Banking as a service (BaaS) is a red-hot way for non-banking brands to offer financial services without investing in building out the costly infrastructure of an actual bank. Virtually any brand or business—technology firms, retailers, even rideshare companies—can partner with a traditional bank to provide loans, money movement, bank accounts, and other financial products to their clients and customers.
To start, what are the benefits of BaaS for a brand?
Brands sign on with a banking partner to serve as the financial backbone of a money-focused product like investing or mobile banking tools. In many instances, brands use BaaS to overcome a stubborn customer objection and remove obstacles from the sale-closing process. Think of the early start of the credit card. Large department stores were thinking of ways to encourage shoppers to spend more money. Even with the right product mix, on-point advertising, and convenient parking, there’s one practical barrier to how much a customer can buy: how much money they have in their pocket. How did department stores overcome this objection? By offering the first buy-now-pay-later system in the early 1900s. By presenting a unique token at checkout, customers could defer payments until the end of the month. How much they could buy was no longer limited by the depths of their pocketbook. The problem? With the added job came the taxing reality of chasing down payments at term’s end and floating the business until customers could pay their bill. In 1958, J.C. Penney became one of the first retailers to offer their own proprietary plastic by partnering with a bank to handle the financial side of the transaction. The retailer would get more customers by offering flexible payment options on large purchases, while the bank would handle the heavy lifting of regulatory compliance, financing, and holding balance sheets. From the user perspective, they’re a customer of the front-facing brand. But invisibly behind-the-scenes, a banking partner like Green Dot, Goldman Sachs, or Bancorp handles the money. Fast forward to now, and it’s not just department stores reaping the benefits of the BaaS system. By paying for access to a traditional bank’s financial infrastructure using APIs, tech brands can expand their customer base, flatten speed bumps slowing the customer journey, or offer niche features mass-marketed banks cannot support. How are the most innovative brands leveraging BaaS to serve as the foundation of their ever-growing suite of financial products?
