JANUARY 7, 2024
13 min read
For many, finding the perfect match between their business needs and a BaaS provider to cover them can be daunting. Not only does it require putting substantial effort into market research, but it also necessitates scoring providers and comparing information about them and their offerings against a list of criteria.
In this post, we’ll delve into the Banking-as-a-Service model that enables the integration of a complete suite of banking services within any non-banking app. You’ll discover how BaaS providers position themselves on the market and, most importantly, how you can pick among them. To guide your choosing and relieve you from the burden of selecting comparison factors yourself, we provide a comprehensive checklist at the end of the post.
What is Banking as a Service (BaaS) Provider?
The key to putting a business idea to good use is gaining comprehensive knowledge of the background behind it first. So, for starters, let’s find out more about banking as a service as a concept:
Banking-as-a-service is a business model where licensed banks offer to integrate their digital banking services directly into the digital products of other non-bank businesses through banking APIs.
Basically, BaaS allows non-banks of different types to offer their customers banking services like payments, lending, or bank account management without having to become banks and acquire licenses themselves.
For extensive information on banking, open banking, and API in banking, read another our blog post.
From the perspective of a non-bank business or their end customer, BaaS providers are third-party providers that facilitate customer-business interactions. Let’s give a definition to BaaS providers as well:
A BaaS provider is a licensed financial institution that allows businesses to access and offer banking services through an integrated digital interface, usually via APIs, without the need to establish their own banking infrastructure.
A BaaS provider is typically a challenger or a traditional bank. Some of them specialize in providing BaaS services and offer them to businesses directly. At the same time, others just offer the infrastructure and processing of banking service requests and can be accessed only from distributor aggregators:
A distributor aggregator is a company that gathers BaaS aggregators to distribute their BaaS offerings to a wide range of non-bank businesses.
You can discover additional information on the BaaS process from the infographic below:
Who Can Benefit From Our BaaS Checklist?
As a business owner, funder, or a C-level executive, you may be wondering whether the BaaS model and the advantages it offers can be the right fit for your company. Let’s discover what businesses should consider integrating banking services and can get the most value out of our checklist provided further in the text:
- Fintech startups. The BaaS model is ideal for startups aiming to offer innovative financial services without the complexity of establishing a full-fledged bank. If a provider is chosen successfully, the BaaS integration will grant a fintech startup an opportunity to dig into digitalization as deeply as it wants without dealing with the burden of payment-handling processes.
- E-commerce platforms. E-commerce platforms can benefit from using our checklist to choose a BaaS provider that will help them integrate streamlined payment processing, fraud detection, and financial management tools. This can make an e-commerce service platform a one-stop shop for customers looking for an easy purchasing experience.
- Tech companies. For tech companies looking to diversify their offerings, choosing a trusted BaaS company provides an avenue to embed financial services into their existing products. This can include features like in-app wallets, payment solutions, or financial tracking, thereby increasing the value proposition to their users.
- Small to Medium Enterprises (SMEs). SMEs can use our checklist to leverage BaaS model and access banking services typically reserved for larger corporations. It can boost their opportunity to compete in the market due to better customer experience with their digital apps and, therefore, a larger number of sales.
- Large corporations. Large corporations should consider partnering with a BaaS provider for more efficient treasury management, employee payroll services, and to offer custom financial products to employees or customers. For corporations, BaaS offers scalability and flexibility that can be aligned with corporate strategies and objectives.
- Non-Banking Financial Companies (NBFCs). Businesses focused on creative lending, investing platforms, or personal finance management tools can use BaaS to cross-sell bank account management, transaction processing, and other services.
- Gig economy platforms. Gig economy platforms can benefit from choosing the BaaS model and selecting a specialized provider by offering financial services directly to their freelancers and contractors. Instant payments, financial planning tools, and microloans can greatly enhance the attractiveness of their service platform.
- Non-profit organizations. Companies looking for efficient donation management, streamlined fund disbursements, and financial transparency should also consider adopting the BaaS model. For such, typically non-fintech businesses, choosing a BaaS provider offering easy and understandable integration is particularly important.
In general, the adoption of BaaS can be beneficial for as long as you have or intend to create a digital service platform, app, or another software solution that can be used to distribute your services or products. Considering the variety of providers offering BaaS services, it’s crucial to guide your selection with concrete factors so that you do not fail in your choice.
Top 5 BaaS Providers and Why Chaotic Choosing Ruins Everything?
As you can conclude by now, banking as a service providers can play an essential role in your digital product development and service distribution, thereby affecting the success of your venture.
Unfortunately, most C-level executives and business owners guide their choices based on recommendations from acquaintances and colleagues or based on only superficial market research. It often leads to choosing an insufficient provider, which doesn’t correspond to the business model or geography region, doesn’t provide the necessary range of features, or just isn’t trustworthy.
