Breadcrumb

Open Banking vs Banking as a Service

Written by

The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMay 20222 min read

Open banking and Banking-as-a-service (BaaS) are both terms used in the finance sector to describe financial ‘application programming interfaces’ (APIs) provided by banks. However, despite their surface similarities, they do have distinct differences in terms of the service they provide. Let’s delve into those differences and how they manifest.

What is Open Banking?

Open banking describes the process of banks sharing customer data with third-parties through APIs. This is done with the express permission of customers, and is done when and with whom the customer chooses.

What is Banking-as-a-Service?

BaaS refers to a model whereby licensed banks integrate their banking services into products and services offered by non-bank enterprises. This allows companies to offer certain digital banking services, such as loans and mobile bank accounts, without needing to get a banking licence.

Open Banking vs Banking-as-a-Service: commonalities

With both Open banking and BaaS, financial APIs are provided by banks, allowing companies to integrate banking into their products and services. Both can also be described as ‘embedded finance’, as APIs are embedded into these banking products and services.

Open banking vs Banking-as-a-Service: differences

The key difference between open banking and BaaS APIs is the extent to which respective APIs can be embedded, and the role they play. BaaS APIs, for instance, have access to the entire lifecycle of an account from account creation to retrieving transactions, balance data and making payments. BaaS APIs are even involved in opening and closing accounts.

An open banking API, meanwhile, is only involved in one aspect of the life cycle: retrieving transaction and balance data from a customer account. It plays no role in opening or closing accounts.

Essentially, BaaS provides a more all-encompassing banking service, allowing fintechs to look and function like a licensed bank. Open banking, however, does not present as a bank, but a financial service which connects with banks. Indeed, users typically interact chiefly with their own bank channels, and will only occasionally opt to access their bank data via open banking APIs.

Open banking vs banking-as-a-service: summary

Put simply, open banking offers certain banking features to customers, whereas banking-as-a-service offers nearly the whole banking package.

Banking as a service (BaaS):

Involves licensed banks allowing businesses to integrate digital banking and other payment services directly into their own products and services.
These services are made available to customers via the business and not directly with the bank.

Open banking (aka third-party service providers)

Non-banks which can access data from their customer’s bank account in order to provide account insights or initiate payments via an app or website.
It does this over an API banking platform.

Open banking with GoCardless

If you’re looking to get started with using open banking in your business, signing up for GoCardless Instant Bank Pay is a must. Powered by open banking, Instant Banks Pay allows your business to take instant one-off payments from customers. Bank-to-bank payments are confirmed immediately for a smoother, more user-friendly transaction.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.