What is Banking as a Service [BaaS]?

The word Fintech on a digital screen.

Advancements in financial technology – commonly known as fintech – have propelled a customer-first transition in the banking industry. This has allowed banks to expand their service offerings to non-traditional channels through Banking as a Service [BaaS]. These services can be a huge benefit for non-bank organizations looking to learn more about their customers and capitalize on new revenue streams.

What is Banking as a Service [BaaS]?

BaaS allows non-banks to offer some banking services to their customers without registering as a bank. These services are administered by a third-party bank or fintech company working alongside a registered bank – the BaaS provider – and integrated into a business’ website or application.

By partnering with a BaaS provider, companies can offer services like point-of-sale lending, debit cards, credit cards, bank accounts, and even insurance to their clients with the same look and feel as their other products. Because BaaS services can integrate so seamlessly into a business’ product offerings, BaaS is sometimes called “white-label banking.”

How could BaaS benefit businesses?

BaaS provides many benefits to businesses like expanding their service offerings, strengthening their relationship with current clients, enticing new customers to their firm, and providing insights into a company’s target market.

Expand Product Offerings Without Registering as a Bank

In the past, businesses that wanted to offer banking services had to obtain a license, like one from the Office of the Comptroller of the Currency. Then they had to follow strict guidelines regarding record keeping, customer interactions, services offered, capital on hand, and much more.

Licensing and regulatory requirements are so arduous to maintain that they have historically prevented most non-bank businesses from offering banking services to their customers. However, BaaS can help businesses overcome these obstacles.

Attract and Retain Customers

Certain BaaS products are designed to help businesses attract new customers. For example, firms that incorporate point-of-sale lending can grow their customer base through financing. As such, a business that offers point-of-sale lending gains an edge over competitors who do not offer this service.

BaaS products can also help businesses retain their current customers. One of the most obvious examples of this is store credit cards. When a shopper needs to make a major purchase, having financing already secured with a particular retailer can be a huge incentive to buy there.

These are just a few examples of how BaaS can help businesses attract and retain customers. In the vast BaaS industry, providers offer many different products to meet the varying needs of businesses.

Improve Marketing and Product Offerings

Some BaaS services like debit cards, credit cards, and loyalty programs can give a company additional insight into their customers’ buying habits. With this information, firms can better understand their target market, improve future marketing efforts, and tailor their products more effectively to their potential customers.

As technology continues to improve, traditional banks and fintech providers are creating more innovative ways to integrate financial services into business transactions through BaaS. These new services often create important advantages for businesses, so it’s important for decision makers to stay informed about new developments in this exciting field.

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*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.