Banking-as-a-Service (BaaS) is a model where licensed banks provide their core infrastructure, such as payments processing, account management, and compliance services, via APIs to third-party businesses. This allows Fintech's and non-financial companies to embed regulated banking products directly into their offerings without obtaining their own banking license.

In a regulated industry, BaaS bridges the gap between innovation and compliance, enabling new entrants to launch financial services while meeting legal obligations through their partner banks’ frameworks.

Key Components of Banking-as-a-Service (BaaS)

BaaS platforms offer a set of APIs and compliance tools that connect non-bank businesses to licensed banking services. These components cover payments, identity verification, and risk monitoring, ensuring both operational efficiency and regulatory adherence.

Payments and Transaction Processing

BaaS providers handle secure payments infrastructure, enabling businesses to issue accounts, process transactions, and support real-time payments. Integration with FacctShield helps detect suspicious payment activity in line with anti-money laundering (AML) regulations.

Customer Onboarding and Verification

Identity verification, Know Your Customer (KYC), and customer screening are built into most BaaS platforms. Combining these with FacctView strengthens compliance by ensuring customers are screened against sanctions and watchlists.

Compliance and Risk Management Tools

Many BaaS solutions incorporate built-in compliance monitoring, fraud detection, and reporting capabilities. Pairing these with FacctList ensures watchlist data is continuously updated and applied to all customer interactions.

The Role of BaaS in Expanding Financial Access

Beyond compliance, BaaS plays a significant role in driving financial inclusion by enabling innovative financial products for underserved markets.

In a World Bank analysis, embedded banking solutions have been shown to increase access to credit, payments, and savings products for populations with limited banking options. By leveraging bank infrastructure, Fintechs can scale faster and reach customers without the heavy burden of building their own regulated entities.

Compliance Considerations for BaaS

While BaaS reduces the regulatory load on third-party businesses, compliance responsibility is still shared between the provider and the client. This requires clear operational agreements, consistent monitoring, and strong data governance.

Regulatory Oversight

In regions like the EU, regulations such as PSD2 and AMLD5 mandate rigorous customer due diligence and transaction reporting. In the U.S., regulators such as the Federal Reserve, FDIC, and OCC emphasize that even when banks partner with third-party Fintechs under Banking‑as‑a‑Service (BaaS) arrangements, the banks retain responsibility for compliance.

Data Privacy Obligations

With customer data flowing through multiple systems, BaaS providers and clients must ensure compliance with frameworks like the GDPR. Guidance from the UK Information Commissioner’s Office stresses the importance of data minimisation and secure processing.

Best Practices for Implementing Banking-as-a-Service (BaaS)

Adopting BaaS effectively requires careful partner selection, strong integration practices, and continuous compliance oversight.

Choose Regulated, Well-Vetted Providers

Work with licensed banks and established BaaS providers that have proven compliance credentials and strong audit records.

Integrate Compliance Workflows Early

Embed compliance checks, such as sanctions screening and transaction monitoring, into your customer journey from day one using tools like FacctGuard.

Monitor and Audit Regularly

Maintain ongoing monitoring of BaaS activities and conduct periodic compliance audits to verify that both parties are meeting their regulatory obligations.