July 11, 2022

UMB: Five key banking-as-a-service terms you should know

July 11, 2022 | David Robinson | UMB

Although Banking-as-a-Service (BaaS) is new, banks have been making their services available behind the scenes for decades. What’s changed in recent years is the explosion of fintech firms seeking to partner with banks to access the payment rails historically limited to regulated financial institutions.

A greater number of participants has led to the need for more standardized language about BaaS.

In the past, it was easy enough for a bank to communicate with a brokerage firm about setting up deposit accounts for its customers so they could benefit from FDIC insurance coverage. Any questions about how that worked, and who was responsible for what, would naturally get worked out as a matter of course.

Now, by contrast, multiple fintechs may be talking with multiple banks about multiple services…and all using slightly different terminology. That can slow down the solution-building process, especially when the solution involves several entities.

Besides speed to market, there’s another reason for banks and their clients to establish and use clear terminology: risk management. Getting payments right within the guardrails of the regulatory environment is essential. Connected parties may jointly touch many thousands of transactions on a daily basis. To effectively communicate about varied roles and responsibilities particularly related to risk and regulation, it’s imperative to have communication clarity.

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