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What is Banking-as-a-Service (BaaS)?

Today’s businesses are in the midst of a financial revolution. The way in which companies manage their money and receive payments is changing. The advent of fintech for consumers has democratised the way in which businesses use financial services, opening up new possibilities, and improving operational efficiency. By leveraging new digital technologies, businesses can access tools and services that provide them with greater efficiency and flexibility.

Banking-as-a-Service (BaaS) allows companies to not only boost efficiency but improve their offerings to customers, potentially eliminating barriers to sales. Here, we’ll take a closer look at BaaS and how it’s slowly transforming the financial landscape for businesses like yours.

The meaning of BaaS

Banking-as-a-Service is a new, more flexible way for companies to use financial services, tailoring them to their needs and the needs of their customers. Essentially, BaaS is a more open way of banking, providing financial services and products through third-party APIs.

This growth industry is taking the financial world by storm and is expected to grow at a compound growth rate of 25%, reaching an estimated value of £1.9 billion by 2024. It’s easy to see why. The provision of BaaS benefits both businesses and financial institutions, providing more flexible payment solutions for users and higher Return on Annual Assets for banks.

How does BaaS work?

While conventional banks own the entire value chain of financial services, BaaS focuses on delivering discrete links in that chain. Financial institutions open up their APIs to third-party providers like fintech companies and digital banks.

With access to the financial institutions’ data and systems, third parties are able to build their own white-label banking services and products. These can be tailored to better suit the needs of customers and improve their experience.

For instance, BaaS platforms can facilitate split or recurring payments, as well as Buy Now Pay Later offerings.

What are the benefits of Banking-as-a-Service?

Using Banking-as-a-Service is highly beneficial for SMEs in a number of ways, enabling them to enhance their value proposition and garner customer loyalty while also removing barriers to sale.

Some of the benefits of using BaaS include:

  • Offering more flexible payment solutions, enabling you to boost sales by making your offerings more readily available

  • Potential reduction in operational costs, leading to an increased cash flow

  • Much more scope to tailor your financial offerings to your market and empower customers by enabling them to manage their payments or subscriptions via your platform

  • BaaS affords businesses more opportunities to interact with customers, improving their relationship with your brand and affording opportunities to impress them

  • Digital BaaS platforms are also huge repositories of useful data. This can provide invaluable insights into customer habits, and help you to better tailor your financial offerings to their needs

  • BaaS solutions are always changing and evolving, allowing you to position yourself as an invaluable asset to your customers in a fast-changing global economy.

Who are the main BaaS providers in the UK?

Lots of high street banks such as Lloyds and RBS have started using BaaS to create new offerings. However, there are a number of BaaS specialists that have arisen in the UK over the past decade or so, including:

  • Bankable

  • Thought Machine

  • Starling Bank

  • ClearBank

  • FS Foundry

We can help

If you’re interested in finding out more about Banking-as-a-Service and what it can do for your business, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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