Banking-as- a-Service Vs. Open Banking

Bringing banking as a service (BaaS) and open banking to the masses is nothing new. Ever since they appeared several years ago, fintech developers have actively used them. The two notions, although similar in meaning and often used interchangeably, are not the same. In this post, each of these terms will be explored along with use cases for your application.

What Is Banking-as- a-Service?

In our modern world, banks can lease their infrastructure as part of a B2B service. Among the clients of a bank-as-a-service model are large companies, retailers, fintech start-ups, and any other companies seeking to perform financial operations without establishing their own banks.

As a public cloud service, the BaaS model is like renting cloud resources from third parties. Banking infrastructure, on the other hand, offers several services, including:

  • license
  • payment processing
  • card issuance
  • information security
  • limit management system
  • real-time cash flow logic

BaaS users can perform standard banking operations by incorporating these instruments into their apps. In addition to balance checks, they can make online payments, and view the account history without interacting directly with the bank.

BaaS Use Cases

The neo banks business model provides a good example of Banking as a Service. In most cases, they are not standalone organizations but are parts of traditional banks. Neo banks rely on the mature banks’ infrastructure to provide upgraded financial services. Superior service, lower prices, and personal attention to every customer are how they differentiate themselves from the competition.

The bulk of the loans issued by a neo bank are usually short-term loans, quick deposits, and partnerships with well-known retailers. Instead, they excel in other areas such as short-term loans, quick deposits, and partnerships with large financial firms.

However, this does not mean BaaS is only suitable for people seeking to create a custom bank. Through its interface, any business can run banking operations such as lending or depositing.

BaaS Providers

BaaS offers modern firms an excellent opportunity to collaborate in a mutually beneficial way. While fintech developers have opened gates for creating apps, banks gain from selling their expertise.

What Is Open Banking?

As well as leasing banking services, open banking also leases them to non-bank organizations. Nevertheless, two models are made with different purposes in mind. In contrast with BaaS, which allows firms to offer pure banking services via their interface, open banking gives access to clients’ data without transferring banking functions with their consent.

As part of open innovation, open banking is involved. As technology grows and attitudes about user data change, the problem is inevitable. Following PSD2, banking data is now available through public APIs, enabling new fintech initiatives benefiting service providers, developers, and users.

Open Banking Use Cases

Unlike banking products, Open Banking applications provide a completely different user experience. There are various features, including credit score ratings, P2P transfers, and grasping data from several finance accounts. In contrast to opening a bank account or getting a loan, such applications give you valuable insights into your financial health.

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