Banking-as-a-Service: How API technology is creating partnerships between former competitors

Historically, incumbent financial institutions and modern fintechs have been viewed in contrast. The former, the dominant players with a stronghold over the industry but with a lack of will, or ability, to modernise. The latter, the disruptive challengers aiming to build more customer-centric financial products and services, yet without the clout or trust that their rivals gained over decades.


This is now changing. It is becoming an increasingly established view that the future of our

industry is not in the battle between these two factions but in the collaboration between them. This collaboration has, in a large part, been down to APIs.


APIs are what allow different software systems to communicate and share information. They

exist both seen and unseen everywhere in our day-to-day lives. The weather app on your

phone, your satnav, paying with ApplePay/Paypal - all of which use APIs to get information from one system and display it via another.


Now, finance is beginning to see the benefits that can come from this, and API collaboration

between financial institutions and fintechs is growing rapidly. One of the most prominent

examples of these partnerships can be described as ‘Banking-as-a-Service’ (BaaS).


Examples of BaaS

BaaS describes an ecosystem in which licensed financial institutions provide access to their

services to non-banking businesses. There are countless examples of what this can look like.

One would be employee expense cards - an emerging market, which relies upon BaaS.


Managing employee expenses has often been a cumbersome task for accounting teams,

frequently needing to make payouts to employee bank accounts and making their tax reporting more complicated. Now, fintechs are emerging which not only allow businesses to issue employee expense cards but link those cards to a reporting software which makes expenses a far easier task to manage and control.


This uses BaaS as the payment services are ‘leased’ to the fintech from a regulated financial

institution such as a bank, all through a single API call. The fintech then builds their own tools, interface and UX for the product to be used in the most customer-centric way.


Without BaaS, the fintech would have struggled to provide this type of service without

embarking on a very long journey to market. They would either need to enter into agreements with banking providers, which is typically a long and arduous process or attempt to become regulated themselves which would almost certainly take even more time and investment.


BaaS has rapidly improved how fintechs, and end users, can access financial products and

services. This is bringing benefits not just to consumers but to the financial industry as a whole.


Why BaaS is so beneficial