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Banking as a service vs. banking as a platform: what’s the difference?

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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 editedMar 20232 min read

Are you confused by banking jargon? It seems there are new terms emerging daily to describe the latest fintech innovations. Banking as a Service and Banking as a Platform are two terms that are easy to mix up, but they are quite different in meaning. In this guide, we’ll break down the differences between Banking as a Service vs. Banking as a Platform so you can keep track of these business models.

What is Banking as a Service?

The first term to understand is Banking as a Service, a type of business model describing companies providing banking-related services. Banks and financial institutions can sell their licenses, services, and software to third parties. When the company purchases these services or software and uses them to serve customers, they’re able to provide banking-related services, or Banking as a Service.

Here are a few real-world examples of Banking as a Service:

An online marketplace allows its customers to create their own deposit accounts to use as an e-wallet. With the help of a BaaS solution, the marketplace offers unique online bank accounts for individual users.
A service provider offers its own payment card to its customers using BaaS solutions. Customers enjoy personalized payment cards, while businesses generate more revenue.
A travel company offers customers an online loan to pay for package deals directly through its own website. It offers its own financing using BaaS rather than redirecting customers to a separate bank. At the same time, it sells more package deals and increases customer spend.

All of these are examples of how non-bank companies provide services typically associated with banks. There’s no need to obtain a banking license to provide these financial services when the companies use Banking as a Service solutions instead. BaaS solutions use APIs and webhooks to pass banking services on to the customer through the business’s websites and apps.

What is Banking as a Platform?

By contrast, Banking as a Platform moves in the opposite direction. While BaaS lets non-bank businesses provide financial services to customers, BaaP lets non-bank businesses provide services to banking institutions. The banks then pass these services on to their own customers.

Bank customers receive more innovative services from their bank, developed by the fintech companies. For example, imagine a bank adding a chatbot into their app to enhance their investment services. The chatbot is developed by an outside fintech company yet offered directly through the bank.

Banking as a Service vs. Open Banking

Another common term you’ll see used in relation to BaaS is open banking. While open banking also uses APIs to connect fintech companies to non-bank businesses, it’s for a different purpose. Banking as a Service lets companies integrate banking products into their own services.

Open banking uses APIs to connect third parties to bank data. Third party service providers can then tailor their products to customer needs based on banking data. However, customers need to provide permission first. For example, a financial management app might use open banking to aggregate accounts into a single dashboard using API integration. Another example is GoCardless’s Verified Mandates tool which uses open banking to streamline the onboarding process at checkout. Customers are taken directly to their online banking login to verify details instantly, reducing fraud and improving the checkout process.

Banking as a Service vs. Banking as a Platform

Both Banking as a Service and Banking as a Platform can be useful for businesses. Here’s a quick way to remember the difference between the two:

BaaS: Serves the non-bank business’s customer with integrated bank services
BaaP: Serves the bank’s customer with integrated fintech services

If you’re looking for a way to provide better customer service, you’ll probably want to focus more on Banking as a Service providers. With their help, you can offer services like digital lending, payment cards, and account management all from your own app or website.

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