How does Banking-as-a-Service vs Banking-as-a-Platform vs Open Banking Differ?

Numerous banks and fintech companies are considering implementing modern digital banking models. The good news is that there are several useful banking models. The bad news is that it may be challenging to choose a model given their similarities.

We have prepared an article explaining how banking-as-a-service vs banking-as-a-platform vs open banking differ. Hopefully, you can learn more about each model and decide which one perfectly suits your business.

What is Banking-as-a-Service?

Banking-as-a-service (BaaS) allows non-financial institutions to integrate with banks through APIs. Thus, these non-financial institutions (or third parties) can offer their services to banks’ clients.

People often confuse banking-as-a-service vs banking-as-a-platform, while BaaS is more similar to open banking. However, instead of allowing third parties to access customers’ data, the BaaS model enables third parties to access the bank’s functionality.

This model is mainly beneficial for fintech companies. The BaaS model enables fintech companies to benefit from the bank’s infrastructure and functionality. Fintech companies can also use bank users’ data instead of tracking cookies.

Startups benefit greatly from BaaS since they can save money on developing a financial system. Thus, they enter the market sooner and start gaining profit.

We are confident that we have what it takes to help you get your platform from the idea throughout design and development phases, all the way to successful deployment in a production environment!

BaaS Examples and Advantages

Real-life use cases of the BaaS model increase daily. However, it’s possible to name a few popular examples:

Development of marketplaces for financial services (i.e., insurance).
Development of AI automated investing platforms.
Money transfers via the usage of a phone number.
Incorporation of e-wallets into crowdfunding platforms.

As for advantages, the list goes as follows:

Clients quickly access quality products a third party offers since the latter doesn’t need to get a banking license.
Fintech companies, especially startups, quickly increase their customer base since bank clients trust their banks.
Banks save money since they don’t invest in technological development.

Banks also get a nice bonus: a fee for each transaction made within a third-party’s platform.

How does Banking-as-a-Service vs Banking-as-a-Platform vs Open Banking Differ?

What is Banking-as-a-Platform?

Incumbent banks realize it’s time to digitalize their tech to stay competitive. However, implementing new tech costs money. The simple solution is to implement a banking-as-a-platform (or BaaP) model.

BaaP means that the bank integrates fintech services into its existing platform. As for banking-as-a-service vs banking-as-a-platform, the main difference is that in BaaP, clients primarily use the bank’s platform. The BaaS model requires clients to use the third party that offers banking services.

BaaP Examples and Advantages

In recent years, global banks have opted for the BaaP model since they “own” the customer relationship while providing better services. Some examples of banks that have already implemented this model include Legence Bank, Live Oak Bank, Wells Fargo, and others.

Now, let us BaaP’s advantages:

Banks don’t need to manage implemented technology and invest in research.
Fintech companies get access to more customers.
Clients use their trusted banks but get access to advanced functions to manage their finances.

The only disadvantage is that the bank can’t control what data fintech companies get. Clients directly share this data with fintech companies.

What is Open Banking?

Open banking directly hooks up the bank’s clients and third parties. Suppose a customer wants to make a big purchase. Thus the client wants to use an app to track and control their spending habits. Open banking enables the third party to access customers’ financial data via APIs.

The model seems similar to BaaP, but in open banking, banks have control over data accessed by third parties.

Examples and Advantages of Open Banking

Open banking enables banks to offer advanced services to their clients. Thus, it may attract more customers. Here are a few use cases of the open banking model:

Expense tracking.
Price comparison.
Savings notifications and management.
Budgeting tips and ideas.
Personalized loan plans.

The model also has a few advantages:

Clients get loan payments faster since financial institutions have immediate access to their credit history.
Bank customers get access to advanced budget management features.
Non-financial institutions that work with banks expand their reach.

Banks must ensure they disclose the access to data they are willing to share. There is a risk of exposing sensitive financial information.

Key Takeaways

Banking-as-a-service vs banking-as-a-platform vs open banking are all different options. Each model has benefits, and some financial institutions may prioritize one model over another. Moreover, some models are more beneficial to fintech companies than to banks.