Banking as a service
BaaSAlso called bank-fintech partnership, sponsor banking
Banking as a service is a model in which a licensed bank lets non-bank companies offer accounts, cards, payments or loans under their own brand. The bank provides the charter, deposit insurance and payment access through software interfaces. The bank stays legally responsible for compliance, including know your customer checks, anti-money laundering controls and consumer protection.
How it works
A sponsor bank signs a programme agreement with a fintech, sometimes through a middleware platform that connects many fintechs to the bank. The fintech owns the customer relationship and often runs onboarding and transaction monitoring. The bank approves policies, tests controls, reviews complaints and keeps records of who owns the funds in pooled accounts.
Supervisors treat these arrangements as third-party relationships. US regulators have issued interagency guidance and a 2024 joint statement on deposit products delivered through third parties, and have brought enforcement actions against several sponsor banks for weak oversight. In the EU and UK, outsourcing rules apply. The core risk is that compliance work is delegated while the regulatory liability stays with the bank.
The rules
Sets expectations for planning, due diligence, contracts, monitoring and termination of third-party relationships, including fintech partners.
Banks supervised by the Fed, FDIC and OCCDescribes risks in bank-fintech deposit arrangements, including record keeping, end-user ownership and compliance responsibilities.
Banks offering deposits through fintechsRequire governance, risk assessment, contracts and exit strategies for outsourcing, covering many BaaS arrangements. New EBA third-party risk guidelines will repeal them once applicable.
EU credit institutions, payment and e-money institutionsCommon questions
Who is responsible for compliance in a BaaS model?
The licensed bank. It can delegate tasks such as onboarding and monitoring to the fintech, but regulators hold the bank accountable for meeting anti-money laundering, consumer protection and deposit rules.
Are BaaS deposits insured?
In the US, funds placed at an insured bank are covered by FDIC insurance only if the bank fails and its records show who owns each balance. Insurance does not protect customers if the fintech or middleware firm fails.
What is a middleware provider?
A technology firm that sits between a sponsor bank and many fintechs. It provides the software connection, ledgers and sometimes compliance tooling. It is usually not a bank, so it is not itself subject to bank supervision.
How is BaaS different from embedded finance?
Banking as a service is the bank's side of the arrangement, supplying regulated products through software. Embedded finance is the result customers see, with financial products built into a non-financial brand's app or checkout.
