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How BaaS is driving fintech—Part 1

Fintech companies — which set out to change how payments, loans and investments are packaged, delivered and used — have grown exponentially over the past few years. One of the reasons they have been able to grow so fast is their successful partnerships with Banking-as-a-Service (BaaS) providers.



  • Global Banking-as-a-Service (BaaS) market size will grow from $16.2 billion in 2022 to $195.2 billion in 2033, at a CAGR of 9.3% during the forecast period of 2023–2033. (Regional Research Reports)

  • Fintech corporations are expected to be the leading end-users of BaaS platforms, accounting for a share of nearly 26%. (Bloomberg)

  • Demand for Banking-as-a-Service platform across the U.S. is set to rise at an impressive 15% CAGR. (Bloomberg)


Banking-as-a-Service (BaaS) refers to a model that allows non-bank businesses to integrate a licensed bank’s digital banking, payment, and loan services directly into their own products. By connecting to the BaaS provider via API, non-bank entities can offer account management, digital lending, and payment services through their own websites and apps without the need for a banking license—and all the costs and regulations that come with it.

An example of how BaaS works is when an airline offers its customers credit or debit cards that award loyalty points whenever they make purchases. By analyzing customers’ spending behavior, the airline can understand them better and offer more tailored services. The airline could even offer its customers an online loan for their tickets directly on their website. This way, customers could finance their holiday while choosing their flights, and the airline could increase the number of tickets sold and directly influence the amount its customers spend.

Non-banking businesses are eager to improve their customer experience and boost their revenue by offering their own banking services. However, if they want to offer banking services (checking and savings accounts, loans, credit cards, etc.), they need a very difficult-to-obtain banking license that carries significant capital requirements, as well as compliance with strict regulations. This is where BaaS comes in.

Continuing with our airline example, BaaS software—often provided by a fintech—allows the bank's system to communicate via APIs with that of the airline, enabling the airline’s customers access to banking services directly through the airline’s website or app. The customer sees the airline’s name, but the actual services are provided by the licensed bank. The airline never really touches the customer’s money. It simply acts as an intermediary, meaning it is not burdened by any of the regulatory duties a bank has to fulfill.

Thus, with BaaS, nearly any business can become a banking provider with nothing but a few lines of code. That’s why BaaS is also often referred to as white-label banking, since the banking services are delivered through the branded product of the non-bank.

How BaaS differs from open banking and platform banking

Open banking also involves banks connecting to non-banks via API. However, the models serve different purposes. In BaaS models, non-bank businesses integrate complete banking services into their own products. In open banking models, non-bank businesses merely use the bank’s data for their products. These non-bank businesses are called third-party service providers (TPPs).

Financial management apps, such as budgeting or portfolio overviews, are an example of TPPs that benefit from open banking. Via an API integration with the bank’s systems, a TPP aggregates information from all of a customer’s different bank accounts into one application, enabling the user to better oversee their finances.

The key distinction between BaaS providers and TPPs is that TPPs are not able to perform banking services (such as lending or taking deposits). They are simply repurposing account information from an existing bank account to provide insights or trigger transactions.

Another model that is often confused with BaaS is platform banking. This model is actually the opposite of BaaS. In the platform banking model, the bank owns the customer and integrates services from fintechs, such as robo-advisors. In the BaaS model, the customer is owned by the non-bank and integrates services from the bank.

Next week we’ll dive into how exactly BaaS has driven the growth of the fintech market, and look at some of the prominent trends that will affect growth over the next five years.


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