BaaS (Banking-as-a-Service) is a model in which a licensed bank or e-money institution lets non-bank companies offer accounts, cards, payments or loans under their own brand by exposing its regulated infrastructure through APIs. The licensed institution holds the funds and issues cards or IBANs, a technology layer wraps the ledger, KYC and payments in APIs, and the brand builds the front end and owns the customer. Liability for KYC, transaction monitoring and safeguarding stays with the licence holder for every programme it runs. Launch is faster than licensing, but margins are shared and switching partners means migrating every account. The 2024 Synapse collapse showed the licence holder needs its own reconciled ledger of every end customer's balance.
How does BaaS work
There are three layers. The licensed institution holds customer money and issues cards or IBANs. A technology layer, either the bank itself or a middleware provider, wraps the ledger, KYC, card issuing and payments in APIs. The brand, such as a payroll app, marketplace or retailer, builds the front end and owns the customer relationship.
In the EU, the brand usually acts as an agent or distributor of a licensed EMI or as a programme manager of a bank, and must be registered as such with the licence holder's supervisor. The licence holder remains liable for know-your-customer checks, transaction monitoring and safeguarding across every programme it runs.
Example: BaaS economics
An illustrative payroll app launches debit cards for 50,000 workers who each spend €800 a month. At a 0.2% interchange share after the bank's cut, the app earns €80,000 a month, while paying the BaaS provider per-account fees and minimum monthly charges. Launch is far faster than applying for a licence, but margins are shared and the brand cannot change partners without migrating every account.
BaaS risks: what the Synapse collapse showed
Synapse Financial Technologies, a US middleware provider connecting about 100 fintechs to partner banks, filed for Chapter 11 bankruptcy in April 2024. Its court-appointed trustee estimated a gap of $65 million to $96 million between Synapse's ledger and the banks' records, and end users of fintech apps lost access to their money for months. Deposit insurance did not help: FDIC cover protects against a bank failing, not against a middleware firm's records failing to match the bank's.
The lesson for regulators and partner banks was that the licence holder must keep its own reconciled record of each end customer's balance. In the UK, deposit protection rose to £120,000 per person per bank from 1 December 2025, but cover only applies if the bank's records identify the individual depositor.
BaaS vs embedded finance and open banking
Embedded finance is the product the customer sees; BaaS is the licensed infrastructure behind it. Open banking is different: a third party reads data or initiates payments from an account the customer already holds elsewhere, without becoming the account provider.
BaaS and licence acquisitions
Fintechs that outgrow a BaaS partner often buy a licence to control their economics and compliance. For buyers and sellers, a BaaS-dependent business is valued differently from a licensed one: diligence checks contract termination rights, migration cost, reconciliation between the brand's and the bank's ledgers, and whether regulators have issued orders against the partner bank.