Banking as a Service (BaaS) has made it easier for fintechs and other businesses to introduce financial products without having to build the underlying infrastructure themselves.
But choosing the right provider isn't simply about finding a platform that offers accounts, payments, cards or digital wallets.
The real challenge is understanding whether the infrastructure, regulatory arrangements, commercial model and partnerships can actually support what you're trying to achieve.
Having worked across banking infrastructure, card issuing and payments, I've seen first-hand how challenging it can be for businesses to navigate the different providers, regulatory structures and commercial arrangements available. I've also seen businesses spend considerable time evaluating solutions, only to discover that the infrastructure doesn't fully support their business model, target market or commercial expectations.
And it's not always because the technology is wrong.
Sometimes the proposed regulatory structure doesn't work. Sometimes a provider doesn't support the customer segment or market the business wants to serve. Other times, the functionality is there, but the costs make the proposition difficult to scale.
At Not Your Usual Fintech Consultancy, we help businesses work through these challenges, from defining their proposition and understanding the infrastructure they need to evaluating providers, commercial models and potential partnerships.
So, what should businesses really be looking at when choosing a BaaS provider?
- Start with the business proposition, not the provider
Before approaching BaaS providers, it's worth spending time understanding exactly what you're trying to offer and who you're trying to serve.
Are you building a product for consumers or businesses? Do your customers need payment accounts, UK account details or IBANs? Will they need to hold different currencies, make international payments or access physical and virtual cards?
And perhaps more importantly, what problem are you actually trying to solve?
These questions might sound obvious, but they influence everything from the infrastructure and regulatory requirements to the commercial model.
A provider that works perfectly well for a UK-focused payments proposition may not be suitable for a business looking to offer multicurrency wallets and cross-border payments.
That's why I always think it's better to start with the proposition and identify the right infrastructure afterwards, rather than choosing a provider and trying to build your product around what it can offer.
- Understand what banking as a service providers actually offer
One of the things that can make BaaS confusing is that the term is often used to describe quite different services.
A bank, an Electronic Money Institution (EMI), a payment institution and a technology provider may all form part of a financial services proposition, but they don't perform the same roles.
For example, a payment account provided through an EMI isn't necessarily the same as a traditional bank account. The regulatory arrangements and protections relating to customer funds can be different.
Similarly, offering IBANs doesn't automatically mean a provider can support every type of international payment, currency or jurisdiction.
It's important to understand who's actually providing each service, how funds are held or safeguarded, which payment rails are available and who is responsible for the different regulatory and operational activities.
You also need to know which capabilities are delivered directly and which depend on third-party partners.
This is particularly important when several providers are involved, because while the customer may see one product, the underlying structure could be considerably more complicated.
- Different businesses need different solutions
Consider a UK fintech looking to provide payment accounts to small businesses.
It might need UK account details, access to Faster Payments and Bacs, straightforward onboarding, reporting and reconciliation.
Now compare that with a business wanting to launch multicurrency digital wallets, branded cards and international payments across several markets.
That could require additional regulated partners, foreign exchange capabilities, cross-border payment infrastructure, card issuing and different settlement arrangements.
Both businesses might be exploring BaaS solutions for fintechs, but their requirements are very different.
And this is why there isn't necessarily one provider that can do everything, or one structure that's right for every business.
Sometimes a single provider can support most of the requirements. In other cases, combining services from different partners makes more sense.
The key is understanding which approach gives the business the functionality, flexibility and commercial model it needs without creating unnecessary complexity.
- Don't overlook the regulatory and operational side
Technology is only one part of launching a financial services proposition.
You also need to understand the regulatory arrangements and who's responsible for what.
Depending on the structure, your business may need its own regulatory permissions or may be able to operate within an appropriately structured arrangement involving a regulated partner. That depends on the activities being carried out and the markets involved.
There are also practical considerations that can easily get overlooked during the early stages.
Who manages customer onboarding and verification? Who handles transaction monitoring, fraud alerts and complaints? What happens when a payment fails, a customer needs support or there's an issue with reconciliation?
