Best Banking as a Service Providers
Several traditional business models in the banking industry are being disrupted by the technological innovations of FinTech companies and digital banks. One of the areas of significant transformation is in the use of bank data and facilities. Today, many non-banking establishments, especially digital platforms with a large number of users, are rendering financial services to their customers through what is known as "Banking-as-a-Service" (BaaS).
In this article, we will differentiate between open banking and BaaS and show you how profitable the latter is. You will also find the best BaaS providers for a successful digital transformation of your business processes, products, and services.
BaaS and Open Banking: What is the Difference?
Banking as a Service
Banking-as-a-Service (BaaS) is an end-to-end process that allows licenced financial institutions to provide digital banking services to non-banking establishments. Under this model, they use their application programming interfaces (APIs) to grant third-party organisations access to their banking systems and information, enabling them to offer while-label financial services or create new banking products.
BaaS enables enterprises to use banking services, ranging from payment processing to accounts management. The various areas where it is useful include physical and virtual card issuing, setting up conventional card programmes, credit scoring, creation of in-app payment solutions, white-label payment processing, embedding multicurrency IBAN accounts, neobank founding and development, Know-Your-Customer (KYC) checks, and currency exchange. Besides, several neobanks operate through partnerships with traditional banks under various BaaS models.
Open banking is a term often used to describe a financial practice in which third-party financial service providers get access to data about consumers and their transactions that exist in online banking systems. It also refers to a system, such as the PISP (Payment Initiative Service Provider) model, where transactions can be initiated from another person’s bank account in the interest of the account holder.
Similar to BaaS, information sharing in open banking is done via APIs. For example, in the Account Information Service Provider (AISP) model of open banking, authorised third parties can retrieve and use customers’ financial data from the APIs of traditional banks, neobanks, electronic money institutions (EMIs), and several other financial institutions.
When third parties collect big data through open banking services, in most cases, they try to use it to improve the customer experience and for other purposes. Open banking is an offering of many financial giants, including the likes of Klarna, Affirm, Tink, and Truelayer.
How is BaaS different from open banking?
Parties that use BaaS systems may include all or a portion of the financial infrastructure of providers in their products. Open banking, on the other hand, allows businesses to obtain data from providers and may not allow them to use any of the capabilities that financial institutions offer. Therefore, the unique functions BaaS and open banking fulfil are what set them apart from one another.
Benefits of Banking-as-a-Service
Banking-as-a-Service is beneficial to entrepreneurs, FinTech companies, financial institutions, and non-financial enterprises. The following are the various benefits that can be obtained from using BaaS:
End-to-end financial service provision
BaaS is a comprehensive strategy that enables fintech firms and other third-party organisations to use APIs to make end-to-end connections with a bank's system. It facilitates open banking services while assisting organisations in constructing new financial services on top of the regulated infrastructure of the host bank.
BaaS can help you grow your business through the generation of more revenue. You can develop, manage, and offer cutting-edge financial services that are seamlessly integrated into your client experience by integrating financial services into your company strategy. Thanks to BaaS, any company can now design financial products that are in line with the requirements of its target market. You can add new revenue streams to your existing sources by financing fees, monetising payments, and creating card interchange. Hence, it can generate additional revenue, greater customer loyalty, and a better brand.
Furthermore, adopting a banking-as-a-service approach is one of the ways banks can use their digital infrastructure to open up new revenue sources. By offering cross-selling and payment possibilities through API-driven facilities, BaaS helps both banks and FinTech companies to generate new sources of income.
Speedy and cost-effective development
It is now possible to provide game-changing services without investing your time, money, and resources in building your own facilities. BaaS makes it possible to reach a large number of banking and non-banking customers at great speed and at a low cost. It frees you from the expensive and time-consuming process of obtaining a licence, hiring workers, and building an original infrastructure for rendering financial services.
Moreover, businesses that use BaaS have a significant advantage since they can aggregate all of the financial information about their clients from banks and other financial institutions. They gain an advantage over their competitors by being able to know how clients manage their money and when they purchase, spend, and save.
