Banking as a Service (BaaS): the best way to have your own bank

As companies seek to innovate their business models, consumer demand for more convenient, personalized and easy-to-use financial services is growing. It is in this context that the Banking as a Service (BaaS) – the solution for any company that wants to offer digital financial services without becoming a bank – has been revolutionizing the offer of financial products, not only in Latin America, but worldwide.

 

Thanks to the advance in technology and digitization for financial services, today any company from any industry can provide financial services without the need to become a bank—all supported by Banking as a Service.

But what are the advantages in that business model? What is Banking as a Service, and how does it facilitate that transformation journey? And how advanced is BaaS in Latin America? Those and more questions will be answered in this article. Check it out!

 

Embedded finance and BaaS: The phenomenon turning any company into a bank

 

The possibility to offer a complete digital bank experience without the need to become a banking institution is connected to a phenomenon called Embedded Finance <span style="color:#fff">now</span>.

That term is used when financial services are ‘embedded’ in areas that are not directly related to the financial world. In other words, it is a phenomenon turning companies into banks.

Based on Embedded Finance, any business can add financial services and products to their portfolio, without losing sight of their core business. If you’ve ever used a credit card at a store, for instance, that experience was very likely connected to Embedded Finance.

Three factors have definitely been essential in Embedded Finance:

• Evolution regulation: new laws have enabled fintechto emerge, which have allowed new players to operate in the industry by offering differentiated financial services;
• Advancing technology: digitization for financial services has paved the way for new solutions, and technology has become more accessible;
• BaaS platform providers: by partnering with Banking as a Service (BaaS) platform providers like Dock, any company can offer services and financial products in a simple and agile way, counting on the support of those who dominate this expertise, both from the regulatory point of view and from the technological point of view.

 

Decoding the Banking as a Service model

 

We’ve mentioned that Embedded Finance is a phenomenon turning companies into banks and that technology, especially Banking as a Service, is a factor driving that revolution for the financial industry. But where did Banking as a Service, or BaaS, come from?

‘As a Service’ refers to a model capable of converting product offerings into services—meaning that access replaces ownership. Therefore, in the corporate world, increasingly more items, solutions and parts of the business have become ‘as a service’: SaaS (Software as a Service), DaaS (Data as a Service), PaaS (Platform as a Service), IaaS (Infrastructure as a Service), and so n so forth.

In our everyday life, we’ve also seen the same tendency—the ‘as a service’ model empowers solutions such as Uber and Airbnb, which deliver car and house rental services on demand, acquired easily and quickly and paid based on a pay-as-you-go model.

And why not also enabling companies to have their own Bank as a service? And that’s the purpose of the Banking as a Service (BaaS) model, as an ideal solution for companies looking to offer financial services for their customers, employees, channels and more, but without the need to operate as a banking institution.

Beyond BaaS, other similar models have emerged later on for the financial industry, such as Acquiring as a Service , Fintech as a Service, Crypto as a Service e PAT as a Service.

 

Banking as a Service: Have you ever considered having your own bank?

 

But returning to the subject of the article, with the help of BaaS, fintechs and organizations from different segments can offer the market a series of services that were previously exclusive to banks and financial institution, as a payment account, prepaid and credit card, withdrawal, deposit, transfer, bill payment, etc.

As the banking industry advances in a digital journey, there’s a growing demand from consumers for more transparency, convenience and 24/7 availability.They require more control and autonomy and seem more resistant to restrictions related to geography or hours of operation.

So if your company is looking to provide financial services in the format consumers would like to use, without the need to afford all the investment and operational efforts, Banking as a Service (BaaS) can be an interesting alternative.

 

What is Banking as a Service (BaaS)?

 

Banking as a Service is a solution enabling any company or institution to have their own bank, with their look & feel and business model, in a quick and seamless manner. It’s that simple.

Through a digital accounts and a flagged card integrated into an application, the platform offers users the complete experience of a digital bank, which can be aimed at different audiences: employees, customers, suppliers, channels, among others.

For the contracting company or institution, the Banking as a Service plays the role of payment institution and the issuer, taking responsibility for operations, licenses, compliance, legislation, technology and security – that is, throughout the regulatory and technical part, so that companies can focus only on what really matters: attracting, relating to and retaining customers.

