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The banking and fintech industry is ever-growing and expanding. Through the digital transformation, more businesses can grow a fintech startup from scratch to provide new banking and payments services to people worldwide.
In this industry, there are new product types and models to use. Banking as a service (BaaS) is one of them, along with payment as a service (PaaS).
You may be wondering what these are and if they are right for your business. Read on to find out:
Banking as a service is the use of banking services by other businesses to provide banking products to customers. For example, a business may hire a banking as a service (BaaS) provider and pay a regular amount monthly or yearly to gain access to the BaaS provider’s code, technology, or banking products to resell them through an additional product.
Companies like Sila operate in this way (although we align more with the payments as a service business model). Essentially, a business would be able to hire a BaaS service provider to white label the back-end code and to resell those products. It also gives the reseller the opportunity to customer financial features to make new products.
There is a clear benefit to BaaS. For most startups, the biggest benefit is the cost savings. To provide banking services, you often need to be classified as a bank or bank agent. Getting this classification is costly and time-consuming. When you go with a BaaS service provider, you don’t have to pay as much or commit to months of certification and processes.
Another benefit is access to products. BaaS service providers have products like bank accounts, checks and checkbooks, wire transfers, loans, and mortgages, which in turn allow users to create more products. These products provide spending power and a high volume of funds flow to clientele and can be difficult for even registered bank agents to gain access to. Therefore, using a BaaS provider helps you get to these products faster and provide them for your client.
BaaS compares to payments as a service, which is a similar model for business-to-business service providers but they offer different services. Businesses would still gain the same benefits as BaaS, but they will access different products.
PaaS products are all about payments. This includes sending and receiving money, ACH transfers, wire transfers, international money transfers, gaining access to digital banking wallets, and financial automation. While BaaS providers might also be able to provide payments, this often does not go the other way.
To compare, both BaaS and PaaS might provide
Unique BaaS products are more like:
And unique PaaS might include:
As you can see, there are many use case examples of when you want to use BaaS vs. PaaS.
If you want to get into financial services, then understanding the difference between service BaaS and a PaaS platform is key.
A BaaS solution is great for:
On the other hand, a PaaS solution is great for:
As you can see, these two business models are vastly different.
If you want to create a payments mobile app, integrate e-commerce payments into your website, or facilitate card or point of sale transactions, then you’re most likely looking for a PaaS provider. However, if you’d like to provide banking services, then you should look to the BaaS platform.
No matter which route you decide, Sila is by your side. We can help you navigate the financial industry as a fintech startup. You may be surprised just at how much you can do with Sila. We offer lots of payment products and some banking services too.
Reach out to our sales team or start building in the sandbox today!