Home Insights & Advice Why do we need banking as a service?

Why do we need banking as a service?

by John Saunders
14th Jan 22 11:25 am

There was a time when bringing the vision of a fintech start-up to fruition meant signing a long-term contract with a bank partner, navigating tangles of compliance policies, and fleshing out support tech for your product.

Imagine the innovative fintech products that could have been, had their first steps not been encumbered by the upfront investments of time and money required to build infrastructure and manage relationships with numerous legacy institution partners.

Fortunately, the days of overcoming these cumbersome barriers to entry are quickly receding thanks to the silent coup that is taking place in the financial services industry as Banking as a Service.

What is banking as a service?

Banking as a Service is an end-to-end model that allows integration of licensed financial institutions, like banks, with non-banking businesses via software that facilitates communication between the two (known as API or application programming interface).

The BaaS model enables third-party providers like fintech and digital banks to access a regulated financial institution’s APIs. This access to the financial institutions infrastructure allows the third party to offer white-label financial services thus circumventing the regulatory red tape and upfront costs of building their own.

What’s in it for the financial institution? They benefit from an expanding customer base and lower cost of client acquisition up to 1/20.

BaaS is the ultimate disruptive opportunity for fintech as it offers a strategic partnership with established banks and other financial institutions, supporting a broader diversity of business channels, spending less time dealing with bureaucratic processes, increasing margins, and gleaning greater insights into consumer behaviour via the expanded two-way flow of data.

While BaaS is a relatively new concept, savvy and forward-thinking operations in the financial industry are taking notice and hustling to become early adopters.

Banking as a service use cases

Both non-banking businesses and fintech can use BaaS to provide online banking services to customers in sectors such as e-commerce, retail, healthcare, telecom, insurance, microinsurance, and more.

BaaS effectively enables any business to act as a bank with a few lines of code. One could imagine the glut of possibilities.

  • Lending — Competition for customers in the e-commerce space will only continue to increase. By aiding customers through lending, smaller merchants can offer unique value.
  • Customer Experience — Streamlining services into a single platform improves customer experience and enables companies to share customer bases with an integrated platform.
  • In-App Banking Services — By using the infrastructure of licensed financial institutions, fintech can offer cutting edge, dynamic banking services to a more targeted consumer base.
  • Verification — Fraud and identity theft are massive issues to be solved as our financial assets become increasingly digital. By partnering with BaaS providers, companies don’t have to spend as much time and effort keeping up with regulations.
  • Card Payment/Processing — A smooth payment process makes conversion much more likely and reduces overhead costs.

Life is becoming increasingly digital and more and more people conduct business and personal financial transactions on their smartphones. In fact, 91% of mobile banking users would rather use their smartphones to bank than go to a branch and 68% of millennials who bank on their phones would prefer a digital, phone-based wallet.

The question is not “is BaaS necessary?”, but “how do we take advantage of BaaS?”

How to integrate BaaS

BaaS is already disrupting the financial industry and it is obvious that it is here to stay. So, how can a fintech company become an early adopter of this model and get a leg up on the competition?

Fortunately, there are digital banks offering BaaS services to accommodate fintech as they move into the BaaS space.

One such digital bank is EMBank. EMBank is licensed by the European Central Bank and offers various traditional banking services and financial technology solutions along with banking as a service. It’s a great place to start for fintech seeking to widen the scope of their business.


The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.


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