The outcomes of the wrong choice here are bugs and technical errors, poor data and transaction security, inadequate customer support, and more. Statistics reveal that 62% of customers who experience a failed transaction neither repeat the attempt nor return to the business. So, it’s utterly important not to fail in your choosing of a financial partner.
The situation is complicated by the fact that it’s hard to determine whether a BaaS provider suits your business judging by information on their websites only. After all, most of them tend to emphasize their strengths and hide their weaknesses, which doesn’t help for fair examination and comparison.
Now that you know the score, let’s review what some of the world-famous providers of banking API and related services write about themselves on their websites:
A UK-based banking platform, ClearBank offers API-driven banking infrastructure services for businesses only. It offers:
- Real-time payments and innovative banking products
- The latest cloud technology for scalability and resilience
- A variety of account types, including operating, customer-segregated, and multi-currency business accounts
- High security, backed by Microsoft Azure Cloud
ClearBank stands out for its commitment to providing a scalable and secure digital banking experience.
You can discover additional information about ClearBank API integration from another our blog post.
German fintech SolarisBank offers Banking-as-a-Service solutions with an API platform, enabling businesses to create custom banking products. What can be said about SolarisBank is that it:
- Specializes in digital banking, lending, and payment services
- Offers KYC platforms and crypto custody solutions
- Serves digital companies, startups, and SMEs across Europe
- Provides regulatory empowerment and secure infrastructure
Solarisbank’s standout feature is its flexibility and ability to empower businesses to create their own unique banking products
Treezor is a French BaaS provider known for its API-based banking and payment services. It focuses on:
- Card issuing and payment processing solutions
- Catering to a wide range of fintechs and enterprises
- Offering a suite of services that simplify financial transactions
Treezor is recognized for its capability to provide comprehensive payment solutions, making it an ideal partner for businesses seeking efficient and reliable financial transaction services.
An American financial services and software company, Stripe is renowned for its payment processing software and APIs for e-commerce businesses. It stands out for:
- Excellent e-commerce payment processing software and APIs.
- A user-friendly interface and extensive suite of tools.
- Online payment systems for businesses of all sizes.
Stripe stands out for its ease of use and comprehensive approach to online payment processing.
ConnectPlay is a relatively newer player in the BaaS market, providing digital banking services. It focuses on:
- Offering seamless integration of banking and payment functionalities.
- Providing tailored solutions for businesses and fintechs
ConnectPlay is gaining recognition for its ability to provide streamlined and integrated banking solutions.
At first glance, all the listed BaaS service providers seem to be perfect for your business. But how do you pick the most suitable one among them and ensure successful collaboration for years? That’s exactly the question we asked ourselves during our first times helping customers integrate BaaS into their digital products, and that’s how our checklist was coined.
Checklist for Choosing Your BaaS Provider
The big idea here is that choosing your trusted BaaS provider can boil down to mere calculations per a list of key factors and picking a company that meets all the crucial requirements and most of the additional.
To help you in this matter, the DashDevs team created a comprehensive checklist that is based on our company’s many years of experience and was enhanced through lots of internal discussions. Using this checklist has changed the BaaS provider selection process for dozens of our clients. And we are happy to share this checklist with you, to help you make the right choice within the shortest time.
Once you have shortlisted BaaS providers, or maybe decided to stick to the ones listed above, guide your choosing by comparing information about those providers against the following key factors:
#1 Alignment of Your Operations and Client Base with BaaS Provider Requirements
This includes ensuring that the chosen Banking-as-a-Service (BaaS) provider is compatible with your company’s specific business strategy, operational requirements, and client demographics. The following factors are required for a synergistic partnership:
- Compatibility check. Ensure the BaaS provider’s services align with your business model and client needs.
- Market fit. Assess if the provider caters to your specific market or client demographic.
- Integration ease. Look for seamless integration capabilities with your current operations.
- Customization. Ensure the provider allows for service customization to match your business strategy.
#2 Budget and Pricing
Naturally, you’re looking for the most value per dollar spent. Not to mention that the cost of BaaS provider’s services transfers onto your customers, and inadequate pricing set by your provider may significantly damage your reputation. Consider the following matters here:
- Cost-effectiveness. Ensure that the end expenses will follow within your budget limits. Ideally, you should give preferences to clear, no-hidden-cost pricing models.
- Scalable pricing. Prefer pricing models that scale with your usage or business growth.
- Value for money. Compare options offered by different providers that ensure the features covered justify the cost.
#3 Scope of Features
The scope of features refers to the options provided as per banking API integration and agreement between a business and a BaaS provider. Ideally, banking API provides nearly the full spectrum of processes typically handled by established financial institutions.
In practice, either your business application or BaaS provider may not support some of the features, the most important of which include:
- Account management. API access for personal bank account creation, management, and closure. Support for different bank account types. Real-time balance information.
- Real-time payments (RTP) and transactions. Local and international payment initiation and processing. Integration with ACH, SWIFT, SEPA, and other payment networks.
- Card issuance and management. API access for card issuance. Customizable card design and customization options.
