Banking as a Service
Book

Banking as a Service

Opportunities, Challenges, and Risks of New Banking Business Models

Jason Mikula
Kogan Page, 2024
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7

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It’s telling that even as bankers and regulators are still figuring out exactly how to define banking-as-a-service (BaaS), its wave has already washed through the financial sector and receded. In this helpful overview, consultant Jason Mikula chronicles the rise and partial fall of a new breed of tech companies that aim to make finance more convenient for customers. Mikula points to pioneers like Uber and Starbucks, whose apps allow users to make payments and deposit earnings while boosting customer loyalty. He also outlines the regulatory disasters that have befallen some community banks that dove headlong into fintech partnerships. Financial professionals will find this a useful reference.

Summary

Banking-as-a-service (BaaS) creates opportunities and risks.

BaaS refers to a partnership between regulated banks and nonbank companies that require some sort of consumer-facing financial services. The concept remains loosely defined. But here’s one way to think of it: Say Uber or Lyft rely on their bankers to process customer payments and to distribute fees to drivers. That would just be a banking relationship, not BaaS. But if one of the rideshare companies were to offer a branded credit card to drivers and also to hold the drivers’ earnings, then the relationship would be considered BaaS.

BaaS has emerged with the rising prominence of financial technology, or fintech, companies. Fintechs typically are not chartered as banks, so they need to partner with regulated financial institutions to do business. But as fintechs mature, some have acquired regulated banks. This list includes SoFi, LendingClub, and Green Dot. Square, for its part, applied for and received a banking charter. Other fintech models include Mint, which helps consumers analyze and manage their finances, and digital wallets such as Apple Wallet, Google Wallet, and Venmo. No matter the fintech...

About the Author

Jason Mikula is the publisher of Fintech Business Weekly, a newsletter about the rapidly evolving financial services ecosystem. He also advises and invests in early-stage start-ups.

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