Banking-as-a-Service
AdvancedBanking-as-a-Service (BaaS) is a model in which licensed banks provide their banking infrastructure and services, such as accounts, payments and cards, to non-bank companies through application programming interfaces, allowing those companies to offer financial products under their own brand.
Becoming a licensed bank is costly and slow. Banking-as-a-Service allows fintech companies, retailers, technology platforms and other businesses to offer financial services by partnering with a licensed bank, which holds customer deposits and handles regulatory requirements.
A typical arrangement involves three parties: the licensed bank, which provides the regulated services; often a technology provider, sometimes called a middleware platform, which connects the bank’s systems to other businesses; and the brand that serves customers.
For example, a ride-hailing app might offer its drivers a debit card and account, with the actual accounts held at a partner bank through a BaaS provider.
BaaS has supported the growth of embedded finance, in which financial services are built into non-financial products and apps.
However, BaaS has faced problems. US regulators have taken action against several partner banks for weaknesses in anti-money laundering controls and oversight of fintech partners. The 2024 bankruptcy of the BaaS middleware company Synapse left many customers temporarily unable to access their money, because records of who owned which funds were unclear. These events have led to greater scrutiny of the model.
For worked examples and full lessons, visit notesbysara.org.