Driven by digital transformation and the need to stay competitive, brands are increasingly looking to Banking-as-a-Service (BaaS) to seamlessly manage and integrate financial services into their offerings in order to further revenue and create a better customer experience.
However, with different companies labelling and marketing themselves as ‘BaaS’, it is important to understand how regulatory and compliance will be handled when choosing a BaaS partner.
Compliance & Accountability for Financial Institutions
Compliance and accountability play a crucial role in the success and trustworthiness of financial institutions operating in the realm of embedded finance. While some BaaS institutions hold full banking licences and are accountable for all aspects of compliance, others may function primarily as technology providers or operate under the regulatory framework of Electronic Money Institutions (EMI). These variations in compliance responsibility can have implications for the range of products and services that can be offered.
Tom Boedts, Chief Operations Officer at Aion Bank, sheds light on the benefits of different approaches to compliance responsibility within the realm of BaaS. The accountability for compliance and banking back-office functions such as Anti-Money Laundering (AML) and Know Your Customer (KYC) processes can vary depending on the regulatory status of the BaaS provider.
While full-fledged banking institutions hold the ultimate responsibility for compliance, including adhering to stringent regulations, technology-focused BaaS providers may have limitations on the products they can offer due to their regulatory classification as Electronic Money Institutions.
Maintaining compliance and adhering to regulatory requirements are paramount in the financial industry. Businesses operating within BaaS platforms need to carefully consider the compliance landscape and choose a BaaS provider that aligns with their specific requirements and risk tolerance. Balancing regulatory compliance with the flexibility to offer a wide range of financial services is a key consideration when selecting a BaaS partner.
What Do Baas Adopters Need to Know When Selecting a Partner to Embed Financial Services?
It’s safe to say that not all BaaS are the same. Historically, the first BaaS platform providers were tech firms focused on the banking sector, offering more advanced API-based backend tech for core banking systems.
Today, BaaS adoption is taking place amongst non-financial institutions, therefore, providers need to offer a full end-to-end service, including technology, banking licence, compliance, and risk management in order to bring financial products to the BaaS market.
Since non-financial companies, like retailers and eCommerce businesses, may not have financial regulatory and compliance experience, it is important for BaaS companies to offer more than just a backend tech solution.
What Are the Risks of Embedding Financial Services With the Wrong Provider?
Partnering with a BaaS company that can take full accountability for compliance and anti-fraud is essential to avoiding issues as businesses scale. Without the right level of regulatory and compliance support, BaaS adopters may find themselves under-serviced, and as a result, they may have to outsource compliance responsibilities to another BaaS provider or hire a dedicated team to handle compliance in-house.
In general, the more links in the chain, the more complex compliance becomes, which leaves the potential for confusion over who is accountable for managing risk. Ultimately, this puts BaaS adopters in jeopardy of incurring additional costs and delays in bringing their financial products to market – not to mention the complexities of managing relationships with regulatory authorities.
With the right BaaS provider, businesses should be able to focus on what they do best, without having to step outside their area of expertise or rely on paying an additional financial institution. At Vodeno/Aion, we offer banking products and services serviced by an ECB banking licence and have the expertise to take good care of all compliance-related requirements.
How Do Compliance Requirements for BaaS Providers Vary Between Different Products?
Compliance requirements can vary significantly from one BaaS product to another. While requirements are relatively light for simple payment processing solutions, lending solutions like Buy Now, Pay Later loans (BNPL) are much more demanding due to changing regulations and the accountability and decision requirements for lending money to customers. As a result, lending and payment processing products are primarily only offered by BaaS providers with a full banking licence.
Making sure that your BaaS provider can offer the right products to your customers, as well as the regulatory support and tools to manage the associated risks is important. While many BaaS providers will be licensed to issue cards, pay, and move money as EMIs, few BaaS providers on the market are fully-fledged banks able to provide a broad scope of products with built-in compliance-as-a-service capabilities.
What Technologies Play a Part in Your Approach?
Our regulatory approach to BaaS is a fundamental part of our core offering, and our access to market-leading technologies, resources and infrastructure means that we have the ability to take care of everything compliance related for our clients as a full end-to-end BaaS provider.
Secure, remote onboarding requirements can differ substantially from one country to another in Europe. What makes Vodeno/Aion unique as a BaaS provider is that we have significant knowledge and expertise in digital onboarding processes, fully compliant with all AML/KYC banking regulations in various European countries.
Our platform is integrated with multiple BaaS solutions in order to ensure a smooth onboarding experience, including liveness checking and facial recognition, all tailored to the needs and regulatory requirements of local markets.
We are fully accountable for implementing KYC, AML and other associated processes on behalf of our clients. A robust KYC and AML solution plays a major role in the fight against fraud, money laundering and financial crime. There are serious implications for firms that don’t meet requirements, including fines for failing counter-terrorism financing and anti-money laundering compliance, as well as significant reputational damage.
Most importantly, a BaaS adopter does not want their account to be associated with a bank or service provider involved in issues with third parties, regulators, poor business practices or unfair treatment of their customers.
Embedded Banking: A Seamless & Secure BaaS Solution
At Vodeno/Aion, we specialise in providing cutting-edge BaaS services that empower businesses to offer seamless and secure banking experiences to their customers.
With our comprehensive BaaS solutions, we understand the importance of meeting both technical and compliance requirements. We recognize that security and regulatory compliance are of utmost importance when integrating banking services into diverse business ecosystems.
That’s why we offer our BaaS clients banking products backed by the security and guarantees of a fully regulated European bank. This ensures that businesses can confidently provide their customers with reliable and trustworthy financial services, fostering a sense of trust and loyalty.
Our approach to BaaS is fully end-to-end, encompassing not only advanced technology solutions but also comprehensive licensing, regulatory, and compliance expertise. We guide our clients through the entire value chain of BaaS, ensuring that they can navigate the complexities of the financial landscape with ease.
By partnering with Vodeno/Aion, businesses can offload the burdens of technical intricacies and regulatory requirements, allowing them to focus solely on delivering exceptional experiences to their customers.Get in touch today to learn how we can help you with BaaS solutions.
