Banking & Finance

BaaS, Embedded Finance, and Open Banking models: what’s the difference?

Young woman depositing check by phone in the cafe BaaS, Embedded Finance, and Open Banking models: what’s the difference?

BaaS (Banking as a Service), Embedded Finance, and Open Banking are related concepts, but they are not the same thing. Here is a look at definitions for each of them, how they are interrelated, and why Open Banking ultimately helps all three models. I’ll also share recommendations for what you can do now to prepare for upcoming CFPB 2024 North American regulation that will impact the way financial institutions handle data within these models.

What is Banking as a Service? (BaaS)

BaaS (Banking as a Service) refers to a model where banks provide their banking infrastructure and services to third-party companies to use and incorporate into their own products and services. This means that non-traditional banking companies, such as fintechs, can leverage a bank’s existing core banking processes.

Account opening, KYC (know your customer), and payment processing are leveraged to create their own financial products without having to build the underlying banking infrastructure themselves. The bank provides the services, while the third-party company provides the front-end interface and customer experience.

Apple Pay is a great example of how a third-party company can leverage the payment processes setup by banks, in this case using existing credit cards, and streamlining the customers payment experience.

What is embedded finance?

Embedded finance refers to the integration of financial services and products into non-financial platforms, such as e-commerce, social media, or mobile apps. This means that businesses that are not primarily in the financial industry, can offer financial services to their customers by partnering with financial institutions.

For example, a retailer might offer point-of-sale financing, allowing customers to pay for a purchase in installments, or a ride-sharing app might offer a credit card to its drivers for fuel and maintenance expenses.

What is Open Banking?

On the other hand, Open Banking is a regulatory (or market-driven, depending on the region) framework that enables consumers to share their financial data securely with third-party providers. It also aims to give consumers more control and ownership of their data, allowing them to move between financial service providers more easily.

Dive deeper: Here’s an “Open Banking” definition we all can understand.

Open banking enables financial institutions to provide customers with more personalized and innovative services by leveraging their data. For example, thanks to open banking APIs, a consumer could connect their bank account to a budgeting app or a robo-advisor, allowing the app to analyze their spending habits and provide personalized financial advice with the customer’s explicit consent.

By adopting open banking, financial institutions will also be able to move away from the unsecure and unstable ‘screen scraping’ method that is currently widely used by account aggregators. These practices are expected to soon become prohibited with the upcoming U.S. CFPB 2024 regulation.

What’s more, banks and financial institutions stand to benefit from opening up their data as APIs because breaking down those walls in the financial services arena allows a two-way flow of information – giving banks access to valuable, actionable intelligence they can leverage.

Learn more about how recent regulatory moves are accelerating the adoption of open banking in North America.

In summary:

  • BaaS is a service model where banks provide their banking infrastructure and services to third-party companies.
  • Embedded finance is focused on integrating financial services into non-financial platforms.
  • Open Banking is focused on opening access to financial data to promote innovation and competition in the financial industry and strengthens consumer data portability.

What does Open Banking have to do with BaaS and embedded finance?

Open Banking is based on a common, open, shared standard for the secure exchange of financial data. Historically, proprietary APIs or screen scraping have been the methods used to transfer data.

The problem is that proprietary APIs require valuable technical resources, with dedicated teams to create and maintain them – and then work with third-party proprietary APIs.

Meanwhile, screen scraping opens up a bank to security and customer satisfaction issues; anytime an institution makes changes to their interface, the screen scraping process can break down.

It’s in part for these reasons that, in North America, the emerging de facto standard is FDX (Financial Data Exchange) with 42 million consumer accounts on the FDX API and adoption growing at a very fast pace.

API standardization benefits all actors in your ecosystem

FDX is a non-profit industry standards consortium operating in the U.S. and Canada that is dedicated to unifying the financial services ecosystem around a common, interoperable, and royalty-free technical standard for user-permissioned financial data sharing, named the FDX API. FDX APIs are organized around main use cases such as account aggregation, taxes, payment initiations, etc.

Adoption of this API standard goes beyond open banking. Because it is a standard, it is being adopted by the financial ecosystem: Fintechs, core banking, digital banking providers, and vendors of all sorts are becoming FDX compliant.

What that means is that the integration between systems becomes significantly easier; what used to be a months-long science project is transformed and shortened into just weeks. BaaS and Embedded Finance ROI can therefore also greatly benefit from such adoption of standards as their integration layer with the outside world.


Whether you have a BaaS, Embedded Finance, or open banking strategy, your first step should be to adopt the FDX API standard, package your APIs into API products, then ditch your old-fashion dev portal to publish them on a modern digital enterprise marketplace that can sit on top of any of your API infrastructure and assets.

Let our experts help you do just that with your business strategy and guide you through your adoption of the FDX API standard.

Discover keys to successful adoption of APIs in financial services.