems so developers can launch new offerings in days. We have built an ecosystem that connects banks with fintechs and ensures that each partnership is strategically aligned so that both businesses can grow together.
The future of banking
Roughly one in five banked households primarily accessed their bank accounts by bank teller as recently as 2019, according to the FDIC. But that number has been in decline as more people have adopted online or mobile banking as their primary mode of interacting with their accounts.
Banking as a Service (BaaS) in the USA helps bridge a particular gap in the country: The difficulty of connecting banks with fintechs. Directly connecting the two without the aid of a BaaS intermediary is easier in regions where open banking is prevalent, such as the UK.
Outside the United States, active markets for BaaS include India and Latin America. Different parts of the world come with different regulations and market dynamics, and thus pose different challenges for digitizing banking.
What’s common, globally, is that banking needs to catch up to consumer expectations while aligning with regulations and maintaining financial security. The right approach can create a world where banks can work with companies to bring great financial products to new audiences, without being constrained by legacy systems.