What is Banking as a Service (BaaS) and why it’s important to businesses

Customers expect fast, seamless financial services delivered directly within the apps and platforms they already use, and businesses, in turn, are constantly seeking ways to drive value. Banking as a Service (BaaS) offers a unique opportunity to do both. In fact, a recent study found that 83% of customers prefer to access financial services directly through the SaaS businesses they already use rather than traditional banks, highlighting a growing demand for businesses to integrate financial tools and services into their offerings.¹

BaaS is transforming the financial industry and reshaping the financial landscape by enabling digital banking services that are accessible, innovative, and tailored to diverse customer needs.

By integrating financial services, these businesses can meet their customers’ growing demands, create new revenue streams, and strengthen their competitive position. Tech companies, non-bank companies, and eCommerce platforms are leveraging BaaS to provide banking services to their customers, embedding financial products and payment solutions directly into their platforms. Here, we’ll discuss how you can utilize BaaS to achieve this while enhancing the customer experience and increasing brand loyalty.

Key takeaways:

• Banking as a Service extends banking capabilities to non-financial businesses, allowing you to integrate and offer financial services to your customers.

• To speed up the time-to-market of your offerings, you can leverage the financial infrastructure and expertise of a Banking as a Service provider.

• By offering integrated financial services, you can generate new revenue streams, increase customer lifetime value, and expand to new markets.

What is Banking as a Service?

Banking as a Service is a solution that lets you offer your customers a wide range of financial services and products through your platform. BaaS leverages the banking infrastructure of licensed banks and traditional financial institutions to deliver integrated banking products and features. It expands the capabilities of traditional banking by providing flexible, scalable, and accessible financial products and services for non-banking businesses to offer to their customers. Instead of building these capabilities from scratch, you can partner with a fintech company or BaaS provider and use their existing infrastructure.

With BaaS, non-bank businesses can access banking services directly and offer a variety of banking features to their customers through seamless API integration. You can offer your customers a range of financial services, including multi-currency business accounts, card issuance, and lending. Customers can access customized financial products directly within your website or application instead of relying on their traditional bank. Using BaaS, you can natively embed financial services to improve the user experience, making meeting your customers’ unique and changing needs easier.

What’s the difference between embedded finance and Banking as a Service?

Embedded finance refers to the general integration of financial services into the products of non-financial businesses using pre-existing infrastructure. Compared to open banking and platform banking, Banking as a Service (BaaS) offers a distinct service model. Open banking focuses on regulated data sharing and third-party access to consumer financial data, while platform banking allows traditional banks to integrate fintech solutions within their own digital ecosystems. In contrast, BaaS enables non-bank companies to build and offer financial products directly to their customers, with deeper integration and greater customization.

Banking as a Service is a subset of embedded finance. It provides the infrastructure for non-bank businesses to offer traditional banking services, such as local account opening, card issuing, and lending, without becoming a licensed financial institution. With BaaS, companies can leverage a provider’s regulated infrastructure while tailoring the customer experience to match their brand and business model.

White-label banking, on the other hand, allows non-bank businesses to offer financial services under their own brand, typically by reskinning pre-built products from a licensed bank or provider. While white-label solutions offer faster time-to-market, they often involve less backend flexibility and customization compared to BaaS.

Both embedded finance and BaaS solutions are delivered via APIs, acting as digital connectors between financial services and your platform. This approach enables seamless, integrated financial experiences, allowing your customers to access services like payments, accounts, or loans without ever leaving your website or application.

How does Banking as a Service work?

Banking as a Service is a model in which a provider or fintech lends connections to its functionalities to non-financial businesses for a fee. Businesses then use these elements to integrate financial services capabilities into their products. A BaaS service platform enables businesses to integrate services such as payment processing and payment services, allowing them to offer seamless financial solutions like card issuance and digital wallets directly within their own platforms.

