banking as a service

Can legacy banks stay relevant with banking as a service?

As financial institutions explore new opportunities for newer revenue streams, non-financial players have also been trying to increase their engagement and services with their customers. Due to this, banking-as-a-service (BaaS) started gaining traction, both globally and in Asia as the model sees a collaboration between financial and non-financial institutions.

The BaaS model is basically where a financial institution offers its banking capabilities to non-financial institutions who want to distribute their financial products on digital platforms via APIs. More tech-savvy legacy banks are using BaaS to deal with the threats of fintech by sharing their data and infrastructure.

In Southeast Asia, BaaS platforms have surfaced as key components of open banking. We can see more financial institutions partnering with non-financial institutions through BaaS. By opening up their APIs for third parties to develop new services, it allows both parties to develop and offer better, customized, and personalized banking services to customers.

There is no denying that tech-savvy banks will benefit the most from BaaS. Fintech companies that adopt BaaS models may end up staying ahead of the curve to increase revenue and extend their lifetime value.


At the same time, a McKinsey report states that banks are also concerned that distributing their products through partners may threaten their client relationships. The argument though is if customers begin adopting embedded finance in significant numbers, banks may have little choice but to launch BaaS business lines.

In short, non-financial institutions can leverage more than just APIs. But having said that, fintech companies are also aware of some of the challenges that may arise from BaaS. Banks often struggle with their cost structures, which are frequently based on legacy technology and enabled through manual processes and operations. To offer BaaS, banks must undergo digital transformations, but many already have.

Embedded finance core to BaaS

According to Kanv Pandit, Group Managing Director, Asia Pacific, Banking Solutions at FIS, “the adoption of embedded finance is becoming far more widespread, and we see this often with buy now pay later providers who are in a position to convert every payment transaction into a loan transaction. Often, embedded finance is enabled by BaaS.”

Pandit explained that as a producer of APIs, such banks can distribute core financial products – such as payments, mortgages, and loans – as part of larger, integrated service to newer entrants. This service model ultimately creates a value network that integrates multiple service providers into one seamless process and is fast gaining popularity in payments, credit products, treasury, and transaction banking segments.

“Like all value networks, BaaS offers benefits for all market participants. Banks can enjoy a rapid expansion of their distribution channels and increased market reach to new customers at a low cost. Third parties benefit from potential new revenues and customers for bespoke offerings. Customers enjoy an integrated digital journey and reduced friction, leading to an enhanced digital experience.”

For legacy banks, BaaS may just be their answer to remain relevant as the financial industry continues its digitalization. While they may need to make some investments in technology, BaaS may just give them some hope in the industry.