Banking’s New Wave of Transformation: Banking-as-a-Service

Across industries, digital transformation is democratizing data, resulting in greater transparency and improved customer experiences. New technologies are allowing startups and third parties access to old systems, and in some cases, placing data directly in the hands of customers.

Banking-as-a-Service (BaaS) platforms have evolved as a crucial component of open banking in the financial services industry, where corporations boost financial transparency for clients by offering application programming interfaces (APIs) for third-party developers to develop new services.

By partnering with non-financial organizations, banking-as-a-service, or BaaS, provides banks, insurers, and wealth managers with a wonderful opportunity to reach more consumers at a reduced cost. However, if banks do not move quickly and strategically, BaaS could become a threat, as it will allow competitors to enter the market.

What is Banking-as-a-Service?

A BaaS approach enables digital banks and other third parties to interact directly with banks’ systems through APIs, allowing them to construct banking services on top of the providers’ regulated infrastructure and reshaping global financial services.

Tech-savvy legacy businesses can ward off the growing threat of fintech by going into the BaaS industry to share their data and infrastructure. Soon, this degree of information will be considered standard by digitally native clients, so banks who start now will be ahead of the curve, and will likely be rewarded with strong demand.

How does Banking-as-a-Service work?

A fintech, digital bank, or another third-party provider (TPP) pays for access to the BaaS platform at the first step of the process. The financial institution makes its APIs available to the third-party provider, giving it access to the systems and data needed to develop new banking products or deliver white-label banking services. Any company can effectively become a “bank” with the help of a BaaS supplier. Launching their own BaaS platforms will also provide legacy institutions with an additional revenue stream while they work to gain a competitive advantage in open banking.

Advantages of Banking-as-a-Service

  • Card payment and processing

Non-financial firms can use BaaS to offer branded payment services. White-label debit cards provide corporations with information into their consumers’ behaviour in addition to increasing brand loyalty. Merchants can accept direct bank transfers as a payment method via BaaS based on Open Banking. They are much less expensive, do not result in chargebacks, and occur in real-time.

  • Identity Verification

Companies who engage with a specialised BaaS provider don’t have to worry about developing their own authentication solution or staying up to date with regulatory developments. Customers can use the KYC API to swiftly and inexpensively verify their identification by connecting to the bank’s API.

  • Plug-and-play Neobank.

Using BaaS to build Neobanks is considered the ideal way to reimagine the entire banking experience. Banking as a Service is used by businesses to supply everything from a payment card to separate accounts.

To Conclude

With OpenPayd, fintech and digital banks have been intruding on traditional financial institutions and disrupting traditional business models, but tech-savvy legacy banks may convert this looming threat into an opportunity by getting into the BaaS industry

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