How does Bank as a Service differ from traditional banking?
Unlike traditional banks, which require a banking license and are heavily regulated, BaaS providers need to meet minimum regulatory requirements and do not need a banking license. However, the lack of a license can lead to trust issues which makes it harder for companies to attract new customers.
As mentioned above, implementing the BaaS model gives companies higher flexibility when it comes to product development. Тhey can start creating and experimenting with new product offerings with just a talented developer and an imaginative product manager.
On the other hand, banks rely heavily on their internal network of accounts and need to fulfil a lot of legal requirements before launching a new product on the market. This leads us to the next difference – the customer experience.
In this area, both traditional banking and the BaaS model have their pros and cons. As banks are specialised financial institutions, they have the needed specialists to answer technical customer queries. In contrast, BaaS providers may need to hire external specialists for financial customer support.
Speaking of convenience, BaaS providers have the edge over banks here. The banks’ cumbersome structure and the lack of digitalization of their products make them harder to reach and less attractive to the tech-savvy younger generations.