Banking as a service: what it means and how it works

The “as a service” formula has become more and more decisive and pervasive in our society and today it is a concept that almost everyone understands and many are using in the building of new business models as well as a new way of conceiving the consumption of products and services. The world of finance, and in particular banking, could not stay behind and is experimenting with banking as a service with some international realities that have started experimenting with trying this out it and then making it an increasingly common model.

What does “as-a-service” mean?

The first “thing” as a service was software, back in 2000, followed by platforms with the Paas (Platform-as-a-Service) model to allow businesses to manage their own applications without having to take charge of the on-site infrastructure. and Then, shortly afterwards, came IaaS (Infrastructure-as-a-Service) in which you don’t even have to have the infrastructure (data centre, servers and other hardware components) because you just rent them and then the worry of having to install them on your own premises disappears. 

The arrival of the cloud has led to the Everything-as-a-service (or Anything-as-a-service) model which, according to Gartner, will be the most widespread technological solution adopted by the PA by 2023 and which describes a world in which every aspect of IT, hardware and software infrastructure is virtualised.

The beginnings of banking as a service are companies as a service

When this concept of ‘as a service’ started to catch on, innovative and young companies like Uber picked up on the trend and built their business on not owning a commodity, in this case a car. but The same concept could be applied to housing, as AirBnb has done. These are two significant and representative examples of a world of start-ups and innovative companies that, with their new business as a service, have given rise to the phenomenon of “servitisation” or “service transformation”, the transition from the sale of a product or service to the provision of a package of various products and services combined together to solve problems and meet the needs of customers even as they change and evolve, in an agile and flexible manner.

At this point it is necessary to introduce another term that belongs to this logic and conveys it well: pay per use. It means that you only pay for what you use in the IT field, as in the automotive one for example, without having to pay for “ownership”.

Banking as a service: how it works

Increasingly in search of innovation and developments that will enable it to respond better to customers’ needs and not lose points in their eyes, even compared to other younger and more competitive players, the banking world has adopted new business models linked to as-a-service. This is known as Banking as a Service (BaaS).

This term today means an end-to-end process that ensures the execution from start to finish of any financial service by providing it on the web, available on demand and carried out within a predefined period of time. All three aspects are significant and must occur in order to be able to speak of banking as a service.

With this new way of delivering financial services, payments, loans, asset management services are no longer distributed in a constrained way through the traditional banking channel but become available via a range of digital channels. This means that they become much more usable and much faster, in real time. It is a real revolution not only for banks but also and above all for those who are not banks but who can adopt this new way of offering financial services by proposing them to different user segments in order to serve them better.