BaaS – The basics you would really want to know

How are so many new neo-banks and credit cards hitting the market?
What’s the buzz behind BaaS? Here’s a primer on Banking-as-a-Service. Read on!

“Wherever you go, go with all your heart,” said Confucious.

“Wherever you go, go with TripMoney Global Credit Card,” thought Make My Trip.

MakeMyTrip’s fintech arm TripMoney has joined hands with SBM Bank India to launch a rupee-denominated secure credit card. The value-loaded credit card with several money management features is powered by Visa and can be used across 150 countries helping international travellers, including students.

Next, Amazon and Flipcart thought “Empty shopping bags don’t make noise” and launched their own credit cards with rewards to make buying more affordable, targeting over 50 million customers.

IndMoney, more like the dad in the house thought, “If you are shopping and travelling so much, you may well keep track of what you spend and save.” They have come up with a super finance app that can be the “one-stop shop” for people to keep tabs on savings and expenses.

How are all these made possible?

How are non-banks able to embed financial services into their experience and take it to the market so quickly? 

Who is bridging this collaboration between regulated financial institutions & any company that wants to partner with them and build fintech products?

Many such questions. One answer – Banking-as-a-Service, or BaaS providers.

What is BaaS?

BaaS is an end-to-end approach that enables fintech companies and other third-party organisations to connect with a bank’s system using APIs.  This helps businesses build modern financial services on the provider bank’s regulated infrastructure while facilitating open banking services.

Banks hold money, remittance, and payment processing. To enable these functions, banks need tons of investment and create the required infrastructure. The processes and the complex infrastructure often create gridlocks. These gridlocks called for a bridge for fintech companies and non-bank organisations to partner with banks, instead of building these financial services from the ground up.

Who are BaaS providers?

Banks help fintech companies connect their products and services to the wider financial system. BaaS providers act as a bridge between a bank and a company – they integrate the bank’s financial infrastructure into a company’s app or website. 

Start-ups and businesses can create a fintech product without setting up their own financial infrastructure. With BaaS providers, businesses don’t need licensing or compliance with many financial regulations, because they never “touch” the money. All financial operations are driven through the BaaS provider’s system. 

BaaS partners offer a wide range of business needs that include issuing cards, KYC, credit scoring, and currency exchange, along with core banking elements like payments, accounts, loans, mortgages, etc. This greatly reduces the costs and complexities involved in taking the financial services and products to the end customer.

How does Banking-as-a-Service work?

Banking as a Service allows businesses to draw from existing banking services through APIs that communicate between them and banks. This enables building their own features as a layer on their existing banking services.  In simple words,

  1. Fintech companies pay to use BaaS
  2. Bank opens its APIs and BaaS connects them to the fintech companies
  3. Fintech companies build innovative financial services using these APIs

BaaS Provider Services Offering

BaaS providers can help businesses with the most crucial factors — think KYC and onboarding, opening an account – be it a virtual, savings, or business, fintech payments, debit cards, and your own BNPL product. The important thing after all is companies want the BaaS provider to help them grow and support their fintech innovation.

How do businesses benefit from BaaS?

  • With API driven facilities, BaaS partners help create new revenue sources for businesses by enabling cross-selling capabilities
  • With BaaS, businesses can reduce the time to build and ship apps, taking products to the market faster.
  • Businesses innovate more by capitalising on APIs of their own, along with third parties
  • Building products and services using API ecosystems drastically increases the customer base
  • BaaS providers basically become the company’s extended tech team, helping them solve last mile challenges, and keep up with changing regulations

What makes choosing the right BaaS partner important?

Partnering with the right BaaS provider is crucial for two reasons – not all BaaS providers are the same and it is not easy to switch BaaS providers midway because all your customer interactions will be linked to that particular provider’s financial infrastructure.

Be it a fintech product that centres around core banking or service that just embeds financial features as an add-on for customers, the BaaS provider you choose will determine the bank you can partner with. Some BaaS providers may build on one bank’s systems or many; their range of services may be different, and it may perhaps not suit your business. These are other critical factors that make sense while evaluating a BaaS provider.

What should you look for in a BaaS provider?

Partnership with banks & regulated institutions is the most critical factor for any fintech service. It is imperative for the fintech company to control the relationship to grow.

If the BaaS provider enables a direct relationship with your fintech business and the bank, great. BaaS providers also do the heavy lifting when it comes to preventing fraud, payments not going through, offering credit to customers through the bank, etc.

An account-centric approach to BaaS is ideal because all bank processes revolve around bank accounts. This approach by the provider makes way for deeper integration with bank cores, allowing you to use the needed banking tools to build more products and services as you grow. Bank accounts support multiple forms of lending & payment transfers.

The BaaS provider becomes a good fit if they can integrate with more than one bank partner so that all your company needs are taken care of. An ideal BaaS partner supports neobanks, NBFCs, BNPL players, commercial and retail fintechs, and embedded banking for non-finance businesses. The provider’s services offering, implementation and support, the provider’s customers, all these are crucial factors to be considered. 

For instance, we at Decentro have joined hands with some of the best banks, prepaid issuers, lenders, and government institutes in the country to help you kick-start BaaS to help your business. 

Looking to leverage banking as a service?
We are just a buzz away at hello@decentro.tech! Drop us a message, we’re all ears!