Banking as a Service and White Label Banking: Key concepts

One of the biggest figures in the world of FinTech, Chris Skinner, has issued the following statement which explains the concept of BaaS in comparison with Software as a Service (SaaS): “SaaS is basically paying for applications as you use them, rather than buying them. These services used to cost you a fortune, but are now free or near enough. That’s where banking is going.”

Banking as a Service can be generally defined as an end-to-end process that ensures the comprehensive performance of a financial service that is provided online in a specified time-frame. With BaaS the traditional model shifts towards a more dynamic version that operates thanks to micro-services and APIs, which transform the nature of banking. FinTechs find an ideal outlet in entities providing BaaS and White Label Banking solutions. The latter begin as neobanks and subsequently turn into challengers. It is quite expensive and time-consuming to obtain a banking license, so the BaaS formula is the perfect opportunity to choose. A great example is N26, which initially offered its clients cards obtained through a white label from the Wirecard Bank. Banks that manage to operate and provide interesting services in the digital era are the ones gaining more users and becoming more competitive.

FinTechs all over the world are already taking advantage of the new opportunities and apply the innovative technologies to improve user experience. Microlending, marketplaces and telecommunication firms greatly rely on BaaS, API-based solutions and automatic real-time processing.

White Label Banking is the tool allowing firms to improve their offering by upgrading their product range with new services, while BaaS ensures that these services are provided in a fast and coherent way. Various companies are currently working on adopting such model of operation and redesigning their strategy. For instance, in the UK, Raisin that compares 65+ savings products, has established a partnership with the Starling Bank in order to gain access to its APIs and provide its customers account opening option. BaaS services of Starling Bank, companies, retailers and brands can develop and popularize new products and services in a quick and efficient manner. All this avoiding the lengthy and complicated development and legal procedures.

The revolution of the banking industry is expected to bring along a variety of similar solutions and opportunities for financial market participants. Many barriers that are restricting innovation today will gradually disappear and so will the security concerns that are affecting the level of customer trust. The new developments will allow individuals and companies to manage their finances more efficiently, using a range of tools that speed-up and simplify the processes. PSD2 was a significant contribution to future success of interconnected banking in Europe and this digital transformation is projected to continue spreading.