
Baas banking is a type of banking that focuses on providing basic financial services to underserved communities. It's designed to be low-cost and accessible.
Baas banking typically involves a mobile banking app that allows users to send and receive money, check their account balance, and make payments. This is often done without the need for physical branches or high-tech features.
One of the key benefits of baas banking is that it can reach remote or underserved areas where traditional banking services may not be available. This can be a game-changer for people who lack access to basic financial services.
A fresh viewpoint: Banks and Banking Services
What is BaaS?
BaaS is a financial technology solution that lets non-bank businesses offer services restricted to licensed banks, such as bank accounts, cards, and loans.
BaaS providers supply the underlying technology stack and licenses needed to offer banking services, which they then embed into a business's core offering, brand, and existing interface.
They also handle compliance, risk, and know-your-customer (KYC) requirements.
What Is
BaaS is a cloud-based service that provides a comprehensive platform for building, deploying, and managing mobile applications. It's essentially a one-stop-shop for developers to create, test, and deliver high-quality mobile apps.
BaaS solutions often include a robust set of APIs, SDKs, and tools that allow developers to focus on building the app's core features and user experience. This enables faster development and deployment of mobile apps.
With BaaS, developers can leverage pre-built infrastructure, scalability, and security features, eliminating the need for manual setup and maintenance of complex backend systems.
What is BaaS?
BaaS is a financial technology solution that lets non-bank businesses offer services that were traditionally restricted to licensed banks, such as bank accounts, cards, and loans.
BaaS providers supply the underlying technology stack and licenses needed to offer banking services, and they handle compliance, risk, and know-your-customer (KYC) requirements, so businesses don't have to worry about these complex tasks.
Non-bank businesses, like platforms and marketplaces, can directly offer banking services through BaaS, which means they can expand their offerings and enhance their customers' experiences.
BaaS providers facilitate the setup of these banking services, embedding them into a business's core offering, brand, and existing interface, making it seamless for customers to access these services.
Benefits and Use Cases
Financial services can enhance your product offering, attract new users, and create a stickier service.
Your users will gain valuable time by running all their business operations and financial management in one place. This can make your offer more compelling and less daunting to attract new users.
Providing a wider range of services, including financial ones, makes your platform more attractive to users. This can lead to increased customer lifetime value and lower customer acquisition costs.
Embedded finance can open up new revenue streams, such as payment processing fees, lending, and interchange fees. This market opportunity is estimated to be around $110 billion in the US, UK, and Europe alone.
What Creates Value?
BaaS creates value by promoting collaborations and partnerships between financial institutions and nonfinancial companies, which encourages a more vibrant fintech ecosystem.
This approach enables business model reinvention across sectors, as well as greater potential for differentiation within banking, as different parts of the industry specialize in customer service, compliance, and technology.
The emergence of neobanks like N26, Starling, Revolut, and Monzo is a clear example of BaaS in action. These neobanks relied on BaaS to offer banking products such as accounts, money transfers, and currency exchange before they secured banking licenses.
BaaS allows for new types of financial institutions, focused on innovative customer service and digital experiences. This creates the potential for financial products and services to be decoupled entirely from the regulated entities that actually deliver them, overcoming a major challenge for traditional banking business models.
By providing a wider range of services, including financial ones, BaaS makes the offer more compelling to users, attracting new users and making the service stickier.
Common Use Cases
Shopify helps merchants get paid faster with their "Shopify Balance" suite of financial services, earning over 73% of their revenue from merchant solutions.
Invoice2go provides a platform for small businesses to manage all aspects of their businesses, including finances, with the addition of bank accounts and cards.
Toast provides access to loans for restaurants, helping them access fast and flexible loans as soon as the next business day.
Gusto helps small businesses send millions of paychecks via direct deposit each month, and offers bank accounts to keep more money "on their platform."
Roofstock organizes rental property finances for landlords, automating routine tasks and bringing everything into one place.
Flexport offers flexible financing for importers and exporters, including invoice factoring and revolving lines of credit.
Mindbody simplifies payments for businesses, with more than half of their revenue coming from embedded payments.
Some common use cases for BaaS include:
These companies have successfully embedded financial services into their platforms, creating a one-stop shop for their customers and generating significant revenue in the process.
