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Written by Cyndie Martini
on January 10, 2023

The term Banking as a Service or BaaS was inspired by SaaS or Software-as-a-Service. SaaS provides ready-to-go software functionality. In comparison, BaaS provides ready-to-go financial or banking functionality.

BaaS providers and fintechs are sometimes used interchangeably. But they are different. Fintechs provide targeted financial services to the end user (e.g., retail customers). Many fintechs are not registered or licensed banks. Examples of services provided by fintechs include:

  • Peer-to-peer payments.
  • Mobile financial apps.
  • Payment processing.
  • Automated portfolio managers.
  • Brokerage services for trading.

The services offered by many fintechs are derived from BaaS providers. BaaS providers do not offer services to the end user. Instead, their services are wrapped by fintechs into a website, mobile app, or even a larger API. Sometimes the services offered by fintechs are further wrapped by a bank or financial services company (e.g., white label).

Unless done in-house by the fintech, the above mentioned fintech services are provided by BaaS providers. Additionally, BaaS providers offer financial analysis (think of the deep financial insights offered by a company like Stripe) and real-time fraud prevention.

Companies using BaaS include Chime, Uber, Apple Card, Google Pay, Lending Club, and Sofi. Uber provides its drivers and delivery partners debit cards when they join the company. These cardholders can cash out their trip earnings instantly. This functionality is made possible because the accounts are held by Green Dot. They are the world's largest prepaid debit card company by market capitalization.

Even IHG and Priority Pass are utilizing BaaS. How can a hotel chain and airline lounge membership company benefit from BaaS? Both use mobile wallet integration so that their membership cards appear in the wallet for quick and easy access.

Some of the largest BaaS providers are Mambu, Marqeta, and Solaris Bank. BaaS providers utilize cloud services as part of their infrastructure, allowing them to scale more efficiently and integrate with other companies.

The BaaS market was valued at $2.41 billion in 2020. It is projected to reach $11.34 billion by 2030, growing at a 17.1% CAGR from 2021 to 2030, according to PaymentGenes.

 

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