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What is banking as a service?

As competition in the payments ecosystem is riling up between traditional and challenger banks, reshaping core systems and technologies of traditional banking is long overdue. When talking about future-proofing banks and financial services, the term Banking-as-a-service is starting to come up a lot. But what is banking as a service all about and how is it reshaping the industry?

What is banking as a service?

So let’s kick things off easy; banking as a service is the provision of complete banking processes such as loans or deposit accounts. Providing them as a service using a bank’s existing license and secure infrastructure with a modern api platform from a specialized vendor. These providers partner with those banks and then Banking As A Service allows almost any brand to embed financial services into its customer experience, like building blocks!

In terms of connectivity, BaaS solutions can easily integrate with third-party solutions via API to either add additional services, for example mobile banking or payments, or increase functionality of existing offerings.

The biggest advantage of banking as service

Examples of brands using banking as a service include Uber money, Apple Card and many many other brands. Even the likes of Monzo, Chime and Revolut use banking as a service as a way to provide better, faster, and cheaper financial products, simply because they don’t have to build an entire infrastructure underneath it. So it really is a game changer.

The banking as a service market

The global banking-as-a-service market size was valued at $2.41 billion in 2020, and is projected to reach $11.34 billion by 2030, growing at a Compounding Annual Growth Rate (CAGR) of 17.1% from 2021 to 2030. Because banking-as-a-service is an end-to-end process which enables executing all financial services through an API or cloud platform, ​ pretty much any business can become a banking provider with nothing but a few lines of code. That’s why BaaS is also often referred to as white-label banking.

There is a large variety of active players in the market for white-label banking and BaaS services. Some of the biggest banking as a service providers are Marqeta, Mambu and Solarisbank.

Open banking vs banking as a service

So, is Banking as a Service the same as Open Banking?

No, not really. The two models often get confused, as open banking also involves banks connecting to non-banks via API. However, the models serve entirely different purposes. In BaaS models, non-bank businesses integrate complete banking services into their own products. In open banking models on the other hand, non-bank businesses merely use the bank’s data for their products. 

Finally, we believe that Banking as a Service is key in future-proofing legacy banks and replacing obsolete systems that some of the traditional banks still rely on today. Especially when specializing in one market rather than trying to cater to every segment.

From your perspective, what are the biggest drivers behind the success of banking as a service? 

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