Getting Started with BaaS
To get started with banking as a service (BaaS), you'll need to define your product, which includes deciding on the financial products you want to offer to your customers. This will help you create a flow of funds that shows how money flows between bank accounts.
You'll also want to become fluent with the compliance implications of what you're planning to build, as some embedded financial products are easier to launch than others.
Partnering with a BaaS platform can help you launch your product more quickly, as it may require a much lighter lift and free you to focus on other strategic priorities.
To estimate the revenues you expect to make from your embedded financial products, use an interactive calculator, such as the one provided in the article. Estimating revenues from lending is more nuanced, but the team would be happy to help you think through it.
Once you've got your estimated gross revenues, subtract your customer acquisition costs (CAC) and your operational expenses to arrive at your net profits.
You can launch with a core set of embedded banking products, such as bank accounts and debit cards, and add on from there. This can help you establish and deepen a bank relationship, gather valuable data about product performance, and validate your financial model.
Here are the four steps to get started with BaaS:
1. Define your product
2. Choose an approach to launch it
3. Plan the economics
4. Launch, measure, and iterate
By following these steps, you can successfully launch your BaaS product and start generating new revenue streams for your business.
BaaS Providers and Partnerships
Working with traditional financial institutions directly can be a challenge, especially when it comes to embedding financial services. Their digital transformation is slower and they often lack the needed technology stack.
You'll likely encounter the same problems that plagued the payments landscape in the past: fragmentation, complexity, and slow processes. This can make it harder to innovate tailored experiences for your users.
Partnering with a BaaS provider can help you avoid these issues. They have the necessary technology and expertise to support your growth and expansion.
If you do decide to work with a BaaS provider, you'll need to consider their global reach and ability to support your international expansion.
Regulations and Security
Cyber-crime is a serious threat to the banking industry, and the increased use of online services only makes it more vulnerable. Banking is a highly regulated industry throughout the world and online banks utilizing BaaS are no exception.
Regulations can be complex and time-consuming to navigate, but it's essential to understand the requirements to avoid any issues. The banking industry has specific security measures in place to protect against cyber-crime, such as firewalls to prevent malicious intrusions.
To provide a seamless user experience, banks need to balance security with convenience. The 3 degrees of freedom in digital banking can help achieve this, involving identity federation across domains, identity propagation across apps, and level of authentication.
Regulations
Banking is a highly regulated industry throughout the world and online banks utilizing BaaS are no exception. This means that online banks have to comply with a multitude of rules and regulations, which can be time-consuming and costly.
Regulations vary by country, but they often cover issues like data protection, anti-money laundering, and consumer protection. Online banks must also ensure that their systems and processes are secure and compliant with these regulations.
Compliance with regulations can be a significant challenge for online banks, requiring significant investment in technology and staff. But it's essential for building trust with customers and avoiding costly fines.
Security
Cyber-crime is a serious threat to the banking industry, and it's a constant concern. The more services a bank offers online, the higher the risk of cyber-crime.
Proper firewalls are crucial to prevent malicious intrusions, but this can create a challenge for a smooth user experience. Constant authentication across multiple domains or applications can be frustrating.
Identity federation across domains is a key solution, allowing users to be authenticated once and have that authentication carry through to other services. This is one of the three degrees of freedom in digital banking.
Here are the three degrees of freedom in digital banking that help improve security:
- Identity federation across domains
- Identity propagation across apps
- Level of authentication
Having a single level of authentication can simplify the user experience and reduce the risk of cyber-crime.
BaaS in Specific Regions
BaaS has gained significant traction in the European market, with over 50% of European banks now offering BaaS services to their customers.
In the UK, BaaS is particularly popular among fintech startups, with many partnering with established banks to offer innovative services.
The US has also seen a rise in BaaS adoption, with many banks leveraging the technology to expand their customer base and increase revenue streams.
In Asia, BaaS is being driven by the growing demand for digital banking services, with countries like Singapore and Hong Kong leading the charge.
BaaS adoption in Australia is also on the rise, with many banks using the technology to offer more personalized and user-friendly services to their customers.
BaaS Definition and Explanation
BaaS, or Banking as a Service, is a model where a bank provides its services to other businesses through APIs. This allows other companies to plug into the bank's services, such as payment processing and lending, without having to build their own infrastructure.
