There are a lot of hurdles that can slow down or even derail the customer journey. Today’s buyers want convenience and speed, and are quicker than ever to abandon their journey when faced with a poor experience. In fact, more than 60% of consumers say that their standards for customer service are rising, but 54% feel as though the organizations they do business with fail to prioritize this increase.
To help facilitate a smoother, more customer-friendly experience, customer-facing companies in a range of industries are taking steps to integrate financial and banking services directly into their products. Banking as a Service (BaaS) makes this possible.
What Is BaaS?
Banking as a Service is a concept that has been gaining traction in the financial industry in recent years. What is meant by Banking as a Service? Simply put, BaaS is a model that allows a FinTech (financial technology) and non-bank businesses to work with banks to integrate digital banking services into their website, apps, or other systems. By partnering with a bank, these companies can offer payments, deposits, savings, and other financial services to their customers without the need for those companies to build and maintain their own banking infrastructure.
In this article, we’ll explain what Banking as a Service is and how it works. We’ll also discuss some of the benefits of using BaaS and how it can help banks provide a better customer experience.
How does BaaS work?
Perhaps the best way to explain BaaS is with an analogy:
Imagine you are getting ready to connect your computer to your TV. However, you only have a USB cable, and the TV port requires an HDMI. You think it’s impossible to connect your computer, until a family member informs you that they have an adaptor that allows you to connect a USB cable to an HDMI port. In this metaphor, BaaS is the adaptor – it sits between a FinTech company and a bank and makes it possible for the two entities to interface directly. It’s a solution that is easy to plug in, empowering non-bank companies with digital banking services without forcing them to acquire a banking license or build their own financial infrastructure.
More specifically, BaaS relies on communication between the business and the bank via file sharing or through more innovative mediums, such as the bank’s Application Programming Interface (API). The API allows the various systems involved to seamlessly share data and commands, and to interact in a way that does not disrupt the customer experience. The front-end of the business (the user interface) remains unchanged, in much the same way that a USB device remains unchanged when plugged into an HDMI adaptor. But what that front-end can now access is expanded, including debit cards, mobile bank accounts, loans, money transfers, payment services, and more.
Mobile accessibility further increases the range and effectiveness of BaaS, allowing for an improved client experience and reduced customer effort. This may be particularly important for the small businesses that account for 99.9% of US firms but of which fewer than 50% have their financial needs met. Mobile BaaS solutions bring tools, rewards programs, and customized account features specifically designed to support small and medium businesses.
Banking as a Service vs. Banking as a Platform vs. Open Banking
BaaS is a notable development in FinTech, but it’s not the only approach that brings companies and banks together to improve the customer experience. Banking as a Platform (BaaP) and open banking are likewise making waves within financial industries.
Let’s look at how these two solutions differ from BaaS:
Banking as a Platform
In many ways, BaaP is similar to BaaS, but reversed. Where BaaS makes it possible for FinTech and non-banking businesses to integrate financial services, BaaP allows banking institutions to integrate services from non-financial companies into their apps, web pages, or other systems. Ideally, this improves the banking-customer experience, gives FinTech companies an established business to sell their product to, and allows the banks themselves to save money on development and support.
Open Banking
Open banking is a solution in which a consumer can allow a non-bank business (third-party service provider) to access certain forms of banking data to initiate payments or offer other financial insights. Unlike BaaS, this does not integrate entire services; it simply shares data access to optimize and streamline payment processes and perform other data-relevant tasks.
Benefits of BaaS
Applied correctly, BaaS introduces several clear business advantages. These include the following:
Improved speed and convenience for end customers
The primary goal of BaaS is the one we addressed in our introduction: optimizing the customer journey. Enhanced through integrated financial services provided by trusted banking institutions, the product can deliver an improved and effort-free experience for end users.
Enhanced brand reputation
Today’s customers not only expect more from the organization they do business with; they’re also much more vocal about their experiences. Fintech and other companies that make digital transformation and partnership a priority improve the experience of their customers and give their customers something positive to talk about. This leads to improved brand reputation.
Reduced time to market
Building financial infrastructure from the ground up is time-consuming, and that’s to say nothing of the various other tasks that go along with it (such as securing a banking license). BaaS puts those responsibilities on the banks’ shoulders, using their infrastructure—integrated through an API layer—to bring financial services to the customer much more quickly than would otherwise be possible.
Fewer infrastructure costs
Without BaaS solutions, the task of building financial services into a product carries with it some significant development and maintenance costs. Alternatively, organizations that use BaaS can quickly incorporate financial offerings into their existing operations, replacing the associated expenses with a generally-more-manageable monthly plan.
Examples of BaaS
Given its potential to significantly improve the ROI of FinTech companies and other non-bank businesses, it’s no surprise that the global BaaS market is expected to reach $51.2 billion by 2028. As such, many of the biggest players in multiple industries are working with Banking as a Service companies to further enhance their product offerings. Examples include:
- Walmart
- Uber
- Apple
- Wealthfront
- Grubhub
- Pangea
- Intuit
These are only a few examples. As the benefits of BaaS become more widely understood, this new approach to customer financial services will become integral in an even greater range of organizations.
TAB Bank Can Get You Started with BaaS
BaaS is already changing the face of FinTech. But with so many BaaS solutions, it can be difficult for business leaders to find the right financial partners to fit their BaaS needs. TAB Bank, a leader in business financial solutions, provides the answer.
TAB Bank combines strategic FinTech partnerships and advanced API integrations for improved personal and business banking solutions. And with a continued focus on accelerating the development of new financial features and functions, TAB Bank is creating a golden age of banking for customers and companies alike.
Learn more about TAB Bank and how it’s revolutionizing BaaS. Get in touch today, and let’s make finances a positive piece of your customers’ journeys.
