Financial services are increasingly driven by data, technology, and the demand for improving customer experiences. Innovation has transformed the global financial world and reshaped economic performance. Responding to these transformations is an emerging new wave of banking businesses called Banking as a Service (BaaS). 

In BaaS, large non-bank enterprises that have access to valuable customer data and brands to match provide value-added experiences such as BaaS card issuing over powerful digital platforms and, for the advantage of economies of scale and specialization, partner with regulated financial institutions to offer banking and financial services to the customers. 

  1. More About BaaS

In BaaS, a bank services customers by offering access to e-wallets, debit cards, money transfer services, foreign exchange services, and others, without needing to have actual banking assets and required regulatory banking licenses. This paper reviews the BaaS model and examines the factors necessary for firms willing to use it in forming relationships with the BaaS providers. 

Since asset and liability banking businesses entail different products and services, the paper uses standard theoretical and regulatory bank models deviating, where necessary, to give examples of the required considerations.

  1. Enhancing Financial Inclusion and Accessibility

Changing MNO ecosystems can also propose significant benefits for financial institutions looking to offer digital financial services, notably the ability to focus on enabling successful digital financial organizations rather than owning mobile networks, SIM cards, and expensive capital and operational expenditures. 

Although large, MNO networks in some nations could also be overstretched and more able to take on additional business responsibilities. Partnerships could eradicate the threat of being overtaken in the future, as BaaS proposals would streamline digital service delivery to consumers to compete by offering comprehensive solutions and thus secure future revenues for MNOs. A niche, hybrid, or differentiated service offering will likely be included.

  1. Improving Customer Experience and Personalization

In practice, a solution like BaaS gives the user control over their financial data and the use of their accounts without accessing a bank’s internet banking or giving their user ID and password to the service. This shaves off entire customer journey steps for various processes like household budgeting, money transfers, tax refunds, student fees, or a refund for shopping. 

The service of the BaaS provider will eventually come out of the consideration of the user account provider. If some banks would be interested in excluding BaaS as a convenient means to scale and automate business operations, they could easily do that by providing an alternative developer API for the services required.

Banking is a highly regulated industry dominated by its biggest players offering their broad services in-house. Banking as a Service allows unbundling these services and might change the future of banking by opening it up to third-party providers. 

BaaS is the catalyst for change, and banks are the biggest beneficiaries from exploiting their central position and economies of scale. Banks can be prior service providers and offer services like BaaS card issuing for the next players that will establish themselves in the future banking landscape, allowing them to participate in the added value created by the future ecosystem.