With the introduction of new banking models and the rapid growth of financial technologies, the banking sector will inevitably evolve. As a result, the industry is being filled with new buzzwords such as Banking as a Service and Open Banking.
Because of the rapid growth of new terms and structures in banking, keeping up is practically impossible. While they all refer to the same idea of allowing third parties access to a bank’s data and/or capabilities in order to create new or alternative experiences and products for consumers, these concepts are not interchangeable.
Banking as a service (BaaS) and Open Banking emerged a few years ago and have been an integral component in the fintech development process. These futuristic banking models grant businesses the opportunity to offer financial products without having to be a real bank. Despite the fact that both concepts can be achieved via APIs (Application Programming Interfaces), they are hardly the same.
Delving Into “Banking As A Service”
BaaS is a financial service model under the open banking framework and can be described as the next step in open banking. While open banking only authorises bank customers to share data held by the bank with third parties, BaaS goes the extra mile to permit non-bank organizations to foster a connection between customers and banking services, seemingly redeveloping around the existing footprint.
The Banking as a Service model is implemented across a majority of industries. This can be done by means of offering credit / debit cards, online banking, loans and investments services as well as a limit management system, etc; which are advantageous for all parties involved.
A Closer Look At “Open Banking”
Through the use of APIs, Open Banking allows third-party finance providers free access to a range of financial data from banks and non-bank financial companies.
Many individuals have a variety of financial accounts, including bank accounts, credit/ debit cards and investment accounts. New innovations in recent years offer quick access to financial data from various sources, allowing a holistic perspective for the consumer. There are certain apps that allow the user to plan a budget, analyse financial data and adjust economic behaviour in general. These apps don’t replicate banking products like opening a bank account or obtaining a loan, but they offer a unique user experience altogether.
The Differences And Similarities Between “Banking As A Service” And “Open Banking”
Application Programming Interfaces (APIs) undoubtedly play a major part in aiding fintechs, banks and brands create evolved innovative banking experiences. The technology spearheading Open Banking and Banking as a Service (BaaS) are distinctively fintech APIs.
The technology responsible for connecting businesses with prevailing banking frameworks in order to present seamless BaaS user experiences separate from the usual banking sense are APIs; while the technology permitting third-party finance providers open access to a range of financial data (with necessary consent) from banks and non-bank financial companies are APIs as well.
However, as much as BaaS extends from Open Banking, the two possess key differences as well. Though APIs are a commonality in both, the two fintech models differ by what the APIs are used for. As per their very definitions, APIs are utilized in Banking as a Service (Baas) in order to provide the experience of an actual bank without having to go to the bank, whereas Open Banking utilizes APIs for the purpose of accessing consumer data.
Open APIs are enabling new digital ecosystems with embedded finance and banking-as-a-service to gain popularity. As a result, banks must rethink their business models in order to give appealing new propositions to their clients and to remain relevant and dominant in an industry with a complicated network of players. Their success in the realm of open banking and BaaS is reliant on modern cloud-native and API-first technologies — digital transformation becomes a requirement rather than an option in order to compete in this progressive new world.
With OpenPayd, you have access to a complete banking ecosystem and payments system all from one API. The company is fully invested in helping you achieve all of this and has a team of experts to guide you on your way to an exemplary digital transformation.