Banking as a Service
Consumer Finance Monitor
Exploring Banking as a Service Models
This chapter delves into the diverse business and operating models of Banking as a Service (BAS), focusing on direct versus intermediated approaches. It discusses the regulatory responsibilities of banks and the challenges they face in technology integration and compliance.
Our podcast show today features Jason Mikula, publisher of Fintech Business Weekly; a newsletter going beyond the headlines to analyze the technology, regulatory and business model trends, driving the rapidly evolving financial services ecosystem at the intersection of traditional banking, payments, FinTech and crypto. We discuss his recently released book, titled “Banking as a Service: Opportunities, Challenges, and Risks of New Banking Business Models” (Kogan Page 2024).
The publisher describes the book as follows:
“This book provides a comprehensive look at banking-as-a-service (BaaS), equipping readers with an understanding of the origins, evolution, future and applications of BaaS and the key differences across global markets.”
BaaS is a game changer in the financial services sector, radically transforming both how consumers experience financial products and the business models delivering them. “Banking as a Service” cuts through the hype to provide a measured overview of BaaS, helping readers to demystify a complex evolving field, and understand its key opportunities, challenges, and risks. It provides a framework for understanding where BaaS came from, how BaaS changes the economics and business models of banking products and services, its impact on key stakeholders, and its key regulatory implications.
“Banking as a Service” explains how business and operating models work, exploring different models such as interchange, deposit gathering, loan origination-to-distribute, legacy, API-first, own license, match-making and bank service providers, and offers a framework for thinking about whether or not they're sustainable. It explores how BaaS operating and business models compare in different global territories and is supported by real-world examples and cases profiling organizations such as Blue Ridge Bank, Unit, Synapse, Goldman Sachs, Railsr, Starling, Solaris, Cacao Paycard, QNB, OnePipe, Airwallex, Nium and Pomelo. It also explains the differences between BaaS, embedded finance and “open banking.”
Alan and Jason discuss the answers to the following questions and topics:
1. What do we mean when we say "banking as a service"?
2. What are the different BaaS business models/operating models?
3. What led to the explosion in banking-as-a-service?
4. Why have bank/fintech partnerships had a rough go of it lately in the US and is that likely to change with a new administration?
5. What is (or what should be) regulators' role in supervising non-bank entities in the BaaS value chain (eg, middleware, customer-facing fintechs)?
6. What is an FBO and are FBOs the "original sin" of banking-as-a-service?
7. What advice would you give to banks considering getting into the BaaS space? How do you see the market evolving from here - for banks, for technology providers, and for customer-facing companies?
8. What advice would you give to fintechs that rely on a bank partner or are looking for one?
Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.
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