InsightsArticlesBanking as a Service: what it means and how it works

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

Publication date: 26 September 2023Reading time: 3 minutes

The “as-a-Service” formula has become more and more decisive and pervasive in our society and today it is a well-known concept commonly used for new business models as well as a new way of conceiving the consumption of products and services. The world of finance, and banking in particular, is also experimenting with BaaS (Banking as a Service) and is now becoming an increasingly common model at an international level.

What does “as-a-Service” mean?

The first” as-a-Service product” 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. Shortly afterwards, came IaaS (Infrastructure-as-a-Service) where the infrastructure, like data centres, servers and other hardware components, is not necessary as can be rented without needing to worry about installing it independently. 

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.

And what about Companies as a Service?

When the concept of ‘as a Service’ started to catch on, innovative and young companies like Uber picked up on the trend and built their businesses on the basis of not owning an asset, in the case of Uber the asset being cars. The same concept can be applied to housing with the famous example of AirBnb. These are two significant and representative case studies within a world of start-ups and innovative companies that, with their new Business as a Service, have built to the phenomenon of “servitisation” or “service transformation”. In fact the transition from the sale of a product or service to the provision of a package of products and services combined together solves problems and meets the needs of customers as they change and evolve, in an agile and flexible manner.

Finally in the many fields the concept of Pay per Use has also been introduced, to describe services where users can only pay for what they need without the need for ownership over the product.

Banking as a Service: how it works

Increasingly in search of innovation and developments to better and feaster respond to customer needs, 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 refers to an end-to-end process of financial services, 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 accessible and faster, in real time. This is a real revolution not only for banks but above all for businesses that can adopt this new way of offering financial services by proposing them to different user segments in order to better serve them.

If you are interested in finding out more about financial services that can be integrated into the customer journey have a look at our free whitepaper of Embedded Finance.

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