According to the Marketing Manager of Intergiro, Jelle van Schaick, an effective way to reduce the cost of operating your business, such as a Software-as-a-Service platform, is to integrate payments into it. You can use BaaS to achieve this. Jelle emphasised that companies like Jobber, Xero, and Shopify are already establishing new business lines and diversifying their streams of income through this strategy. Read more about his expert opinion in our article on the best payment solution providers today.
Jelle van Schaick points out that while Banking as a Service can deliver revenue and has many advantages over the competition, it can also be viewed as another way for companies to make life more convenient for their customers. "This is not about companies trying to become financial services providers," van Schaick states. “Rather, they're trying to find ways to add more convenience to their customers' lives, simplify financial transactions, and generate and create more loyalty among their customer base."
Factors to Consider When Choosing a BaaS Provider
There is a continuous influx of several new participants into the BaaS market. This development is being facilitated by the fast expansion of the sector and rising demand for banking platforms. Hence, it is difficult to decide which BaaS provider is best for your business.
Nevertheless, to make it easy for you to choose a banking-as-a-service provider, we offer the following factors that you need to take into consideration:
- Business needs: Certain banking and fintech services may be better provided by particular businesses. Your use case for a BaaS is therefore the major deciding factor to consider. For example, a BaaS provider may offer the best fintech insurance services yet perform just averagely when it comes to card issuance.
- Your budget and the BaaS pricing: Most banking-as-a-service providers have different fees and charges according to their pricing structures for various types of customers. For this reason, you need to seek the services of a provider whose pricing is affordable and in line with your budget for the BaaS project.
- Licence, regulation, and compliance: In most cases, BaaS providers have detailed websites that contain information about all the services they provide and what authoritative backing they have. You will find details like whether they have been issued a licence to operate, the name of the institution that regulates them, and what standards they are required to comply with in terms of security, safety, and other professional grounds. We recommend that you look for these details when choosing a BaaS provider.
- Features and range of products: It is essential to be certain that the BaaS provider you will be using has the products or range of services that you need within a single API. When put into consideration, this factor will help you avoid getting fewer benefits in return for your money. It will also save you the stress of going through the complicated process of integrating several APIs for various functionalities.
What BaaS features should you look out for? Examples include real-time authorisation, fast payment processing, fraud monitoring, physical and virtual card issuance, card data security in line with standards like PCI DSS, white labelling, product branding, and loyal customer support.
Best Banking-as-a-Service Providers
Below is our list of the current market leaders when it comes to the provision of Banking-as-a-Service. We consider them the best BaaS providers because they are licensed, fully regulated, and meet several international standards while offering a wide range of services. Their BaaS APIs are used by small to large companies. So, take a look at their features, advantages and disadvantages, and choose the one that best meets your business needs.
- Intergiro allows you to use its Banking-as-a-Service APIs (Intergiro.3d) to build financial products.
- It offers branded virtual and physical cards from Mastercard and Visa, along with support for m-wallets like Google Pay and Apple Pay.
- Intergiro’s in-app payment solution helps you use a few lines of code to easily add a payment checkout to your platform.
- Digital builders of card programmes, professional service providers, retailers, crypto companies, neobanks, and many other establishments use Intergiro.3d to overcome their financial services challenges and create innovative business models.
- Intergiro is licenced and registered by the Swedish Financial Supervisory Authority.
Read our full overview of Intergiro for more information.
Pros and Cons
Delegated authorisation for BaaS clients to maintain transaction control
Automated fraud detection and transaction monitoring
Automated KYC checks and ID verification
Fast access to real-time user data (through data-as-a-service)
PCI DSS compliant
Environmentally sustainable operations
High ethical standards
You may not like the KYC checks if your privacy is so important
- Mercuryo offers a secure and fast API solution for businesses to develop their own customer-centric banking infrastructure.
- Support for 13 crypto coins and more than 30 fiat currencies.
- The users of Mercuryo’s BaaS solutions include neobanks, exchanges, NFT platforms, and many others.
- Mercuryo is licenced in Estonia and holds PSD agent status and an Authorised Electronic Money Institution (AEMI) licence in the United Kingdom.
