Unlike other sectors, the banking and finance industry has been cautious about using digital innovations and technologies. That’s because they fear that sensitive data may be leaked. As a result, most banking institutions have been avoiding offering online services for some time. Before adopting these technologies, customers had to visit physical banks and spend long hours queuing to transact their businesses.
But since the online banking service was launched in 1997, banks have striven to enhance their services and develop secure apps that can allow customers to perform all kinds of operations within seconds without visiting the brick-and-mortar bank. The sector is projected to grow with banking as a service (BaaS).
Companies that are using banking as a service are increasing. Many countries are working on regulations controlling the digital interaction between clients and banks. As a result of this introduction, financial experts estimate that the banking sector will reach about $44 billion by 2026. The establishment of BaaS platforms has allowed banks to form partnerships with FinTech companies. The result is that the banks have become open sources for more revenues.
What’s BaaS?
BaaS (Banking as a service) is how a bank integrates with IT systems through smart contracts, open API, and distributed ledger technologies. These banks offer back-office services to non-fintech and fintech organizations. BaaS also enables businesses to include the financial instruments they require in their processes, thus customizing their websites for banking purposes. This saves organizations from creating their banking apps.
Examples of BaaS Services
· ID Verification
Through BaaS platforms, an organization can access a Know Your Customer (KYC) system. This system helps companies verify customers’ identities before processing any payment, thus reducing money laundering and preventing fraud.
· Card Processing And Payments
Today, non-financial organizations can incorporate BaaS as a payment option into their apps or platforms. This minimizes their operating costs because they don’t have to create and manage their banking infrastructure.
· Credit Arrangements
The traveling e-commerce and booking industries can offer their customers the opportunity to apply for a loan through a special BaaS API. This is because it’s easy to formalize online credits.
· Improved Customer Experience
Organizations that include BaaS services in their systems give their clients a smooth customer experience. This helps the organizations grow because BaaS services allow companies to offer services specific to niches.
How Organizations Connect To BaaS
1. API-Based Stack
Organizations can use software Application Programming Interfaces (API) to link their companies to BaaS platforms. This Stack has three layers: FinTech ecosystem, infrastructure-as-a-service, and bank-as-a-service.
2. Cloud-Based Stack
Organizations can also incorporate banking services in their web applications through cloud services. Some tech companies have acquired licenses to operate as normal financial institutions. Because such organizations don’t depend on traditional banks, they can redefine their BaaS stacks and transform them into cloud solutions. A good example is Amazon Web Services, which has a banking license allowing it to give users service hardware infrastructure and IaaS.
The Bottom Line
BaaS platforms are slowly transforming the future of the banking and financing sector. Through FinTech and BaaS technologies, brands can build great business opportunities, improve customer experiences, and perform innovative experiments.
