Let’s take, for example, a hotel chain that is looking to improve its customers’ experience; it came up with the idea of a debit card or some wallet function where its customers can make payments. There are also loyalty points for customers anytime they use this card or wallet function. To further improve customer loyalty, this hotel chain also came up with the idea of an online loan system for people to book hotels, allowing them access to its service even when they can’t afford it at that moment.
With these two ideas, this hotel chain can improve customer loyalty and foster an intimate relationship with its customers. But there’s a problem, a big problem; this hotel chain does not have a banking licence. Without one, this hotel chain cannot offer cards or loans.
Getting a bank licence is not easy because of how critical banking services are to the economy. Acquiring a licence is capital intensive and comes with stringent regulatory requirements.
To avoid all these challenges and still offer those services to your customer, this hotel chain has to turn to a BaaS provider. This scenario is where BaaS comes into play.
This hotel chain has to partner with a BaaS provider that can make these services available to its customers via APIs and webhooks. With these APIs, the hotel chain can ‘hold’ customers’ money and lend them money too. In the real sense of this scenario, the hotel chain is not holding the money, nor is it loaning its money to its customers. Instead, it’s simply acting as an intermediary; as an intermediary, the hotel chain does not have the burden of the regulatory duties of a bank.