- Transaction security. Anti-Money Laundering (AML) and Know Your Customer (KYC) verification APIs. Multi-factor authentication (MFA). Data encryption and protection measures.
- Lending and credit services. Loan origination and underwriting APIs. Credit scoring and risk assessment tools.
- Currency exchange and forex services. Real-time currency conversion rates and APIs. Foreign exchange (Forex) APIs for international transactions. Integration with global payment systems for cross-border payments.
- Analytics and reporting. Access to transaction data and financial insights. Reporting and analytics APIs for monitoring financial activities.
- Branding. White-label options to brand the BaaS platform under your business identity. Customizable user interfaces and user experiences. Flexibility to tailor financial services to your target audience.
- Regulatory compliance. Adherence to industry regulations and standards (e.g., PSD2, GDPR). Documentation and transparency for regulatory audits. Regular compliance assessments and updates.
It’s important to understand that it’s hardly possible to find a BaaS provider that has it all covered. Determine your priorities and choose based on them.
#4 Infrastructure Security
When it comes to security, you should focus on evaluating the safety measures and protocols implemented by the BaaS provider to protect both your business and your clients’ sensitive information.
- Robust security measures. Investigate the provider’s security infrastructure, including encryption standards, data protection policies, and cybersecurity measures.
- Continuous monitoring and updates. Check if the provider has a system for continuous security monitoring and regular updates to tackle emerging threats.
- Incident response plan. Assess the provider’s readiness and protocols for handling security breaches or data leaks.
Scalability refers to the BaaS provider’s ability to grow and adapt to your business’s evolving needs. Consider the following aspects here:
- Flexible infrastructure. Ensure that the provider’s infrastructure can handle increasing volumes of transactions and data as your business grows.
- Performance stability. The provider should maintain stable performance levels even as the demand scales.
- Growth support. Verify that the provider has a track record of successfully scaling their services in line with client growth.
#6 Reputation and Track Record
The reputation and past performance of a BaaS provider are critical indicators of their reliability and the quality of service you can expect. Assessment of reputation and past performance includes:
- Industry standing. Research the provider’s standing in the industry, including awards and recognitions.
- Client testimonials and reviews. Look for feedback and reviews from current and past clients to gauge satisfaction levels.
- Case studies and success stories. Analyze case studies or success stories to understand the provider’s capability in handling various business scenarios.
- History of innovation. Check the provider’s history in terms of innovation and keeping up with technological advancements.
You can use the checklist below, visualized for your convenience, to aid you in decision-making. But make sure to adjust the checklist for your business situation, i.e., prioritize aspects if necessary. If a BaaS provider scores high in most additional factors, like particular features, but doesn’t meet a single foundational factor, like trustworthiness or your budget limits, you shouldn’t work with them. Don’t hesitate to reach out to your potential Bank as a Service providers and ask any questions.
BaaS Disadvantages: How to Overcome?
As with any business model, BaaS is not deprived of some consideration to be aware of as a potential partner of banking API and infrastructure providers. DashDevs, as a fintech development agency, has helped numerous of our customers integrate with BaaS capabilities in their digital products. Here are four of the main disadvantages we faced and helped to address and our solutions for them:
- Lack of flexibility
What is it: This challenge arises when a BaaS provider’s offerings are rigid, not allowing customization or scalability according to the unique needs of a business.
How to solve it: Opt for a BaaS provider that uses a microservices architecture. This modular approach allows for greater flexibility, as each module can be independently customized and configured, providing tailor-made solutions for different customers.
- Lack of Geographic Coverage
What is it: This refers to the limitation faced when a BaaS provider does not support banking operations in all the regions or countries where a business operates.
How to solve it: Overcome this by partnering with BaaS providers that have extensive geographic networks or are part of global ecosystems. This allows businesses to offer banking services seamlessly across multiple countries.
- Pricing Structure
What is it: BaaS can sometimes come with complex or inflexible pricing structures that may not align well with all business models, especially for startups or businesses with fluctuating transaction volumes.
How to solve it: Seek providers with transparent, scalable pricing models that can adjust based on your business size and transaction volume. Negotiate terms that align with your financial capabilities and growth expectations.
- Technology Stack Compatibility
What is it: This challenge is faced when there is a mismatch between the technological infrastructure of the BaaS provider and the existing systems of a business. It can lead to integration difficulties and operational inefficiencies.
How to solve it: Opt for BaaS providers who offer comprehensive, end-to-end solutions with proven compatibility with a wide range of existing technological infrastructures. I
At the end of the day, it’s important not to fail in choosing a BaaS provider. Follow our checklist to multiply your chances of picking successfully. It will guide your assessment process, shorten decision-making time, and help avoid common pitfalls.
In case you need additional help with choosing a BaaS provider or integrating a banking API, consider requesting help from DashDevs. We are a development firm specializing in banking and fintech application development. With more than 12 years on the market and over 500 projects delivered, we can ensure the success of your BaaS adoption initiative.