The Future of Banking as a Service

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 out. As a result, most banking institutions have been keeping away from 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.

Banking

But since the online banking service was launched in 1997, banks are striving to enhance their services and developing secure apps that can allow customers to do all kinds of operations within seconds without visiting the brick and mortar bank. The sector is projected to grow with the introduction of banking as a service (BaaS).

Companies that are using banking as a service are increasing. In fact, many countries are working on regulations that will control 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 non-fintech and fintech organizations with back-office services. BaaS also enables businesses to include the financial instruments they require into their processes, thus customizing their websites for banking purposes. This saves organizations from creating their own 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 to their apps or platforms. That way, they minimize 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 an opportunity to apply for a loan through a special BaaS API. That’s because it’s easy to formalize online credits.

· Improved Customer Experience

Organizations that have included BaaS services into their systems give their clients a smooth customer experience. It also helps the organizations to grow because BaaS services allow companies to give 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 a three-layered structure: 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. In fact, 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 with 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 opportunities for their businesses, improve their customer experiences, and perform innovative experiments.

Share

Student. Award-winning communicator. Subtly charming coffeeaholic. Organizer. Gamer. A real dynamo when it comes to managing jack-in-the-boxes for fun and profit. Spent the 80's donating shaving cream in Libya. Spent 2001-2004 lecturing about Roombas in Jacksonville, FL. Garnered an industry award while getting my feet wet with sheep in the government sector. My current pet project is working on Slinkies in Orlando, FL. Spent 2002-2009 developing strategies for crayon art for the underprivileged.