Banking as a Service vs. Open Banking vs. Platform Banking. What Are They And What Are They Not?

By Maryna Cherednychenko

Banking as a service (BaaS), open banking, and platform banking are not new concepts. They appeared several years ago and have been actively used in fintech development ever since. Although the notions are close in meaning and often used interchangeably, they are not the same. This post will scan each of them and share use case ideas for your app.

What Is Banking as a Service?

BaaS is an innovative B2B service allowing banks to lease their infrastructure. BaaS clients are big holdings, retailers, fintech startups, and any other organizations that wish to carry out finance operations but do not want to organize their own bank.

The BaaS model is similar to renting cloud resources from third-party providers, like AWS or Google Cloud. The “lessee” themself chooses what tools to use. In turn, the banking infrastructure offers a wide range of services:

  • license
  • payment processing
  • card issuance
  • information security
  • limit management system
  • real-time cash flow logic
  • etc

Using these instruments, the BaaS user can perform standard banking operations in their app. For example, they can implement balance checks, online payments, history views without any interaction directly with the bank.

BaaS

BaaS Use Cases

Neobanks show a good example of BaaS in action. In most cases, they are not stand-alone organizations but add-ins on top of traditional banks. Neobanks use the mature banks’ infrastructure to provide an upgraded finance experience. They gamble on superior service, lower fees, and personal touch with every client. Neobanks do not usually issue big loans or participate in large financial operations; instead, they succeed in other areas like short-term loans, quick deposits, and partnerships with well-known retailers.

The above does not mean BaaS is only suitable for those who want to create their custom bank. This model allows any business to run banking operations (like lending or depositing) through its interface.

For example, if you own an airline, a restaurant, or a retail shop, you might offer branded debit cards and reward users for using them. You could also track spending behavior and use this data to improve your marketing strategy. Another idea is to give an online loan for the purchase of your goods and services. This would help you raise customer loyalty and build brand confidence.

BaaS Providers

For modern companies, BaaS is an excellent chance for mutually beneficial cooperation. While fintech has an open gate for app development, banks benefit from selling their expertise. If you want to start your fintech project, take a look at the institutions that are already leasing their infrastructure:

  • Solarisbank
  • ClearBank
  • Railsback
  • Starling Bank
  • Société Générale

What Is Open Banking?

Open banking is similar to BaaS because it also leases banking services to non-bank organizations. However, two models are made for different purposes. While BaaS allows firms to offer pure banking products via their interface, open banking grants access to clients’ data (with their consent) without transferring banking functions.

Open banking is a part of the open innovation model. It comes along with the growth of technology and changing attitudes towards ownership of user data. With the release of PSD2, banking data is now available through public API, which kickstarts the rise of new fintech initiatives gainful for service providers, developers, and users.

Open Banking Use Cases

To learn how open banking works and how it differs from BaaS, let’s look at a typical use case. You are probably familiar with finance apps that analyze spendings, plan a budget, and adjust economic behavior in general. Such apps do not repeat banking products but provide utterly different UX. Popular features are, for example, credit score rating, P2P transfers, grasping data from multiple finance accounts, etc. Such apps do not allow you to open a deposit or get a loan but grant valuable insights into the current financial state. You can see more detailed info about trending use cases in the picture below:

Open banking

Open Banking Platform Providers

If you want to launch a fin management app, there is no need to contact the bank directly. Today, many open banking platform providers connect with banking systems and enable developers to use their data in apps with a few code lines. Here are the platforms to pay attention to:

  • Klarna
  • Yapily
  • Bud
  • Akana
  • Plaid

What Is Platform Banking?

Platform banking is quite the opposite of BaaS and open banking. Unlike previous models, the bank doesn’t share its infrastructure but integrates other firms’ services in its own app. Why does it do it? First of all, to compete with more progressive and agile companies. The traditional bank model is rather outdated now. It is inferior to advanced fintech services in terms of innovation and a variety of in-app perks. In this situation, big banks risk losing customers. That is why they are investing in technology and adopting external tools to enhance UX.

Platform Banking Use Cases

Today there are many examples of platform banking, and you will probably see a few if you open a banking app installed on your smartphone. Here are typical use cases:

  • buying tickets for a bus, train, plane
  • buying tickets for various events (concerts, sports matches, etc.)
  • online games payments
  • charitable contributions
  • gift certificates
  • etc

It is very convenient to have such services in a mobile banking app because they allow users to perform all daily transactions in one place without the need to go to third-party sites or apps. If you need a fresher idea about platform banking, take a look at the robo-advisors side. Having them in place enables users to invest in projects without leaving the app.

Platform banking

Enroll In Fintech Development

Current trends in the fintech world offer great opportunities for small and large companies. Thanks to BaaS and open banking, startups can put into action almost any idea that requires using specific finance data and tools. In turn, platform banking enables banks to use the latest fintech innovations and enrich their digital product’s functionality.

Considering today’s statistics, driven by the growth of investments and the number of services, now is the time to set foot on the path of fintech development. Whether you are a small business or a large organization, there is a fintech niche that can bring you fame and fortune. For a better start, consult with fintech experts and get a clear plan for your project execution.

This article was originally published at Softensy.

Softensy specializes in fintech development and enterprise-level apps. Our team helps companies automate business processes by developing software solutions.