As an example, see below the BaaS model developed by Dock. Based on a process cards framework from different card brands, it provides a bank experience based on a Core (Prepaid issuing + Salary account) and a Financial APIs layer that works as a big rapidly-evolving functionality aggregator (offering services such as wire transfers, peer-to-peer (P2P), mobile recharge, bill payment, among others):

 

Without such a platform, developing and managing the entire means of payment chain for a digital bank can become quite burdensome, since it involves:

• Technology to be used;
• Commercial agreements for providing services such as bill payment and prepaid phone charging;
• Conciliation models;
• Relationships with card brands;
• Licenses and regulations;
• Upfront investment;
• In-house expertise on operating as a bank.

The whole process documented above can take a long time and would only be affordable in scale.

However, Banking as a Service spares companies of all that work, since it takes charge of all interactions with regulators, while it also has an issuer license and all agreements negotiated for services like bill payment, prepaid phone charging and more.

Simply put, BaaS is a perfect model for organizations looking to start providing their customers with financial services within a few weeks and without the need to worry about regulatory issues. .

 

How does a Banking as a Service API work?

 

Modules related to digital payment account and prepaid or credit cards are, together, the user interface with the real economy. I.e, the customer experience with BaaS happens mainly in the digital environment, through a custom proprietary application, in which he has control over his financial information and transactions. To carry out transactions in his account, the user has a physical or virtual card, whose design is also customizable.

The app development is usually part of the contracting company’s responsibilities, which can conduct the product internally or through a third-party. BaaS is then integrated through APIs, which connect the front-end—application with their brand, product and look & feel—to the digital bank platform, which is XNUMX% modular and dynamic.

 

Opportunities for Banking as a Service in Brazil and Latin America

 

According to a a study conducted by Future Market InsightsBanking as a Service made over US$2,5 billionacross the world in 2020. For the following decade, that number is expected to reach US $ 12,2 billion, which represents an average growth rate of 15,7% a year.

In Latin America, BaaS made US$ 2021 billion in 1,9, while 73% (around US$ 1,3 billion) of it was solely originated in Brazil according to Introspective Marketing Research (IMR).

As a matter of fact, analyzing the opportunities in the Latin American market offered by Banking as a Service, a variety of factors confirm a rather favorable scenario. In that sense, it is worth mentioning:

• Increasing number of digital banks: in Brazil, the number of users exclusively using digital banks rose from 3% in 2019 to 8% in 2021, while exclusive the number of traditional bank users dropped from 9% to 2%, based on data provided by Bank of America (BofA). .
• Growing digital bank players: in Latin America and the Caribbean, the number of digital banks rose from 2017 to 2021 between 10 and 60, representing an average yearly growth rate of 57%, according to lifting Finnovista / IDB.
• Market expansion: ‘pure’ neobanks are not the only ones working in that sense. Other players such as retailers and manufacturers are making that ecosystem more diverse, as we’ll discuss later on.

According to a study conducted by Deloitte, Brazilian industries—such as retail, consumer goods and more services contributing to over 35% of the GDP—will be able to expand their financial product and service offering and capture R$ 23 billion a year within five years.

 

Companies leveraging Banking as a Service

 

Although Banking as a Service is a reality across Latin America, the model is most advanced in Brazil, where some companies have gained the spotlight for incorporating a financial service and product offering to their business model. Learn about some success cases below.

 

Leader in cosmetics in Brazil banks over 1 million resellers

The cosmetics multinational of Brazilian origin and one of the direct sales leaders in the world realized that its network of consultants was facing a challenge of great proportions: the unbanking. To get an idea of ​​the scale of the problem, according to the company, around 40% of the sales force did not have access to a bank account.

In order to solve the issue, the company came up with the idea to create a proprietary fintech and relied on a partnership with Dock to provide technology in banking and payments through a complete Digital Banking platform.

The results are worth celebrating: within a year, 300 thousand accounts have been activated and 190 thousand cards have been issued..

Learn how the company adopted BaaS to meet the demand for technology in their financial services and also consolidated a new successful line of business.

 

Leading supermarket chain in Brazil releases a digital account and consolidates their financial ecosystem

 

With an existing offer of credit card products, this supermarket chain felt it was time to expand the offer of financial services and products. For that, thepostor launching a digital account to consolidate its financial ecosystem.

The goal was to create a super app—that is, a multichannel hub bringing together a number of services in one platform, thus meeting user demand throughout their journey, from shopping to entertainment and all things related to their customers’ everyday lives.

The project was enabled through a partnership with Dock, which has a complete platform for Banking, Cards & Credit e Fraud Prevention. Through our open APIs, they were able to offer a complete digital account and a marketplace, which securely and quickly enables financial transactions, as well as card issuing and processing—all while also relying on a cutting-edge anti-fraud solutions ensuring protection all transactions.

