As the financial services industry moves toward sharing their data and infrastructure with third parties, and directly with the customers in some cases, banking-as-a-service (BaaS) is the end-to-end model that makes the direct connection via application programming interfaces (APIs) to allow open banking. Digital savvy financial institutions understand that open banking will unlock a myriad of new banking opportunities that are in high customer demand, resulting in additional revenue earned. To stay one step ahead of the fintech in this digital movement, financial institutions know that they need to move quickly to occupy the BaaS platform space.
There are many BaaS platform providers, or a financial institution can innovate their own BaaS platform. Revenue is generated by creating a data-sharing financial agreement between user & provider or if an FI builds their own platform, they can charge a monthly access fee or a per-usage fee to those who are granted access. The ongoing flow of information gained from BaaS is used to continuously update customer-centric banking products and services in real-time. The long-term benefit of BaaS, beyond enabling transparency and initiating open banking, is forming partnerships with fintech that will keep you looped into future banking tech trends and offer priority service based on the established relationship.
BaaS enables FIs to overcome tech & reg challenges when developing new financial services by providing the regulated, underlying infrastructure necessary to create strategic customized white-label banking service including deposit accounts, payment card programs, physical & virtual pre-paid debit & credit cards, wire transfers, e-wallets, peer-to-peer payments, and mobile banking apps.
White label financial services are when third parties build their own financial products using the data from a bank’s API and the existing infrastructure which ensures regulatory adherence and reduces the costs. The products and services are branded which lures loyalty-based customers and the brand controls every facet of the finished products. White label financial services are saturating the market, such as Green Dot/The world’s largest issuer of pre-paid debit cards, Chime/US-based neobank that offers fee-free financial services via a mobile banking app, Venmo/PayPal owned Peer-to-Peer Payment Service through a mobile app, AWS/Amazon Web Services financial services including payments, cash & loans and Apple Pay/Digital wallet service.
The legacy financial institutions must recognize that digital banking is the undeniable future. Data sharing and connecting with BaaS is not an option, it is necessary to remain relevant.
Written by Kourtney Manley, Business Analyst at OnlineApplication