Banking as a Business (BaaS) has begun to thrive in the post-pandemic financial sector, as large and small scale companies, as well as banks are realising its importance in providing customers with the latest technology. 

Barry O’Sullivan, Head of Payments at OpenPayd, spoke to Payment Expert on the significant role BaaS is playing in the payments field as well as the importance of the collaboration between traditional banks and fintechs. 

Payment Expert: Firstly Barry, BaaS has taken off over recent years. Who are some of the key players adopting BaaS to fuel its growth?

Barry O’Sullivan: Outside of ourselves we are seeing a number of businesses entering the BaaS space. Many are pure-play BaaS companies like us, which will be either EMIs or have a banking licence. 

We’re also seeing a number of companies moving into the BaaS space, either traditional banks and financial institutions, or fintech companies from other parts of the payments ecosystem.

At OpenPayd, we offer a range of payments and banking infrastructure through our API, providing customers with multi-currency solutions, virtual IBANs and access to real-time payment rails.

PE: From the perspective of banks, how are they working with BaaS providers to streamline their operations to simplify customer interactions?

BO: There are two primary ways in which banks work with BaaS providers. 

Firstly, most services that a BaaS provider offers will be ultimately provided by one of their underlying banking partners. The appeal for banks when they partner with BaaS providers, is that they’re onboarding one partner organisation, completing one technical integration, and then getting access to all that BaaS providers’ underlying clients. 

By working with multiple banks, BaaS providers are able to deliver a wider range of services to their clients. So it’s a win-win for banks, BaaS providers and the underlying users.

The second opportunity we’re starting to see is banks buying white-labelled software from BaaS providers to upgrade their tech stack. By doing so, they can replace or supplement their legacy systems with modern tech that’s designed to integrate with other legacy systems. 

This simplifies the bank’s operations by removing the need to build their own technology infrastructure. Instead, they can focus on serving their customers effectively using the BaaS provider’s technology.

In both cases, the collaboration with BaaS providers helps banks simplify their operations, reduce the burden of technology development and maintenance, and focus on creating more and enhanced touch points with consumers.

PE: Are there any specialised compliance regulations non-banks must oblige by to offer BaaS services?

BO: A non-bank offering BaaS services to businesses will have to be licensed accordingly – at OpenPayd for example, we’re regulated as an EMI in the United Kingdom and as a Payment Institution throughout Europe. 

Those two licensing regimes are among the most comprehensive in the world and are part of the reason the continent has been an early adopter of BaaS.

PE: How crucial are foreign exchange services for providers to implement for their customers to further expand their business globally?

BO: The nature of today’s economy is that even small businesses will typically run into a need for FX services pretty early on in their growth – either because they will have international customers or suppliers. 

For large digital businesses that are cross-border by design, the need for FX services grows exponentially. FX services enable them to efficiently convert and manage these currencies, facilitating smooth international operations.

For BaaS providers like OpenPayd, incorporating FX services was vital. We’re building a suite of services that will let our clients send and receive any payment, anywhere in the world. FX services are a vital part of delivering that vision.

PE: Has the current economic climate, as well as COVID, pushed traditional banks to innovate into the BaaS space and how has this affected the overall banking sector?

BO: We are seeing that the current economic climate with rising interest rates and the COVID-19 pandemic, coupled with changing consumer behaviours, have accelerated the push for traditional banks to enter the Banking as a Service (BaaS) space to remain competitive.

Some banks may choose to stick with what they know, refocusing on traditional banking services of managing deposits and lending. Others will consider a full scale shift into embedded finance, building similar services as the dedicated fintech companies alongside their existing services. 

But it’s a significant undertaking and requires a big investment in new technology and products. 

The path of least resistance, then, is collaboration. But industry collaboration is still over-hyped and unrealised. Strategic partnerships are crucial to drive innovation, redefine customer experiences and evolve how money is moved across borders.

PE: Lastly Barry and thank you for your time, why should banks embrace BaaS providers?

BO: Banks should embrace Banking as a Service (BaaS) providers because it represents a huge growth opportunity. BaaS enables banks to expand their services, reach new customer segments, and streamline operations without heavy infrastructure investments. 

It opens doors to a wider customer base, attracts deposits, and enhances competitiveness in the digital era. Embracing BaaS providers is crucial for banks to tap into this lucrative avenue and stay relevant in the evolving financial landscape.