The BaaS model is built on top of the IaaS model, with the bank acting as a platform provider. This platform, known as Banking as a Platform (BaaP), is fully licensed or uses an external regulated bank's licensed banking services.
A key aspect of BaaS is data-security, which plays a crucial role in the BaaP. Secure authentication is necessary to enable seamless and secure operations across applications and domains.
Difference Between Platform
Platform banking is a feature that some chartered banks offer their customers, making financial services powered by third parties available to them via their app or website.
This model allows banks to expand their product offering without having to build from scratch, as seen with banks offering loans underwritten by Upstart or an automated savings tool powered by Acorns.
Platform banking is a key difference between it and BaaS, which is also a way for financial institutions to expand their services.
In contrast to platform banking, BaaS provides a more comprehensive suite of financial services, often through a single API or interface.
BaaS allows developers to build financial applications and services without having to establish their own banking relationships, which can be a costly and time-consuming process.
Embedded Finance Definition
Embedded finance is the broader term that encompasses various financial services, including investments and insurance. It's a more comprehensive concept that goes beyond traditional banking services.
Banking-as-a-service (BaaS) is an approach to embedded finance that powers embedded financial features. This typically includes financial services offered by chartered banks, such as bank accounts, cards, payments, and lending.
Open banking is a concept that allows companies to access financial data with consumer permission. This enables services like PayPal to connect bank accounts for payments.
Consider reading: Quickbooks Online Payments Bank to Bank
Embedded finance relies on open banking to facilitate services like funding new bank accounts or making payments. Without open banking, BaaS end-customers would face significant difficulties.
Platform banking is a feature offered by chartered banks that makes third-party financial services available to customers through their app or website. This allows banks to expand their product offerings without building from scratch.
If this caught your attention, see: Open Banking
BaaS Preparation and Selection
To get started with banking as a service (BaaS), you have three options: deal directly with financial institutions, work with an aggregator as an intermediary, or work with a full-stack BaaS provider.
First, you need to define your product, which includes aligning on the financial products you'll make available to your customers and creating a flow of funds that shows how money flows between bank accounts. Compliance implications also need to be considered.
You can choose to work without a platform, but this requires investing considerable resources and can take up to two years. Alternatively, working with a BaaS platform can be a lighter lift, freeing you to focus on other strategic priorities.
To plan the economics of your BaaS product, use an interactive calculator to estimate your expected revenues. This will help you estimate gross revenues, customer acquisition costs, and operational expenses to arrive at your net profits.
Selecting the Right Provider
Selecting the right BaaS provider is crucial for a seamless embedded finance experience. You can embed banking functionalities in three ways: directly with financial institutions, through an aggregator as an intermediary, or with a full-stack BaaS provider.
To ensure you make the right choice, consider the following factors. Relevant experience and ability to execute are essential, so tap your network, ask friends about their experiences, and read case studies to get a candid assessment.
Product coverage is also vital, so be specific about the financial products you want to offer and wait for a clear answer from the BaaS provider. Some providers may not support all financial products, such as virtual cards or cash advances.
Setup costs and time-to-market are also important considerations. Some BaaS providers can launch embedded banking in as little as 3 months, while others may take 18 months and require hiring a large team. Be sure to ask detailed questions about what you'll be required to build and what kinds of staff support you'll need.

Compliance is another critical area to consider. Some BaaS providers will help you streamline the process, while others leave it all on your plate. Be sure you are aligned with your potential BaaS partner on important questions like who will be responsible for conducting KYC, underwriting loans, and monitoring ACH transactions.
Here are the key areas to evaluate when selecting a BaaS provider:
- Relevant experience/ability to execute
- Product coverage
- Setup costs/time-to-market
- Compliance
- Economics (pricing, fees, and revenue potential)
By carefully evaluating these factors, you can select the right BaaS provider for your business needs and ensure a successful embedded finance experience.
Difference in Open Banking
Open banking is a broad concept in financial services that allows companies to digitally access the financial data of consumers and businesses with their permission.
In the US, open banking is often facilitated by financial data aggregators like Plaid and Yodlee.
Open banking enables features like connecting your bank accounts with PayPal, allowing you to make payments.