There are multiple mechanics behind how BaaS works, with the essentials being:

Partnerships

BaaS begins with a partnership between your business and a BaaS provider, who acts as the intermediary between you and licensed financial institutions. The provider manages strategic relationships with banks and other regulated entities, providing you with access to a suite of financial services, including local currency accounts, card issuing, and payments infrastructure, without requiring you to establish those relationships yourself.

API integration

You can natively embed BaaS using the provider's various APIs, like payment or open banking APIs. Your development team integrates these into your existing systems, enabling your business to communicate securely with the BaaS provider's infrastructure.

Customization and configuration

With BaaS, you can customize and configure financial services to fit your brand, business, and customer needs. For example, you can offer financial services under your own brand by issuing branded payment cards or creating a user interface that matches your website.

Customer onboarding

Your customers can create accounts, fund digital wallets, or – if supported – link existing bank accounts directly within your platform. The BaaS provider typically oversees the Know Your Customer (KYC) verification process to ensure compliance with anti-money laundering (AML) and other regulatory requirements.

BaaS providers play a key role in secure onboarding by handling sensitive customer data, performing identity verification, and ensuring regulatory compliance across jurisdictions. By leveraging their KYC infrastructure, your business can streamline the onboarding experience while maintaining high standards of security, privacy, and compliance.

Regulatory compliance

In addition to KYC, your BaaS provider handles broader regulatory compliance responsibilities related to the financial services you offer. This includes staying up to date with evolving financial regulations and ensuring your business can operate within legal boundaries across both local and global markets.

Many businesses face significant compliance challenges due to the complexity of regulatory frameworks, especially when expanding internationally. BaaS providers simplify this by offering integrated compliance solutions and risk management tools that help reduce your exposure to non-compliance.

This support helps you meet critical standards such as the Payment Card Industry Data Security Standard (PCI DSS) for secure card payments and the General Data Protection Regulation (GDPR) for protecting customer data—both essential for maintaining trust and operating at scale.

Transaction processing

Once your customers are onboarded, they can start using the financial services you offer through your platform. Every transaction – whether it's a transfer, a lending service, or an account management action – is processed securely through the BaaS provider’s infrastructure. The provider implements robust security measures to protect customer data and ensure compliance with relevant regulations. Depending on the setup, the platform can also support lending services, such as issuing credit or managing repayments, as part of the broader offering.

What are the benefits of using Banking as a Service?

Banking as a Service offers significant advantages over traditional banks for businesses interested in providing financial services. BaaS enables businesses to deliver superior customer experiences and enhance customer engagement by integrating seamless, personalized financial solutions directly into their platforms.

Faster time-to-market

Accessing pre-existing financial infrastructure through APIs can significantly reduce the time it takes to launch new financial products. This lets you respond quickly to market demands and customer needs, bring your offerings to market faster, and stay ahead of the competition.

New revenue streams

BaaS lets you monetize financial services and generate monthly recurring revenue through integrated financial services. For example, you could issue branded multi-currency payment cards to your customers and charge a small fee on each transaction, opening up new revenue opportunities.

Easier global expansion

You can quickly scale your operations using your BaaS provider's financial licenses and banking relationships. This makes entering new markets and offering localized financial products easier, as you don't have to establish a traditional banking presence.

Increased customer stickiness

By embedding financial services directly into your offerings, you enhance user stickiness. This integrated approach encourages customers to rely on your business for multiple services, reducing churn and increasing their lifetime value as they continue to use your offerings for various financial needs.

Greater competitive edge

BaaS can help you stand out in a crowded market by offering unique financial solutions tailored to your customers' needs. This competitive advantage attracts new customers and strengthens brand loyalty among your existing users as you grow your offerings.

What are some common use cases for Banking as a Service?

Banking as a Service supports a wide range of applications that can transform how your business operates and engages with customers. Digital banks and challenger banks use BaaS to launch innovative financial products and services, leveraging modern infrastructure to scale quickly. Other businesses, non-banks, and fintechs also use BaaS to expand their financial offerings and enter new markets.

