CategoriesAnalytics Banking as a Service (BaaS) IBSi Blogs IBSi Flagship Offerings

What’s the difference between BaaS and embedded banking? Quite a lot

The problem with a loosely defined term is that its meaning can become stretched. Anyone who has described a stadium-filling act such as Ed Sheeran as “indie” because he plays a guitar is guilty of this.

Banking-as-a-Service (BaaS) is just such a loosely defined term.

Some providers have stretched the term to encompass services such as Open Banking, card platforms, and APIs. This confusion is further exacerbated when aggressive marketing campaigns overlap BaaS with another fast-growing term: embedded banking. Using one term to describe all of these disparate services makes about as much sense as using the same word to describe a multi-platinum-selling artist and the band playing to three people in the local pub.

By John Salter, Chief Customer Officer at ClearBank

John Salter, Chief Customer Officer at ClearBank


Confusion over these terms is already widespread. According to Aite, a third of fintech providers do not believe there is any difference between embedded banking and BaaS.

There are, however, important differences between BaaS and embedded banking. Businesses need to understand the differences between these two concepts if they are to understand their own responsibilities, especially around governance and compliance, and what it could mean for scaling up or adding new features in the future.

Breaking it down: What’s the difference?

Despite its name, BaaS does not necessarily mean working directly with the holder of a banking license or that the services provided require a license. Instead, providers offer banking-related services and infrastructure, sometimes on behalf of a licensed bank, to firms including fintech startups, e-commerce platforms, and even other financial institutions.

BaaS is a “push” model. A banking product is created and offered “as a service” to a potential user. BaaS is the distribution of banking products to financial institutions and non-financial institutions. For example, non-bank players like Uber or Lyft work with a BaaS provider that is responsible for payments, cards, accounts, and loans. However, who is responsible for compliance and governance can vary between providers and use cases.

On the other hand, embedded banking is on the “pull” side. This simply means that financial services and products are embedded into financial or non-financial platforms, such as e-commerce and mobile banking applications. Embedded banking is the provision of a banking service directly from the holder of a banking license and embedded directly into the user experience. A typical example would be the Buy Now Pay Later (BNPL) functionality online shops have included at the point of purchase for customers to access installment payment options.

Do businesses need to understand the difference?

Should anyone care about this? This is a good question as most businesses won’t start with the question of whether they want BaaS or embedded banking. In fact, they’re unlikely to ask this question at all. Instead, they will have specific requirements for banking or banking-like services, and approach the right provider with those needs in mind.

So, who cares? Aren’t we simply over-analysing the technicalities?

It may seem so, but there are important implications for regulation and who is responsible for compliance.

BaaS providers may have a banking licence, or they may hold an EMI licence. Embedded banking providers are, by definition, holders of a banking licence. It’s important when entering into any agreement that the customer-facing business understands the regulatory nature of the agreement—who is responsible for compliance and KYC, how funds are safeguarded, and whether they are protected by a full banking licence. There is already concern from regulators around where consumers’ money is held and how safe it is—is there enough transparency? Knowing the difference is important, especially when the “gold standard” is when funds are held by a bank in an embedded solution.

Businesses aiming to enhance their offerings with financial services have the potential to create differentiated services that set them apart from the competition. But working with the right partner is crucial to success. When evaluating a partner, businesses must consider the range of services on offer, technology implications, compliance, security, and more.

So, a clear understanding of the differences between BaaS and embedded banking will make it easier for any business to decide what is right for them and their customers.

CategoriesAnalytics IBSi Blogs IBSi Flagship Offerings

Transforming financial lnclusion through AI and Machine Learning

Rajat Dayal, CEO, Yabx.
Rajat Dayal, CEO, Yabx

The financial industry is undergoing a profound transformation, largely driven by the growing influence of Artificial Intelligence (AI) and Machine Learning (ML). Within this dynamic landscape, the FinTech sector has emerged as a trendsetter, spearheading the adoption of AI and ML technologies.

By Rajat Dayal, CEO, Yabx

These advancements are redefining sustainable finance, particularly in terms of financial inclusion, by breaking down barriers that have traditionally hindered access to banking services, such as loans and investment opportunities for the unbanked population.

Credit Scoring and Risk Assessment

Yabx’s innovative use of AI/ML algorithms on raw data has led to the creation of 15,000 features for comprehensive financial profiles of borrowers, highlighting their commitment to data-driven lending. This transformation is pivotal, with credit scoring and risk assessment at its core. These systems leverage a diverse range of data to assess an individual’s financial reliability, effectively reducing one of the key risks associated with lending. Machine learning models have elevated the standards of evaluating an individual’s creditworthiness. This innovative approach empowers banks to expand their portfolios without compromising their risk tolerance, offering loans with a more refined risk management strategy.

Recommendation Engines

In a world where choice is paramount, AI-driven recommendation engines come to the forefront. These engines utilise customer behaviour patterns to provide tailored suggestions for financial products and services, especially loan products that align with the unique needs of each consumer. This bespoke process significantly increases the likelihood of successful loan applications, offering a more personalised and user-friendly experience.

Enhancing Customer Segmentation and Personalisation

AI and ML algorithms are now increasingly employed to enhance customer segmentation and personalisation. The ability to categorise consumers based on their financial behaviours and preferences allows for the provision of tailored loan products with unparalleled precision. This level of personalisation is particularly valuable for microbusiness owners, as it reduces the traditional financial bureaucracy, making borrowing more accessible.

Customer Insights and Market Research

AI and ML technologies offer analytical power, enabling organisations to gain deep insights into market trends and customer behaviour. This foresight equips businesses with the ability to adapt to market shifts and cater to the evolving financial needs of their diverse customer base, ensuring they remain competitive.

