As Banking as a Service emerges as the next big thing in fintech, most people consider challenger banks as the most relevant application of this new set of technologies. With some investigation and discussions with top industry players like Cambr, BBVA, Railsbank, and Clearbank, we've come to realize that there are a number of other less explored usages of BaaS which can actually be more significant than launching a challenger bank.
These non-intuitive uses of BaaS are great examples of the power of embedded finance and the changing nature of financial services. Please see Tearsheet's Banking as a Service Buyers Guide for more in-depth information about the technology stack and the leading players.
Before we dive deeper into the subject, it’s worth defining BaaS. There are varying definitions, so what is banking as a service? Banking as a service enables the digital delivery of banking services via APIs. In this model, at least one sliver of the banking technology stack gets integrated into a third party app or website. Most of the time these technologies are delivered to a company that doesn’t have a banking license, embedding banking services in a non-bank. A retailer like Walmart can turn to a BaaS provider like Green Dot to launch a debit card that encourages shoppers to deposit their paychecks directly on the card, save a portion, and receive rewards.
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