How banking as a service works
A licence holder, a bank or an electronic money institution, holds the customers' funds and answers to the regulator. A brand, often a company from outside finance, owns the product and the customer relationship. Between them there is often a platform that exposes the licence holder's systems as APIs.
Through those APIs the brand opens accounts, issues IBANs and cards and moves money. The licence holder sets the rules for onboarding and monitoring, approves the product and can switch it off.
- Licence holder: authorisation, safeguarding or deposit-taking, scheme memberships, regulatory reporting
- Brand: the app, pricing, customer acquisition and first-line support
- Set by contract: identity checks, transaction monitoring, complaints and fraud losses
What the law calls it
The law defines the role underneath, not the model. Under PSD2, a company that provides payment services on a payment institution's behalf is its agent, notified to the regulator, and the institution remains fully liable for the agent's acts (Directive (EU) 2015/2366, Articles 19 and 20).
A brand that only distributes e-money, or only supplies technology, has a different status. The entry on the EMI agent sets out the differences.
Why banking as a service matters at launch
The model trades speed for dependence. A product can launch without a licence of its own, but lives within the partner's risk appetite, pays the partner's fees and has to move if the partner withdraws.
BaaS, embedded banking or white label?
- Embedded banking
- What the end customer sees: accounts or cards inside a product that is not a bank. Banking as a service is the supply side of it.
- White label
- Software sold unbranded for the buyer to put a name on. Software alone carries no licence.
- BIN sponsorship
- The same arrangement for cards: a scheme member lets a programme issue on its BIN.
Where banking as a service shows up in a platform
Modules that do the work
- Accounts & IBANsCustomer accounts with their own IBANs, on the partner bank and the rails you choose.
- Card issuingVirtual and physical cards, wallets and controls, on the issuer processor you choose.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- KYC / AMLIdentity checks, screening and ongoing monitoring, with the verification provider you choose.
Platforms that need it
Guides that go deeper
- How to launch a neobank without a banking licenceYour own e-money licence, an EMI's agent, a partner bank or a bank licence: how each route works, who holds the money, and what safeguarding and deposit protection cover.
- How to build an app like Revolut: licences, launch order and one ledgerA super app is several regulated businesses behind one sign-up. The licence behind each product in the EU, UK and UAE, the order to launch them, one ledger, the Consumer Duty and app review.
- EMI or payment institution licence in the EU, and the agent routeWhat an e-money institution and a payment institution may do in the EU, the capital each needs, safeguarding, passporting, and launching as an agent first.
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.