With Fintech services and digital banking undergoing rapid innovation, lucrative options like Banking as a Service (BaaS), Banking as a Platform (BaaP), and Open Banking are being pursued by businesses. Both financial, as well as non-financial businesses, are keen on tie-ups with BaaP and BaaS providers in India. The concept of Open Banking emerged in Europe but has now found increasing reception worldwide. While all three of these are digital collaborations between banks and enterprises, there are several differences between them.
Based on the type of services being offered and the contract specifications, these digital banking collaborations deliver multiple advantages for banks, enterprises, and customers. At the same time, they also have certain limitations that stakeholders should be aware of. Before going ahead with any of these tie-ups, entrepreneurs must understand each of these concepts separately.
The Popularity of BaaP and BaaS in India
The demand for reputed BaaP and BaaS providers in India has skyrocketed over the last few years. More than ever before, consumers are opting for online purchases and digital payments as opposed to cash. The Digital India campaign has given further impetus to cutting-edge Fintech services.
Given the extensive market scope, most start-ups want a piece of the BaaS cake by offering finance-related products and services. Similarly, banks want to enhance their customer experience and maximize revenue generation by offering third-party services on their digital banking platforms.
Understanding Banking as a Service (BaaS)
The easiest way to understand BaaS is to view it as an established bank leasing its digital infrastructure, license, and online services to a third party. While Fintech businesses usually avail of BaaS services, the scope extends to other business formats like Retail, IT, E-Commerce, Hospitality, Airlines, and so on. The salient features of BaaS are as follows:
- The layers of services offered lie at the sole discretion of the bank. Some banks extend basic services like licenses, gateway payment processing, and card services. Others delve deeper and provide data security, expenditure monitoring, and tax assessment.
- A BaaS collaboration allows the customers of the third-party business direct access to the leased third-party services.
- By simply allowing third-party businesses to use their existing digital platforms and license, BaaS services enable an additional stream of revenue for banks.
- For a reasonable fee, start-ups can directly benefit from existing banking resources and expertise without having to develop these from scratch. This helps them win the trust of their customers and foster brand credibility.
- The Banking API or Application Programming Interface is crucial for seamless and secure data transfer between the banking and client interface. Many popular commercial banks like Solarisbank, Starling Bank, and ClearBank are opening up their APIs to various enterprises in mutually beneficial BaaS collaborations.
Understanding Banking as a Platform (BaaP)
Banking as a Platform (BaaP) involves a bank enabling/allowing external businesses (both Fintech and non-Fintech) to sell their services on its platform. As discussed above in BaaS, the business that provides leased financial services to its customers acts as the front-end for them.
In the case of BaaP, the inverse is true. The bank here is the front-end for customers, providing a host of third-party services on its digital platform. The salient features of BaaP are as follows:
- By integrating a diverse range of third-party services on their internet banking website, mobile app, and e-portal, banks aim at providing an exceptional customer experience.
- These multi-faceted digital banking platforms act as a one-stop destination for customers to access a multitude of customized services. They can buy movie tickets, book flights, and pay their mobile bills on the baking website itself.
- BaaP is the easiest way for legacy-driven banks to embrace digitization and retain/expand their customer base. Without having to develop in-house expertise and digital infrastructure, they can conveniently expand their service range to compete with new-age banks and tech-smart NBFCs.
- BaaP services are the most sought-after to enrich banking apps with retail services, insurance, wealth management, forecasting, booking, and other advisory services.
- Several Indian public and private sector banks such as SBI, HDFC, and ICICI are providing third-party services on their apps.
Understanding Open Banking
- Open Banking is quite similar to Banking as a Service (BaaS). The only crucial difference here is that the bank’s license or infrastructure is not leased out. Rather, the bank shares its user data with authorized external businesses.
- The primary aim of open banking is to end banking monopoly over certain sectors and allow Fintech players to provide relevant services to customers.
- Consumer data is always shared with their consent and in compliance with the latest data security regulations.
Conclusion
The Fintech industry in India is constantly evolving. Thus, the concepts of BaaS, BaaP, and Open Banking are subject to constant changes and improvement. While the fundamentals remain the same, the terms, conditions, and service layers vary from bank to bank. Businesses must thoroughly comprehend all clauses before entering a digital banking collaboration.