For example, with BaaS, you can:

• Let your customers create domestic and international bank accounts with local account details

• Enable customers to receive, hold, and manage funds through integrated account management features

• Help customers convert balances using interbank foreign exchange (FX) rates

• Facilitate bank transfers to pay suppliers and vendors

• Issue physical and digital corporate expense cards under your brand

• Provide loans or lines of credit directly within your platform

How can Banking as a Service work for a business?

Businesses can use Banking as a Service (BaaS) to build their own financial products on top of the pre-existing infrastructure and regulatory licenses provided by a BaaS provider. BaaS leverages financial technology to deliver tailored software services and facilitate online payments, enabling companies to integrate advanced digital solutions seamlessly into their platforms.

This approach eliminates the need to navigate the complex and time-consuming process of obtaining banking licenses, managing compliance, and building financial infrastructure from scratch, allowing you to focus on launching new services and products more quickly.

For example, a travel management business can utilize BaaS infrastructure to develop and offer products that enhance users’ travel experiences, such as travel disruption assistance, financial support for lost luggage, and local payment solutions.

• Travel disruption assistance: In case of flight cancellations or delays, the travel management business can instantly refund travelers by loading refunds onto a virtual card with their branding. The traveler can then use the card to book other accommodations or transportation to their destination.

• Lost luggage support: The business can offer instant emergency cash disbursements to travelers who have lost their luggage, giving users access to funds to purchase essential items while they await the return of their belongings. For example, after a user reports lost luggage to the travel management business, the support team can quickly verify the situation and issue a virtual card for the user, loaded with an authorized amount of funds. These funds can be used to buy necessities like clothing or toiletries.

• Local payment solutions: The business can offer customized local payment solutions for travelers, like multi-currency wallets or physical travel cards. These wallets or cards can be preloaded with funds converted to the specific currency of their travel destination. The business can allow travelers to set personalized spending limits for their wallets or cards, sending notifications to travelers as they approach these limits.

By building these products with BaaS, the travel management business also ensures that all financial activities performed by their travelers are compliant with local and international regulations, including KYC and AML checks. The BaaS provider handles these compliance obligations.

Things to look for when getting started with Banking as a Service

Getting started with Banking as a Service involves understanding your specific financial service needs and target market and researching and selecting a BaaS provider that aligns with your goals.

Do they offer other financial services?

Consider whether the BaaS provider offers broader embedded finance services beyond the core BaaS offerings. Additional solutions, like payments or global treasury management, can help you adapt to new market demands and scale your offerings.

What robust security measures do they have in place?

What security features do they use to protect systems and data? Key aspects of strong security include data encryption methods, compliance with industry standards like SOC 1 and SOC 2, and secure communication protocols like HTTPS and SSL.

Are they compliant with international and local regulations?

Assess their compliance with relevant international and local regulations, including adherence to standards like GDPR, PCI DSS, and KYC guidelines. This ensures you can protect sensitive customer data, prevent fraud, maintain a strong brand reputation, and avoid non-compliance penalties.

How and where are they licensed?

Understand their global coverage – specifically, in which countries and jurisdictions they hold financial licenses. This information is key to ensuring that you can operate smoothly, confidently, and legally in the markets you do business in now and the ones you may target in the future.

Enhance your financial offerings with Airwallex Banking as a Service solution

Unlock more value for your business by building your own global financial products and services with the Airwallex Banking as a Service solution.

With powerful and flexible APIs, you can programmatically create domestic and foreign currency accounts in 60+ countries. Your customers can easily collect, convert, and hold multi-currency balances. They can also send fast, cost-effective payouts or spend funds using brand-issued multi-currency cards.

Airwallex holds 60+ licenses and permits from financial bodies worldwide. Our secure and compliant infrastructure gives you the confidence to embed feature-rich financial products into your business offerings, creating new revenue streams and enhancing the user experience.

Sources:

1. https://www.airwallex.com/report/scaling-embedded-finance