When it comes to Banking as a Service (BaaS), there are a number of different platforms and providers to choose from. So how do you decide which one is right for your business? In this article we provide you with some tips and considerations on picking the right BaaS platform provider.
What is Banking as a Service?
BaaS offers a number of significant benefits — but it’s not right for everyone. Before you make the move, it’s important to understand exactly what BaaS is and how it works.
As defined by digital banking consultancy firm 11:FS, BaaS is the provision of complete banking processes such as debit cards, accounts, or payments, through an existing, licensed financial institution’s regulated and secure infrastructure with API-driven platforms.
Launching financial services was an overwhelming task for the first generation of non-banks, who had to build their technology stack from the bottom up to support their own customer experience. As if these challenges weren’t enough, brands would also need to get a banking licence and comply with reserve bank regulations. These requirements make it very difficult for non-banks to offer financial products.
Join the new era – BaaS! A new way for banks, fintechs and brands to embed financial services and help create compelling customer experiences. This new business model allows a financial institution to “share out” their banking licence to brands by providing a banking stack of financial products that can be integrated. BaaS is a powerful shift in the consumer experience.
Take Uber, for example. Did you ever notice how Uber drivers had to manage their earnings and rides through two different apps? The drivers needed to manage their rides and work via the Uber app, and keep track of their earnings outside the Uber app experience.
Uber took advantage of BaaS and integrated business accounts and white-label payment processing into its app, giving drivers a full end-to-end experience. BaaS made life much easier for drivers that lived from paycheck to paycheck by giving them access to their earnings in real time and enabling them to spend it where, and whenever they want. Furthermore, as a passenger, you never have to get out your card when starting or completing a journey – it’s a completely embedded experience.
Wins for customers, a win for brands
The potential is huge. Embedding financial products into digital brands creates customer experiences that are better than ever. As seen in the example from Uber, their drivers can now enjoy financial products that are seamlessly accessible within their daily technology. These new business models can offer new, groundbreaking experiences to customers that they never could have experienced before.
Considerations when choosing a BaaS provider
1. Identify how value will be created
To ensure you get the most value for money, you need to really think through the problems that BaaS will solve for your business. What type of products or services do you want to offer? How will it bring value to your organisation and your bottom line? Banking as a Service can help companies streamline operations, increase customer engagement, and generate new revenue streams. It’s paramount to have a clear understanding of how your company can maximise value from BaaS before you start looking for providers.
2. Understand what services are needed
Once you’ve identified how value will be created, your next step should be to consider the features you will require from a BaaS platform. What functions do you need it to perform? Not all BaaS providers offer the same services. Make sure you understand what services you need and that the provider you choose can offer them. Evaluate the various providers based on these considerations to see which ones offer those features.
3. Manage regulatory risk and compliance
If you want to offer financial services, most governments require you to hold a banking or e-money licence. Acquiring financial licences is a complicated and expensive process. During both the application process for these licences and after obtaining them, the most significant burden can be ensuring compliance with an extraordinarily complex and vast regulatory framework regardless of your geographical location. Therefore, it’s critical that you make sure the BaaS provider of your choosing has a robust compliance programme and is up-to-date with all the latest regulations.
Many providers offer you the ability to launch your own financial service and use their banking or EMI licence. However, some providers are built on top of other third party licensed entities, which can result in unexpected changes to risk policy and additional costs, so make sure you read the provider’s policy.
4. Look for a provider that is investing in the future
As the BaaS market is still in its early stages, it’s advantageous to select a provider that’s looking to the future by investing in and developing new technologies. Ideally, you will want to choose a BaaS provider that is constantly innovating and working on new features and products. A provider that’s committed to the long term success of its partners. Ask for the roadmap and see if it matches your vision.
5. Evaluate pricing
Of course, you will also need to consider pricing when choosing a BaaS provider. But don’t just look at the price – above all, it’s imperative that you can identify and that the provider can pinpoint the value you’re getting for your money. What features are included and are there any hidden costs? Make sure you understand all the costs before making a decision.
6. Check references
Finally, don’t forget to check references. Talk to other companies that are using the platform and see what they have to say about its ease of use; its customer support; and any pros and cons. This feedback can be invaluable when making your decision.
What are the technical considerations?
Once you have selected a Banking as a Service provider, the next step is to implement the new platform. This can be a daunting task, but most providers will work with you to make sure the transition is as smooth as possible. Here are a few technical things to consider:
1. Easy-to-use RESTful APIs
The provider should offer easy-to-use APIs that allow you to integrate the platform into your existing systems. Building a financial application is made easier with the help of RESTful APIs, as they eliminate the need for clunky, expensive, or hard-to-maintain customization.
2. Layered services
Technology is only one consideration when choosing a BaaS provider. Consider what other services you might need, such as onboarding, know your customer (KYC) checks, PEP-screening, anti-money laundering (AML), transaction monitoring, encryption and security, data access, and regulatory and legal compliance.
3. One single platform
One of the biggest disadvantages of some BaaS providers is the need to integrate multiple systems in order to provide certain functionality. This increases overhead, and you also run the risk of integration and support problems.
Companies should look for a BaaS platform provider that has all of their capabilities under one roof. It makes it a lot easier for them when the provider already provides account and card services. No one wants that to be separated with multiple providers.
4. API documentation and support
The provider should offer extensive documentation for their APIs so that you can easily integrate the platform into your existing systems. They should also offer support like an implementation manager in case you run into any problems.
5. Service-level agreement (SLA)
The service-level agreement (SLA) is a critical part of the contract between a company and the BaaS provider,as it outlines the provider’s obligations in terms of uptime, support, and security. Make sure to read the SLA carefully and understand all of the terms and conditions before signing.
What BaaS platform providers can you choose?
There are a few options when it comes to BaaS platform providers, each with their own strengths and weaknesses. Here are some of the most popular ones:
Solarisbank is a German company that operates with a full German banking licence. The company offers a Banking as a Service platform that provides access to a wide range of banking products and services, including account, lending and payments.
Intergiro is a Swedish company that operates under the supervision of the Swedish Financial Supervisory Authority (Finansinspektionen). The company offers a comprehensive BaaS platform with a wide range of features, including accounts, automated onboarding, card acquiring, card programmes, BIN-sponsorships, product analytics, as well as regulatory compliance for non-licensed entities.
Treezor is a French company that holds an EMI-licence approved by the ACPR, the French bank monitor and regulator. The company describes itself as an accredited one-stop shop payment solution. Their platform provides a complete range of banking services, card acquiring, virtual IBANs, card issuing, and white-label Know Your Customer (KYC) and Know Your Business (KYB) services.
Cambr is a UK-based BaaS platform that is regulated by the British Financial Conduct Authority (FCA). The company focuses on providing access to banking products and services for fintechs, banks, and processors. Their platform provides a wide range of features, deposit accounts, compliance, payments, banking, and debit cards.
ClearBank is a UK-based company and the first cloud-native clearing bank in the UK. The company is regulated by the FCA and offers a BaaS platform that is suitable for fintechs and businesses. ClearBank’s platform provides segregation accounts, operational and client accounts as well as virtual account solutions. They also offer end-to-end clearing solutions with access to real-time payments via Bacs clearing, Bacs Direct Debit, CHAPS, and Faster Payments.
Choosing the right Banking as a Service provider can be difficult, but following these tips will help you make an informed decision that is right for your business. Banking as a Service provides many benefits, so it’s worth taking the time to find the right provider for your needs.
Take a look at our 5 most pioneering Banking as a Service providers article to learn more about some of the top companies in this space.