What is BaaS (Banking as a Service)?
A recent report by Cornerstone Advisors defined this growing trend of banking as a service this way:
“A strategy where a financial institution partners with a fintech or other non-financial institution brand to provide financial services to the partner’s customer base, leveraging the institution’s charter and capabilities like account management, compliance, fraud management, payment, and/or lending services.”
Notably, BaaS enables non-bank organizations to efficiently offer regulated, compliant and secure financial services. Banks of all sizes are increasingly sharing information with prospective and existing customers, on new products and services, with written and digital communication. Ensuring that content is compliant is key. Automating disclosures and reviewing marketing content is an important function.
How does it work?
BaaS's partner with fintech companies to extend banking services to a unique financial service provided to consumers, typically through the use of APIs (application programming interfaces). Bank provides the banking services and/or compliance services required by a FDIC approved financial institution.
BaaS allows non-bank organizations to integrate all the financial components (including compliance and regulatory requirements) into its business processes. The benefit for the business is that it saves them time and money from building their own banking platform. The benefit to the consumer is a unique financial service, streamlined to offer a better and more complete user experience. Offering BaaS allows banks to offer their products at scale and to stay relevant in this technology-forward environment.