Banking-as-a-Service (BaaS)

Banking-as-a-Service (BaaS) can be a confusing concept — it’s also a hot one. In simple terms, when banks deploy their products and services through nonbank brands, this is called BaaS. Bank partners provide regulated infrastructure to a brand (frequently a fintech) and receive access to new revenue sources through the financial products they offer to customers. Banking products provided by some of the biggest fintechs (e.g. unicorn neobank Chime) in the country are powered by bank partners (e.g. The Bancorp Bank and Stride Bank). These arrangements allow fintechs to offer Federal Deposit Insurance Corporation (FDIC)-insured accounts to their users.

BaaS provides great advantage to parties across the financial services spectrum. This includes traditional banking institutions (the producers), fintechs or brands (the distributors), and customers (the users). On the bank side, key benefits include the ability to reach new customer segments, lower customer acquisition costs, and increased revenue in the form of interchange and other fees. A BaaS model effectively allows a bank to outsource customer acquisition to fintech companies that are focused on creating slick experiences for users, while reining in those deposits. Additionally, institutions can offer other services through BaaS like payments and lending.

BaaS can be attractive to many banks, especially those with less than $10 billion in assets (and therefore exempt from the Durbin Amendment), but before jumping in, there are many choices a bank has to make. Which products will you offer? Which fintechs will you work with? Will you seek help from BaaS technology providers? Before entering into any relationship with a third party and offering BaaS, it is important to understand completely what your bank can and should offer, as well as how it will affect your business and your customers. It all starts with the strategy.

BaaS is not a one-size-fits-all proposition, but fortunately, there are resources to help you navigate this new world. Reaching out to experts like those at CCG Catalyst can help you start your BaaS journey and reach your highest potential.