Banking as a Service vs. Open Banking vs. Platform Banking

Banking as a Service vs. Open Banking vs. Platform Banking

Fintech banking apps are powered by banking infrastructure services like Sila. If you’ve been in the fintech and banking industry, you’ve likely noticed that the terms banking as a service, open banking, and banking platform are regularly used to define fintech solutions. But what do these terms actually mean? 

Banking as a service, open banking, and banking platform refer to three different banking styles and types of banking services. Since making this type of commitment is a big deal, you want to know what you’re in for.

This article will compare the three terms and provide use cases for each. 

Banking as a Service

What is Banking as a Service (BaaS)?

BaaS is a B2B service that allows businesses to lease banking infrastructure. BaaS allows businesses like fintech startups, retailers, and investment services to use financial operations without having to become their own digital bank

Banking infrastructure is complex and expensive. It requires organizations to follow licensing, data holding best practices, identity verification, and so forth. These both require a lot of time for setting up and thousands of dollars in licensing costs. 

But you can use a BaaS service provider and money transfer API.

You can think of the BaaS model akin to a third-party cloud provider. The cloud, like Google Cloud, is leased by other businesses (and individuals) to store data securely in a remote location. Just like cloud services, BaaS businesses can be leased by other businesses to access:

Fintech developments can create an app that offers these banking features without having to put in all the work to set up as a bank themselves, or even work directly with a bank.

In most cases, a traditional bank will lease its infrastructure. So if you partner with a bank like Evolve Bank & Trust, then you can easily become a BaaS provider. Gain access to BaaS financial features and the banking sector at a fraction of the cost.

Banking as a Service Use Cases

Neobanking is another type of financial technology where the operator is trying to act as a bank rather than provide another main service.

BaaS is great for:

  • Automated bill payment
  • Automated debt payment
  • Difficult international money transfers
  • Offering your own digital wallets for your company users
  • Adding services like bill payment, digital wallets, and international payments to P2P transfers
  • Offering branded cards

Many of these services can be tailored to the specific industry you’re in, a professional association, a clientele, or as part of your company offerings. 

With BaaS you can offer seamless transactions in niche markets that don’t usually have services tailored for them, like real estate, crypto, and home improvement.

Open Banking

What is Open Banking?

Open banking is a type of open banking feature, add-on, or company that will access core banking data, usually from the customer’s bank itself, to provide value-added services. This type of service is not replicating banking services but adding to them. 

Open banking refers to open bank data, where third-party financial service providers gain access to customer data (with their consent) to provide access to useful features.

Common examples of open banking services are those credit score services, multi banking apps, P2P payments, account switching, and financial management. The best way to understand open banking is to look at your current online banking app and to look for features outside of your bank accounts and credit cards. 

Can you send money to your peers? Think of how Zelle connects to banks across North America. Another example is the credit score service. These aren’t typically provided by the bank itself but by a third-party open banking partner.

Open Banking Use Cases

Open banking APIs are a part of the open innovation model that allows technological features to connect securely and for the benefit of the users. Financial data can be accessed securely through the API to allow for more service providers, developers, and users to get in on the fray.

An open banking system can offer embedded finance services for a bank and non-bank financial institution:

  • Budget apps
  • Spending analysis apps
  • Payment initiation for automated payments
  • Credit score viewers and calculators
  • Mortgage calculators
  • Debt repayment tools
  • P2P add-on services

Platform Banking

What is Platform Banking?

Compared to open banking and BaaS models, platform banking is quite the opposite. Platform banking does not share any banking infrastructure; instead, it integrates with other firm services in its app to stay progressive and agile in its offerings. 

For the most part, platform banking is for specific use cases (as we will get into). So if you have a financial app that sells concert tickets, the app would be using platform banking features integrated from a service so that you never have to leave the page to make the transaction.

Platform Banking Use Cases

Fintech use cases for platform banking include:

  • Buying concert tickets or tickets to sporting events
  • Online gaming
  • Charitable contributions
  • Crowdfunding
  • Gift certifications
  • Buying tickets for air travel
  • Partner services (like offering home insurance for new home mortgage purchases)

As you can see, many of these payment services can be useful, and they can also be integrated into service apps and banking apps through platform banking. Another way you can think about platform banking is like a digital marketplace that is operated by a bank or non-bank entity to provide banking features.

Why Choose Sila as Your Banking Infrastructure

As you can see, understanding these three different types of services can be nuanced and difficult. Each comes with its own set of services and benefits. 

Which services you go with will depend on your current offerings. If you currently are a nonbank or bank entity and want to offer more services, then you would want to look for a platform banking partner. Banks might choose open banking service providers as well since they are operating along with that business model. 

If you want to build a financial product and then sell your service as a platform banking service or neobank, find BaaS providers like Sila. 

With Sila, you can gain access to the core infrastructure that you need to provide a payment service or digital banking app. Build the next great idea in fintech innovation

Have a business idea but not sure if you’re the right fit? We’ll make sure that you are and walk you through what you need to know. 
Reach out to our sales team to learn more. You can always check out our product demo every Thursday, check out our Youtube or head over to our sandbox to test the product yourself!