Banking as a Service

Banking as a Service (BaaS) (also: Banking-as-a-Service, Digital Banking) is an end-to-end process ensuring the overall execution of a financial service provided over the Web. Such a service is available on demand and is carried out within a set timeframe.

As a value network, BaaS aims at seamlessly integrating as many service providers as needed into one comprehensive process to complete a financial service in an effective and timely manner. It is implied that a BaaS would include certain features in addition to providing a financial service. There must be means for managing, deploying and delivery of the services' environment. The services must of course be in legal compliance with the banking laws in the regions where it is made available, with (at least) one entity within the process possessing a banking license. Of utmost importance is the assurance that proper mechanisms are in place to provide security, such as strong authentication and additional measures to protect sensitive information from unauthorized access throughout the entire process. These security mechanisms must be in compliance with laws of data protection for the jurisdictions involved. With the proliferation and acceptance of BaaS, the emergence and rapid growth of FinTech can be expected. FinTech is “a business that aims at providing financial services by making use of software and modern technology.”

Chris Skinner suggested a 3-layer representation of the BaaS stack. In this stack, the underlying infrastructure-as-a-service is provided by a traditional, licensed and regulated bank. Above this bank would be the centralized Middleware layer that Skinner refers to as “Bank as a Service.” Added on to the Bank-as-a-Service is a group of decomposed banking services consisting of an ecosystem of FinTech startups and service providers. With this technology, based on the BaaS-platform, it is possible to create FinTech banks, which could improve banking processes and provide increased convenience for banking clients. In such a constellation, FinTech banks are enabled to compete directly with banks by offering core-banking services without having to build all the products that would be needed. The API-based Bank as a Service platform serves as the back-end that hosts standalone independent FinTech startups and integrates seamlessly with any existing back-office of traditional banks. This allows non-banks to easily and cost-effectively launch additional financial products and expand into additional markets.

Dynamic development and growth in the world of FinTech have made the API-based Bank-as-a-Service stack obsolete in contexts where tech-companies, now own licenses to operate as regulated banks, thus eliminated the reliance on classic banks (e.g., Solaris Bank). Embracing the new developments in financial technology and services, the Banking-as-a-Service stack can be redefined in analogy to the Cloud stack.

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