What is the proposition behind using a Banking-as-a Service (BaaS) provider?

A 'BaaS' provider is a licensed financial institution which is able to provide digital payment services to a non-banking business. 

For example, a high street retailer might decide they want to offer their customers their own, branded, payment card. The retailer believes that this will help build customer engagement and facilitate their loyalty programme. The retailer also knows that the card will reveal the customer's payment data which it intends to use to improve its marketing and product offerings. 

Rather than setting up their own bank or payment institution, the retailer could choose to offer this card, (and other banking services such as loans and accounts) through a BaaS provider. Because the provider is already licensed, it can bring the retailer's offering to market much more quickly and at a far lower cost. 

The BaaS provider does this via an Application Programming Interface (<a href="/glossarycollection/application-programming-interface" style="color:#48277C;" target="_blank" title="Application Programming Interface">API</a>) which provides a secure and reliable connection to the retailer, enabling customers to access banking services directly through the retailer's own app. As the retailer is effectively an intermediary between the customer and the BaaS provider, it is spared the associated regulatory and compliance burdens.