Tearsheet Buyers Guide: Banking as a Service (Part 3)
- Banking as a Service technology is powering many of today's top apps.
- Tearsheet is publishing an in-depth series on everything you need to know about the industry and the players in it
Criteria on how to choose a BaaS provider
Everyone is trying to help companies build banking products. What they actually need varies from company to company. With all the different companies out there, how does one choose the best solution for his requirements?
Let’s say a company wants to be able to store cash for its customers. This may sound easy — just set up a bank account and they are good to go. But in reality, there are multiple ways to solve this problem. A user can be onboarded into a general account where all user funds are kept (FBO), you could create a real account for that user, or even implement a prepaid card that feels like an account.
So although everyone is trying to solve the same thing — how to store cash — the use cases would require different solutions. The differences become highlighted when you ask the questions, “What is possible, what am I able to build, and how scalable is it?” And most importantly, what is the economic model?
Every company wants to be able to get tons of users by offering awesome products, but people are starting to realize that with a better structure, things are less costly and ultimately result in higher profits.
Approaching a large BaaS provider that provides a full suite of services may not be a good use of time and resources for a startup on a tight budget. A better bet would be to select a skeleton BaaS that will allow for connectivity to their APIs to provide banking services to the end customer.
A challenger bank will require comprehensive banking features like account origination, but a money transfer company looking to payout money on a debit card will only need debit card features. Some providers offer a much more comprehensive suite of services than others, but will charge more for it. It’s easier to choose the best solution if a buyer knows exactly what she wants.
If a company wants to offer banking services, it will need to know how to act like a bank in more ways than just offering the services itself. Baas providers will help, but compliance, regulation, and KYC are all important parts of providing banking services, and not knowing anything about them can present a serious obstacle for a company looking to DIY bank.
Like other technology solutions, partnering with a BaaS provider has impact on the branding of a company’s end product. Do customers receive a metal bank card? How about dedicated customer service agents for the card? Is premium packaging of mail and bank cards something customers will appreciate? Some companies specialize in branding and marketing, others just give what is needed to get started.
Use Case Complexity
Some companies that want to launch a banking product require a complex use case which would require deeper access to banking APIs. Others require less in-depth control of components. Based on the complexity of the use case, different solutions will be more or less appropriate.
In our next installment in this series, we’ll provide a list of BaaS providers and describe their strengths and weaknesses.