Banking as a Service vs. Payment as a Service

Banking as a Service vs. Payment as a Service

Banks and financial technology have teamed up to provide services for building payment and banking platforms and other financial products. The fintech industry is currently focused on fintech innovation and decentralized banking, but there is so much more that goes into this unique path forward. 

Sila is centered around ideologies like banking infrastructure as a service, and, in many ways, it can be hard even for us in the industry to understand what this means. 

In this article, we want to talk about what banking as a service is and how it compares to payment as a service. 

Making Sense of Fintech Infrastructure

Before we can sit down and define either of these terms, it’s important to look at what banking and payment infrastructure are in fintech.

Businesses all over the world are currently operating on models of finance infrastructure. In essence, this level of infrastructure can be defined as both payment and banking infrastructure. These phrases might also relate to open banking and payment platforms too. 

To give you an overview of these terms, we’ve included this brief glossary as defined by the industry:

  • Open Banking: Open banking or open bank data refers to banking practices where third-party financial service providers “open access” to consumer banking data, transactions, and other financial data. This might come from both banks and non-bank institutions. What’s key about open banking is the use of non-bank institutions and APIs to network this system. Open banking is more like embedded finance where banks can add on services like credit checks, budget apps, and financial planners.
  • Payment Platforms: Also known as payment gateways, payment platforms refer to a service of initiating payment transactions typically in eCommerce settings. These platforms help process payments either online, in-app, or at point-of-sale (POS) systems and can accept a number of different types of payment methods. Companies become payment platform companies to offer this service to other businesses.
  • Payment infrastructure: The payment systems and security settlement systems are needed to conduct economic and financial transactions. These allow for the transfer of funds and settlement between different participants in payment and settlement systems. 
  • Banking infrastructure: On its own (and not as a service) this is the core infrastructure one needs to operate as a bank or bank agent. In terms of banking infrastructure as a service (BaaS), this infrastructure is made available online for digital banks and other third parties to offer banking offerings.

What is Payment as a Service and What Value Does it Add?

The payment as a service is a service model that enables financial services for businesses. With PaaS, merchants can provide payment processing to enable payment transactions on their website. 

PaaS is essentially embedded payment services and is vastly different from banking as a service in how it’s used and the licensing and other legalities needed to start a PaaS service.

PaaS expands merchant services for a better customer experience. It might include acquiring payments, PSPs, alternative payment methods, financing, and more. It would also provide back-office services like billing, boarding, analytics and provisioning, and retail integration for online storefront or website transactions, POS, and mobile payments. 

PaaS can also provide loyalty program services, fraud detection, and advertising. 

What is Banking as a Service and What Value Does it Add?

A banking as a service (BaaS) platform is a service model that businesses can offer to other businesses and other customers, enabling the integration of bank services into an already existing product or embedding it into a new one. BaaS providers typically partner up with a traditional bank and other financial institutions to provide a range of services.

The bank services used will depend on what’s available. However, ultimately, the goal is to enable a bank relationship, money transmission, and identification verification all within the US financial regulations. 

BaaS for Fintechs:

  • Acquire a trusted relationship with the necessary bank and non-bank parties
  • Facilitate merchant and nonmerchant payments
  • Provide ACH payments and alternative payment methods 
  • Provide banking services and bank account linking
  • Facilitate business and consumer accounts
  • Digital banking features and digital wallets
  • Facilitate wire transfers
  • Internation remittance
  • Cross border payments
  • And add valuable services like fraud detection, KYC/KYB, card issuing, sanctions screening, and analytics

An individual or a company might source a BaaS if they had a desire to offer banking services as part of their core offerings. These might include:

Just to name a few. In order to provide many of these things, the fintech company would have to source or get a money transmitter license (MTL), become a bank agent or ODFI/RDFI, form a relationship with a bank, and follow the financial institution charter. However, with a BaaS service, the business owner can develop their product through the banking API, which is typically a financial app, and plug into the financial systems.

PaaS vs BaaS: Payment vs. Banking Infrastructure as a Service

In general, payment or banking infrastructure refers to a set of instruments, procedures, rules, and technical supports that enable the transmission of data and other information involved in financial transfers. 

When you look at either payment or banking as a service, both are services that third parties, banks, and non-banks can offer to facilitate funds flow in a variety of ways. 

PaaS services will be created from BaaS services and other APIs. PaaS is then integrated into merchant accounts and in mobile payment methods for consumer transactions. 

BaaS services enable bank transfers and connect nonbank members to financial features. With BaaS you can build a financial product and grow fintech.

So if you want to enable bank-to-bank money transfers, then you would go with a BaaS. 

If you want to accept VISA credit cards in your online merchant account, then you would go with a PaaS. 

If you want to build a PaaS service, like a platform banking add-on, then you would most likely use a BaaS service and other financial partners like Visa and Mastercard networks.

What’s the Best Way to Describe PaaS vs. BaaS

Naturally, these two models can be quite confusing. Basically, these services are available as an affordable option for organizations with fewer resources, allowing them to enable financial features. 

PaaS Model: One-stop solution for enabling agile payment processing, typically for merchant payment processing. The burden is no longer on user-facing platforms to build out their own systems and develop relationships with payment networks or banks.

BaaS Model: End-to-end model that allows digital banks and other third parties direct connection to bank systems through secure APIs. These API connections can enable business owners to build new apps that allow banking features and unlock open banking opportunities.

The service (PaaS vs BaaS) to go with will depend on the type of financial features you want and the banking products you aim to create.

What is Sila, and is Sila Right for Me?

Sila is an online banking as a service (BaaS) company that goes above and beyond other BaaS models. 

With our API code, you can build your own financial app or integrate financial features into your current services. We have the money transmitter license (MTL) banking license and a lot of the regulatory compliance written into the code through Know Your Customer (KYC) and Know Your Business (KYB). With that, entrepreneurs and fintech developers can come up with new ways to send money globally and throughout the United States. 

Sila is a bank agent according to our bank partners at Evolve Bank & Trust, so money in Sila accounts is part of the member FDIC community. We grant users access to powerful banking infrastructure for a seamless customer experience. Our powerful technology also has smart contract capability, and we facilitate money transfer through the use of our patented SILAUSD stablecoin alternative. 

Not sure if Sila is right for your business idea? 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!