Pros and Cons
Easy card payment processing
Automatic risk scores
Secure card data storage – PCI DSS standard
Automatic fraud monitoring
Anti-money laundering and KYC verifications
Total security against chargebacks (100%)
For privacy reasons, you may not be comfortable with the KYC checks
- ConnectPay uses its BaaS to help you take care of fees collection, transaction screening, IBAN issuance, payment execution, report filing, and inter-bank query management.
- Its products are used by businesses like banks, marketplaces, payment service providers, remittance companies, aggregators, and messaging platforms.
- ConnectPay is registered in Lithuania, licensed by the Central Bank of Lithuania, and authorised to operate in the United Kingdom.
Read our full overview of ConnectPay for more information.
Pros and Cons
Handling of inter-bank queries
Real-time customer application tracking
Customisable APIs for different businesses
Some customers do not like KYC checks
- Marqeta offers payment processing and extensive card issuing services through its BaaS and open APIs.
- It allows you to launch your own branded physical and virtual cards.
- It provides digital wallets, PCI widgets, and dynamic spend controls.
Pros and Cons
Compliance with PCI-DSS Security Standards
Attractive incentives and rewards programmes
Just-in-Time funding of transactions (JIT or real-time funding)
Reliable expense management platform
Strong customer support
Provision of credit and debit cards
Chargebacks and fraud management
Simple documentation for easy API use
Focuses mostly on modern bank cards
Not the best for non-card B2B services
- MANGOPAY makes it possible for businesses to have their own branded apps to accept a wide range of payment methods locally and internationally.
- It provides customisable and adaptable white-label products.
- Customers connect to a secure payment platform that supports Mastercard, Visa, Maestro, American Express, and Diners Club cards.
- E-Wallets with IBANS are available for financial management and the enhancement of customer journeys.
- It also enables you to own and manage your crowdfunding platform, marketplace (B2C, B2B, or C2C), and online retail business.
- MANGOPAY is regulated by the Financial Conduct Authority in the UK and licensed in Luxembourg.
Pros and Cons
Unique KYC checks
Anti-money laundering regulations
3D protocol protection for advanced security
Fraud prevention through features like fingerprinting and deferred payments
- Stripe offers its BaaS API through its Stripe Treasury offering.
- Stripe Treasury allows businesses to integrate financial services into their online platforms and marketplaces.
- Easy and reliable cash flow management.
- Issuance and management of physical and virtual cards for your customers.
- Provide funds support for your customers through Stripe.
- Partnership with banks to provide wire transfers, ACH, accounts eligible for FDIC insurance, and a lot more.
- Stripe holds regulatory licences around the world.
- (Read our full overview of Stripe for more information).
Pros and Cons
Greater control over funds transfer speed on your platform
Fast revenue access
Easy ID verification and KYC checks
Management of ACH credits and debits
Offers all types of branded cards and e-wallets
Dynamic spend control
Stripe Treasury supports only US-based businesses (but the owners can reside anywhere in the world)
The first step to choosing a BaaS provider is to define the needs of your business or what you want to do with the platform. Next, you should draw up a budget and find a BaaS provider whose pricing is affordable for you. Other factors you should consider in finding a banking-as-a-service provider are the licence, regulation, and compliance standards of the company, as well as the range of products and features it offers.
In banking, a service provider is any financial or non-financial establishment that allows you to create offerings like white-labelling, payment processing, branded card issuing, insurance, automatic fraud monitoring, and so on.
BaaS is a FinTech concept that means Banking-as-a-Service. It is an end-to-end procedure through which third parties, including FinTech and non-FinTech companies, can access and use the digital banking features of banks through APIs, instead of constructing them from scratch.
BaaS enables practically any firm to take advantage of open banking and build custom financial solutions. Every participant profits from this model because it offers generous benefits to everybody. Whether you are a FinTech platform or neobank, non-financial institution or financial start-up, you can stay ahead of the competition in your industry with Banking-as-a-Service. You do not have to get a banking licence or adhere to existing systems to start using this model. It would be sufficient to locate a platform that offers the BaaS solution you need. So, contact any of the service providers we have listed in this post to start generating more income and realising great success.
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