Without open banking, it would be much more difficult for BaaS end-customers to fund their new bank accounts or make payments.
Open banking gives consumer and business consumers control over their own data.
How to Prepare Businesses
Preparing businesses for BaaS involves seeking out best practices for inspiration and opportunity identification. This will help you tap into new sources of revenue and growth.
Focusing on core back-end data and digital banking infrastructure needs is a sensible approach. This will give you a solid foundation to build on.
Some BaaS solutions can help with cloud modernization requirements, which can be a significant challenge.
BaaS Architecture and Stack
The BaaS architecture is built around a stack of layers, with the underlying infrastructure-as-a-service provided by a traditional bank. This bank acts as the foundation for the entire BaaS system.
In an API-based stack, a centralized middleware layer is added on top of the bank, referred to as "bank as a service". This layer serves as the back-end that hosts fintech startups and integrates with traditional banks' back-office systems.
The API-based bank as a service platform enables fintech startups to launch financial products and expand into new markets without building all the necessary products themselves.
API-Based Stack
The API-based stack is a 3-layer representation of the BaaS stack, suggested by Skinner. It's a clever way to break down the architecture into manageable pieces.
In this stack, the underlying infrastructure-as-a-service is provided by a traditional, licensed and regulated bank. This is the foundation upon which the entire system is built.
Above this bank is the centralized middleware layer, known as "bank as a service". This layer is where the magic happens, enabling fintech startups and service providers to offer their services.
A group of decomposed banking services make up the ecosystem of fintech startups and service providers. This is where innovation and creativity come into play.
With this technology, based on the BaaS-platform, it's possible to create fintech banks that can improve banking processes and provide increased convenience for banking clients. This is a game-changer for the industry.
Fintech banks can compete directly with traditional banks by offering core-banking services without having to build all the products themselves. This is a huge advantage for fintech companies.
The API-based bank as a service platform serves as the back-end that hosts standalone independent fintech startups and integrates seamlessly with any existing back-office of traditional banks. This is a huge benefit for both parties.
Non-banks can easily and cost-effectively launch additional financial products and expand into additional markets. This is a huge opportunity for businesses looking to get into the financial sector.
Integrated Structure vs. Single Solution
An integrated BaaS structure is more resilient than a single service offering. This is because it provides an end-to-end value proposition that frees the service provider from developing peripheral services.
Using a single service provider is riskier than relying on a provider with a larger portfolio of services. In fact, those who adopt the BaaS structure can provide a higher level of trust than a smaller provider might.
A provider with a single service offering has to develop all the needed peripheral services, including authentication and other security services. This can be a significant burden, especially for smaller providers.
On the other hand, an integrated BaaS structure allows the service provider to focus on their core competencies. By providing a range of services, they can offer a more comprehensive solution to their customers.
BaaS Company and Rise
The rise of the BaaS company is a fascinating phenomenon. Tech companies could realize $51 billion in new revenue by offering embedded financial products, including those powered by banking as a service, by 2026.
Forward-thinking company leaders are naturally drawn to these robust new revenue streams, especially in an uncertain economy. This makes BaaS an attractive option for businesses looking to differentiate their product, deliver more value to customers, and drive more revenue from existing customers.
The potential for growth is significant, and companies are already exploring ways to capitalize on it. In fact, the Bain & Company report highlights the potential for tech companies to generate $51 billion in new revenue by 2026.
To put this into perspective, this is a substantial amount of money that could be generated through embedded financial products.
Frequently Asked Questions
What is the difference between BaaS and open banking?
Open Banking provides read-only access to financial data, while BaaS (Banking as a Service) offers read and edit capabilities. This key difference affects how data is used and managed in each model
How many BaaS banks are there?
As of the end of 2023, there were 131 BaaS banks, but by the end of 2024, this number had grown to 136. The BaaS industry continues to expand despite regulatory challenges.
Sources
- https://www.pwc.com/gx/en/issues/technology/baas-banking-as-a-service.html
- https://www2.deloitte.com/cn/en/pages/financial-services/articles/importance-of-banking-as-a-service.html
- https://en.wikipedia.org/wiki/Banking_as_a_service
- https://www.adyen.com/knowledge-hub/banking-as-a-service
- https://www.unit.co/guides/the-ultimate-guide-to-banking-as-a-service
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