And if something goes wrong with one of the providers, how does that affect your customers?
These are the sorts of questions that need to be addressed early on.
A good technology platform is important, but so is having clear responsibilities, reliable operational processes and the right agreements in place.
- Look beyond the technology and APIs
APIs, functionality and integration capabilities are obviously important when comparing providers.
But they're only part of the picture.
I'd also want to understand whether the provider has experience supporting similar business models, whether it accepts the intended customer segment and how it approaches onboarding, implementation and ongoing support.
Then there are questions around reporting, reconciliation, transaction limits, payment processing times and operational dependencies.
For example, a provider might offer international payments, but which countries and currencies are actually supported? What payment rails are used? Are there restrictions on the types of transactions or customers?
It's also worth understanding how the provider manages incidents, service changes and potential migrations.
A solution can look excellent during a demonstration but become considerably more complicated once you start working through the actual implementation requirements.
- Make sure the numbers work
This is one of the areas I think businesses sometimes underestimate.
A provider may have everything you need from a technical perspective, but that doesn't automatically mean the commercial model is right.
There could be implementation fees, monthly platform charges, account fees, transaction costs, foreign exchange margins, minimum commitments and additional charges for certain services.
These can vary quite significantly between providers.
It's important to model the costs against realistic customer numbers and transaction volumes, particularly during the early stages when the business is still growing.
What happens if customer acquisition is slower than expected? What if transaction volumes are lower than forecast? Are there minimum monthly charges regardless of usage?
And as the business grows, do the unit economics improve or do additional costs start to appear?
It's much better to understand these things before signing an agreement than to discover later that the economics don't support the business.
- Think about where the business is going
You might only need payment accounts and domestic payments today, but what happens if you want to introduce cards, additional currencies or international payments in the future?
You don't necessarily need to build everything from day one.
However, you should understand whether the infrastructure you've chosen can support your longer-term plans or whether you'll eventually need additional partners and integrations.
I'd also look at how dependent the business becomes on a particular provider.
If you needed to change partners in the future, how difficult would that be? What happens to customer accounts, transaction data and existing integrations?
These are important considerations, particularly if you're building a proposition that you expect to scale.
The aim should be to choose infrastructure that works for the business today without unnecessarily limiting its options tomorrow.
- Remember the customer experience
From the customer's perspective, it doesn't really matter how many providers are involved behind the scenes.
They simply expect the product to work.
They want to be onboarded without unnecessary delays, access their funds, make payments and receive support when something goes wrong.
Whether that experience depends on one provider or several, the customer sees it as one service.
That's why choosing the right banking and payments infrastructure isn't just a technical decision.
It affects the customer experience, operational efficiency and ultimately the reputation of the business.
Choosing the right BaaS partner is about finding the right fit
There are plenty of companies offering banking and payment infrastructure, and many have excellent products.
The difficult part is working out which ones genuinely fit your business and how the different services need to come together.
The key is finding an approach that balances the right capabilities, commercial arrangements and partnerships, while giving the business flexibility to grow and adapt over time.
At Not Your Usual Fintech Consultancy, we help fintechs and other businesses navigate these decisions.
We work with clients to understand what they're trying to achieve, define their requirements, assess the available infrastructure, evaluate commercial and operational considerations, and identify suitable banking, payments and technology partners.
Our involvement doesn't have to stop at making an introduction. We can also help coordinate discussions, work through requirements and support the process of turning an idea into a proposition that's ready to move forward.
Whether you're launching something new, looking to replace an existing provider or considering expansion into new markets, having the right infrastructure and partnerships in place can make a real difference.
Let's talk about what you're building
Whether you're launching a new fintech proposition, reviewing your existing banking or payments providers, or exploring opportunities in new markets, getting the right infrastructure and partnerships in place is essential.
At Not Your Usual Fintech Consultancy, we can help you navigate the options, identify suitable partners and make informed decisions that support your business objectives.
Get in touch with Not Your Usual Fintech Consultancy to discuss what you're looking to achieve and how we can help you take the next step.
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