Their consolidated financial ecosystem has improved their customer experience, which then started offering much more convenience in one platform. Over 23 thousand active accounts and 183 thousand cards issued now confirm how successful that initiative was.

 

Can my company have Banking as a Service?

 

Yes. The answer is indeed as simple as it sounds!

There are no restrictions regarding industry, area of operation, size or any information to determine if you can contract the Banking as a Service API.

Since it is a totally flexible and modular platform, Dock’s Banking solution serves from startups/fintechs to major corporations—which means that any company can offer a digital account!

 

Reasons why a company would be interested in having their own bank

 

There are several reasons why a company might include building their own bank in their strategy. We’ve listed some of the most important ones below:

 

• Expanding their portfolio by adding financial services to attract new customers;
• Having their own bank to pay their employees, suppliers and/or channels;
• Increasing their revenue by marketing financial products;
• Improving their customer relationship and increasing customer loyalty;
• Learning more about their target audience profile through information captured by BaaS.

Even banks can also benefit from the advantages offered by Banking as a Service – different from what one might think, they are not competitors, but partners. Fintechs and traditional banks can walk together. After all, the bank can use the disruptive technology of BaaS to change its model, becoming increasingly digital, gaining a lot of agility in implementation.

 

How to choose the ideal BaaS provider?

 

The Banking as a Service model enables any company to provide financial services in a quick and accessible manner, without the need to become a financial institution—all thanks to open-source APIs.

So finding the ideal BaaS provider is an essential step for companies looking to build their own digital bank.

Some factors to consider include:

• Quick implementation;
• Up-to-date functionalities promptly available;
• Add-on service offering;
• Scalable API and totally protected infrastructure;
• Regulatory support for implementation and ongoing operation;
• Quick adaptation to new rules issued by the Central Bank;
• Experience and consolidation in the industry.

 

Revolutionize your business by relying on BaaS through Dock

 

Dock is a pioneer in Banking as a Service in Brazil and has a complete banking solutionavailable. Through our platform, you can quickly and securely provide your users with a complete digital account experience, which includes:

• Bill payment;
• Instant payment;
• Transfers;
• Invoice generation;
• Recharges and vouchers;
• Personal loans;
• Remunerated accounts.

Apart from enabling the platform, Dock is also responsible for handling all treasury issues involved, which means we process and track transactions and authorize settlements. So you don’t need to worry about opening accounts for payments, processing transactions or regulatory compliance—it is all included in the solution.

To ensure the safety of operations, in addition to delivering the Digital onboarding of customers (with KYC, biometry etc), the management of payment accounts (debit and credit ledger) and API gateways with public and complete documentation, the Dock also has anti-fraudand in each transaction.

In addition, our Banking platform also includes tools for financial conciliation and provides complete accounting and regulatory support.

With this complete solution and already used by several customers, Dock has contributed to the advance of digital banks in Brazil and Latin America.

Learn more about our Banking solution and how we can help you revolutionize your business:

 

Why is the Banking as a Service model so innovative?

 

BaaS not only enables any organization to include financial banking services in their business strategy without the need to become a bank, but also ensures that it becomes a reality in record time so that it meets expectations for a new consumer. By enabling a complete platform, ready to be integrated with any app through APIs, Banking as a Service ensures a quicker time-to-market while also offering a totally tailored customer.

Want to learn more? Click on the image below:

 

Banking as a Service: Takeaways from this article

 

• Thanks to the advance in technology and digitization for financial services, today any company from any industry can provide financial services without the need to become a bank;
• Banking as a Service (BaaS) is an ideal solution for companies looking to offer financial services for their customers, employees, channels and more, but without the need to operate as a banking institution;
• Analyzing the opportunities in the Latin American market offered by Banking as a Service, a variety of factors confirm a rather favorable scenario.
• Finding the ideal BaaS provider is an essential step for companies looking to have their own digital bank;
• Dock is a pioneer in Banking as a Service in Brazil and has a complete banking solution available. Through our platform, you can quickly and securely provide your users with a complete digital account experience.

 

Related articles:

• Embedded Finance: The phenomenon turning companies into ‘banks’
• Web3: Understand what it is and the changes it can bring the financial industry
• Agritech: 5 opportunities for innovating in agribusiness by relying on financial solutions
• Financial inclusion in Latin America: The scenario and opportunities for fintechs