19 April, 2023

6 minutes of reading

Written by: Alice Casagrande

Banking as a service: meaning and benefits


In 2023, the demand for smart and integrated financial solutions in non-banking digital business platforms has continued to grow. Banks, fintechs, and corporations are working together to offer users a seamless experience through banking as a service (BaaS). Let's find out how…

What is Banking as a Service?

Banking as a service is a business model in which authorized financial entities use their own technology to deliver services usually banking services, to non-financial entities, but also to enhance services provided by financial institutions and banks with increased speed and efficiency.

This process ensures a range of financial services can be perfectly integrated into the processes in use, in a way that enables any type of company to offer its customers the kind of additional solutions normally only provided by banks, like payments, loans, asset management services, and buy now, pay later options.

One example of this is Opyn Pay Later, the B2B payment solution that helps you simplify and maximize your sales, both on-and-offline. This end-to-end platform's technology enables businesses to purchase products or services from other businesses instantly, but pay for them in instalments over time, without interest.

This model falls within the larger phenomenon of embedded finance, or integrated finance, which we have analyzed in detail in this article. Whereas embedded finance refers more broadly to making customer experience frictionless by delivering a financial service into the user's flow, banking as a service takes place in the back-end and specifically concerns the delivery and integration of the financial product itself.

The goal is to always put the customer first, which is the key to success in any kind of business. Financial services that are directly available at the time and place that are most useful to the user improve user experience and increase average purchases and loyalty.

How does banking as a service work?

Banking as a Service has revolutionized the world of finance, and PSD2, i.e., the second Payment Services Directive implemented in 2020, has been essential to its development. The directive has enabled financial institutions to open their systems to third-party developers who can then access customer data and handle transactions on their behalf. This is done through what we call banking APIs (application programming interfaces), which connect software programs that otherwise would not be able to communicate with each other.

In this way, fintechs work directly with banks to integrate financial services into the products and interfaces of other companies.

These services can be provided as white-label products, adapting them entirely to the brand's graphical experience, but without needing to get licensed for them. Because it can be complicated, given the often strict regulations and large capital requirements involved. In fact, banking as a service providers take the form of intermediaries, providing the technology needed to deliver financial services in innovative ways.

The benefits of Banking as a Service

Banking as a service boasts a range of advantages and uses both for financial institutions and for businesses.

Specifically, using banking as a service allows financial institutions to:

  • Make their internal processes faster and more efficient.
  • Offer fast and functional new financial services to their customers.
  • Integrate solutions to increase their per-customer profitability.

On the other hand, banking as a service also allows non-financial companies to:

  • offer new purchase payment options to their on-and-offline customers.
  • Develop new lines of business and revenue.
  • Give their suppliers financial support and agile solutions.
  • Offer credit solutions to their own business' staff.

Precisely because of its many benefits for all stakeholders involved, the banking as a service industry will continue to grow. According to Allied Market Research, in 2020, the value of the global banking as a service market was $2.41 billion and is projected to reach $11.34 billion by 2030.

Banking as a service is therefore a true revolution for banking entities but even more so for non-financial entities that can still provide their customers with all the benefits of financial services without a banking license, and have them 100% integrated into the user experience.

Looking to integrate technology into your business? Discover Opyn Universe: the banking as a service solution that delivers financial services and innovate processes designed for asset managers, banks and large corporations.