Banking-as-a-Service: What it is, how it Works, the advantages

19 December 2022 - 13:15

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Financial institutions have started using the Banking-as-a-service business model to improve the customer experience. Let’s see what it is, how it works and what advantages it offers.

Banking-as-a-Service: What it is, how it Works, the advantages

Banking-as-a-service is a business model that is rapidly spreading today and that has its roots far back in time. To understand what it is, it is first of all necessary to understand what the as-a-service model is: this is not new at all, there have already been companies on the market for many years that offer services of this type, such as Infrastructure-as-a-service, Platform-as-a-service and Software-as-a-service.

The as-a-service model is essentially based on providing plug-in, modular, scalable and pay-as-you-go business services. In the wake of the success of this model, many banks have decided to integrate it within themselves, thus the Banking-as-a-service was born.

The change that led to the birth of Banking-as-a-service came from afar and took place thanks to the financial innovation enabled by technological development. What was fundamental was - among other things - the PSD2, or the second directive on payment services, which allowed, for example, the opening of banking APIs to authorized third parties. This has not only renewed the way of understanding the bank and the services that this financial institution offers, but also that of payments, which are increasingly digital.

Proof of this is given by Scalapay and Satispay, the two Italian unicorns who have brought unprecedented innovation in the field of digital payments in Italy. Today, even banks, generally considered traditionalists and reluctant to change, are gradually opening up to new and increasingly technological solutions.

Banking-as-a-service, what it is and how it works

The term Banking-as-a-service today refers to a business model whereby a company with banking licence allows, through its own technological platform, non-banking companies to provide typically banking services .

An example of how a company and its customers can take advantage of the Banking-as-a-service model is provided by Brumbrum, which is a tech company that offers online-only car rental and sales solutions.

Brumbrum has equipped itself with a service that only a banking institution could offer, namely IBAN control. Thanks to this service, the company is able to obtain rapid feedback on the correspondence of a specific tax code to a bank account, reducing transaction times and thus offering a better customer experience.

The services of Banking-as-a-service are mainly offered by financial institutions such as banks, while digital companies that want to provide a more complete service to their customers use them to their advantage. One way to access this type of service is through APIs, i.e. Application Programming Interfaces, which allow you to connect software that otherwise could not interact.

Banking-as-a-service, the advantages for companies and customers

The banking-as-a-service model, which rightfully falls within embedded finance, offers many advantages, both to financial institutions and to companies operating in other sectors .

Customers of digital companies, but also of retail companies, often derive benefits and motivate the use of Banking-as-a-service mechanisms, which can in this way shorten the bureaucratic procedures that often represent a brake to the purchase process.

By taking advantage of Banking-as-a-service, non-banking companies can allow the customer to experience a better and more integrated customer experience. Among the companies that have benefited the most are the so-called Challenger Banks such as Fabrick, i.e. digital banks that can be managed through apps and smartphones, which are now 120 in Europe.

Original article published on Italy 2022-12-19 10:00:00. Original title: Banking-as-a-service: cos’è, come funziona, i vantaggi


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