Automated Customer Onboarding

Efficiency and customer accessibility are at the forefront of the FinTech process. AI-driven solutions automate identity verification and Know Your Customer (KYC) procedures, streamlining the customer onboarding process. This automation ensures that borrowers can promptly access the financial support they need, free from cumbersome administrative delays.

In Action

An exciting example of AI and ML in action is Zed-Fin Loans, powered by Yabx, a pioneering sustainable banking initiative in Zambia driven by a powerful tri-party LAAS partnership. This partnership allows parties from three adjacent industries to work together to bring micro loans to the market in Zambia. Zed-Fin Loans is a testament to the transformative power of collaboration, technology, and innovation. Their success is a resounding endorsement of AI and ML algorithms, displaying their positive impact on Zambia’s financial landscape.

In conclusion, AI and ML are revolutionising the financial sector, making it more inclusive, efficient, and customer centric. These technologies are breaking down barriers and setting new standards, as demonstrated by the success of initiatives like Zed-Fin Loans in Zambia. The future of finance in Zambia and around the world looks to be very promising, thanks to the collaborative power of technology and innovation.

CategoriesAnalytics Cybersecurity IBSi Blogs RegTech

Identity Verification for FinTechs: Ensuring Security and Compliance

Vivek Sridhar, Neokred
Vivek Sridhar, Chief Business Officer at Neokred

For Neo banks in the financial industry, digital onboarding is becoming more crucial. Neo banking is the name given to a new breed of digital-only banks that provide a broad variety of financial services via online and mobile platforms.

By – Vivek Sridhar, Chief Business Officer at Neokred

These financial institutions frequently build on top of the already-existing infrastructure, and they significantly rely on technology to give customers a smooth and effective experience. The procedure for signing up for and creating a new account with a neo bank is known as digital onboarding. It is a crucial part of the customer experience and has the power to build or break a person’s relationship with a new bank.

For modern banks, identity verification is a vital step in the customer onboarding procedure. Since it serves as the first point of interaction between the bank and the customer, digital onboarding is crucial for neo banks. It establishes the tone for the customer’s entire banking experience. A quick and easy digital onboarding procedure can provide consumers with a good first impression and persuade them to keep using the bank’s services. On the other hand, a lengthy and onerous onboarding procedure can deter clients from joining up or even cause them to give up completely.

Digital onboarding is essential for neo banks because it enables them to gather vital data about their clients, such as their details, income, and financial objectives. Initially, it is vital to prevent fraud and safeguard the bank and its clients from financial losses. Identity verification is the first line of security against attacks when criminals try to open phoney accounts using stolen identities.

Second, regulations seek identification verification. Anti-money laundering (AML) and know-your-customer (KYC) guidelines oblige financial institutions to verify their customers’ identities. Compliance with these standards is crucial if you want to avoid large fines and reputational harm.

Furthermore, identity verification is key for neobanks because it allows them to collect critical information about the consumer, such as personal information, income, and financial goals. A major use of this data is for offering specialized financial products and services.

Who Needs Technology for Identity Verification?

Financial institutions are a popular target for criminals attempting to conceal the proceeds of their illegal activities, Insurance companies, gaming organizations, and cryptocurrency dealers are just a few of the other industries that run the risk of moving money from and to online accounts.

Large amounts of personal data are transferred, processed, and stored by healthcare organisations. As a result, they are a prime target for cybercriminals looking for this valuable data and may also consider using identity verification software to protect their business and customers.

Given the harmful effect, any association with money laundering and financial crime can have on an institution, groups that engage with customers online rather than in person require a KYC plan to protect their clients, build trust and protect their business from fraud and data breaches.

As part of the onboarding process, these organisations must identify and verify users. But it does not end there. They must continuously repeat the process throughout the customer relationship to ensure that they do not pose any risk to the organisation at any time. The verification process should not impede providing an excellent customer experience, but rather should efficiently and securely connect a user’s physical and digital identities.

Identity verification software will be of interest to the teams and individuals responsible for designing, deploying, and managing the efforts required to protect the organisation from the risk of financial crime.

How to Find the Best Identity Verification Software in 3 Easy Steps:

Identity verification is critical for ensuring that the financial institution only deals with legitimate customers and follows compliance regulations. When selecting identity verification software for business, several factors must be considered to ensure that the organization’s decision is the best one.

Step 1: Analyze the Requirements

The decision must also be motivated by the specific needs of the business. The industry, customer profile, nature of online engagements, and user experience all impacts the role of identity verification as well as its correct function.

Step 2: Gauging the Features and Functionality

With a definite knowledge of the necessities for identity verification software, the emphasis moved to what providers choose to offer. Some features are critical to a solution and knowing what they are and how they are presented are critical to deciding on it with knowledge.

Step 3: Gauging Fit

As suggested solutions are considered, the choice of the safest alternative for the organisation should remain focused on meeting the needs of the business. Although there may be cost savings, some solutions require the vendor or in-house engineers to modify systems and do not give the team the flexibility to tailor the solution to the organization’s need

Using Neokred’s ProfileX Product by organizations to eliminate fraud. Organizations that use ProfileX automate the validation, screening, and decision-making processes required to approve good customers faster, stay compliant and reduce the risk of fraud.

AML teams can manage identity and document verification, including non-documentary verifications (name, address, DOB, SSN), watchlist screening, and monitoring using independent and reliable data sources — scanning against different lists and databases to validate identity and checking against known or suspected criminals to defend against fraud with better data.

The no-code flag and review platform provided by ProfileX enables teams to create workflows tailored to their specific use cases. These include synthetic checks that use spoofed or falsified personal information to identify entities.

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