The architecture behind Banking-as-a-Service


Across the world of finance and fintech, few innovations have been more impactful than Banking-as-a-Service (BaaS). It allows any licensed bank or financial institution (FI) to offer their services to a far deeper pool of customers than ever before. And fintech and financial service innovators can use the technology to build exciting new banking products.  

As a result, the global BaaS market – already valued at USD $19.65 billion in 2021 – is expected to be worth around $74.55bn by 2030. That’s a CAGR of 16.2%.  

Despite the market size and the rapid pace with which the banking sector has digitalized over the last few years, understanding the tech requirements to begin offering BaaS can still be tricky. And implementing them without additional support is costly and time consuming. 

In this blog, we’ll explain exactly what BaaS is, why it’s such a huge opportunity and explore what’s required for banks to take advantage of that opportunity. 

What is BaaS?  

BaaS is essentially the infrastructure that most modern B2B and B2C fintech products are built around. It allows licensed banks and FIs to offer access to their back-end banking functions via API. This, in turn, allows non-licensed banks, fintechs and digital businesses to create and offer a wide range of innovative services. And they can do this without the need to build the infrastructure or become a regulated entity themselves.  

Use cases and benefits 

For banks and FIs, use cases include traditional banking services like accounts, wallets, overdrafts, payments and cards, financial products like loans and insurance, and regulatory checks such as know your customer (KYC). The use cases, however, are practically unlimited – as long as the banking infrastructure is licensed, the tech is correct and the licence holder has the right team and partners in place.  

These products are typically purchased by fintechs or digital businesses looking to build an entirely new business model, financial product, or, even, bank.   

BaaS providers benefit from a considerably larger customer base and far lower acquisition costs. According to Oliver Wyman, the cost of acquiring an end-customer is typically in the range of $100 to $200. But with a BaaS technology stack, the cost ranges between $5 and $35. 

BaaS is often used synonymously with embedded finance, but there is a difference. Read more in our Embedded finance vs BaaS blog. 

The BaaS architecture  

Opening up banking infrastructure is a huge opportunity. But it requires specific architecture in place so fintechs and corporates can easily integrate it into their own systems.  

Complete and licensed infrastructure   

For fintechs and corporates, the biggest appeal of BaaS is that it removes the burden and cost of building a banking product and making sure it’s compliant. Having that fully licensed infrastructure in place is the ultimate starting point.  

The infrastructure must also be able to support the delivery of banking services to third-party platforms and clients, and be resilient enough to handle a much higher volume of traffic as more and more end-users access the infrastructure. 

A robust set of standardised APIs 

To enable seamless integration with a fintech or corporate’s platform and systems, banks must have robust and developer-friendly APIs, as well as clear documentation and adherence to product management principles.  

APIs allow open design and data access, giving banks improved flexibility and scalability. This, in turn, allows them to adapt and configure new core capabilities with ease, without impacting existing functionalities. 

A modern core banking platform 

None of the above is possible without a modern, open and flexible core banking platform. Traditionally, banks have equated extensive customization with competitive advantage. However, this has left many older banks with a complex core and a huge amount of legacy code.  

Not only is this difficult and costly to maintain and upgrade, it drastically hinders BaaS functionality. Today, the most innovative banks’ core banking can integrate with a variety of systems via standard software and APIs.  

This also opens up the opportunity for banks to widen their own offering by integrating the services of other banks and FIs. An upgraded core banking system means this integration can be easily done via the cloud, a move that will help banks cut infrastructure storage and maintenance costs, as well as the capacity that’s wasted outside of peak times. Instead, banks can flex up and down as needed, with charges based on actual usage rather than capacity. 

The final piece: the right BaaS partner  

For banks and FIs, the opportunity BaaS provides is clear. But how do they realise it? While it’s possible to begin offering out their services alone, teaming up with a BaaS or embedded finance partner with deep banking and technical expertise can make all the difference. They can help build the right architecture, spot hidden opportunities and do so in a quicker, more cost-effective and compliant way. This is why we offer BaaS-compliant technology, served through the cloud with complete IT operations. This means that companies can easily tap into not just BaaS capabilities, without any additional IT overhead, but the entire SAP ecosystem of partners. 

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