Open Banking, BaaS (banking as a service), and embedded finance 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 provides the digital foundation for the other two models.
With Amplify Open Banking, Axway provides financial institutions (FIs) with a path to execute on all or any of these strategies.
What is Open Banking?
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 still widely used by account aggregators. These practices will make it much more difficult to comply with the U.S. CFPB 1033 regulation that will be phased in starting next year. Meanwhile, the Canadian government hopes to render screen scraping obsolete with its own open banking framework.
Latest updates: Section 1033 of the Dodd-Frank Act became law in January 2025, but recent White House actions against the CFPB have led to some uncertainty over the agency’s future. Get the facts here.
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.
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 set up by banks, in this case using existing credit cards, and streamline the customer’s 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.
In summary:
- Open Banking is focused on opening access to financial data to promote innovation and competition in the financial industry and strengthens consumer data portability.
- BaaS (Banking as a Service) 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.
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 risks 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 first CFPB-recognized open banking standard is FDX (Financial Data Exchange), with 94 million consumer accounts on the FDX API and adoption growing at a very fast pace.
Adopting standardized open banking APIs positions FIs to move ahead with BaaS and embedded finance.
Moving forward with an integrated solution
Axway’s Amplify Open Banking solution supports the FDX standard and addresses the complexities of CFPB 1033 and other open banking regulations. It manages consents meticulously and supports collaboration with fintechs, reducing overhead and accelerating innovation.
Low-code, no-code capabilities enable FIs to deploy business processes quickly, monetize APIs, and create new revenue streams, meeting their need for agility in today’s competitive market. It also makes it easier to speed adoption thanks to an intuitive API developer experience.
These capabilities make Amplify Open Banking the ideal platform for an evolving digital finance strategy that embraces open banking, BaaS, and embedded finance. The solution empowers banks to offer innovative, personalized financial services that win customer trust and loyalty, enhancing upselling and cross-selling opportunities.
Its BaaS and white-labeling capabilities allow financial institutions to distribute products through partners and support embedded finance strategies, positioning them as “invisible banks” for non-bank partners.
It’s time to accelerate your open banking strategy
Whether you have an open banking,BaaS , or embedded finance 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.
Amplify Open Banking provides all the tools to make that happen and evolve your digital banking strategy in line with your own pace and objectives.
Let our experts help you with your business strategy and guide you through deployment.
Follow us on social