Building BaaS Bridges: The New Alliance Between Traditional Banks and Digital Brands

Traditional banks haven’t been spared from the rapid rise of new tech, notably AI. Both technological disruption and evolving consumer expectations are forcing these institutions to turn to Banking as a Service (BaaS), forging partnerships with established digital brands and startups.

What Is BaaS?

Simply put, banking as a service (BaaS) is the integration of traditional banking services into non-bank businesses through APIs. The model allows third-party providers to offer financial products under their own brand while relying on the banking infrastructure of established financial institutions.

Benefits of BaaS Partnerships

The advantages of BaaS partnerships are manifold. For traditional banks, collaborating with digital brands allows them to innovate rapidly without the need to overhaul their systems. They can offer new products and services, reaching customers through channels they might not have accessed independently. Digital brands, on the other hand, gain access to established banking infrastructures and provide financial services without navigating the complexities of banking regulations. Consumers benefit from this arrangement through enhanced services that are seamlessly integrated into the digital platforms they already use.

Challenges and Considerations

While the BaaS model offers numerous benefits, it also comes with a set of challenges. I.e., regulatory compliance remains a significant concern, as banks must ensure that their partners adhere to financial regulations.

Data security is another critical issue, as sensitive financial information needs to be protected from cyber threats. Finally, maintaining a balance between technological innovation and traditional banking practices requires careful strategic planning.

As noted by PwC’s Global Fintech Report, "Collaboration between banks and fintechs is essential for driving innovation, but it must be managed carefully to address regulatory and security challenges."

Evolving BaaS Collaborations

Presently, it seems that the trend towards BaaS collaborations will accelerate. Consumer expectations evolve alongside the evolution of new tech, which likely means that the demand for integrated, digital-first financial services will grow. Traditional banks and digital brands will likely keep working together to create solutions that meet these demands.

However, the success of BaaS partnerships will depend on the ability of both parties to adapt to changing technologies and regulatory landscapes. Finextra’s report on BaaS partnerships highlights that "the future of banking lies in collaboration, with BaaS serving as a bridge between traditional institutions and innovative digital platforms."

Who Owns the Customer Experience?

One of the trickier questions in these partnerships regards customer ownership. Traditionally, banks saw the relationship with the customer as sacred ground. The BaaS model challenges that notion. The customer belongs to the brand. The brand owns the interface, the service design, the emotional touchpoints. The bank is the regulated infrastructure below the surface; vital, to be sure, but still invisible.

For some, that’s a significant issue. For others, it’s an opportunity. Green Dot is an example of the latter. The business powers financial products for brands like Walmart, Amazon, and Uber. It’s become one of the most successful enablers in the BaaS space precisely because it doesn’t insist on being front and center.

In an interview with Forbes, Green Dot CEO Dan Henry said, "We’re not trying to be the face of the brand. We want to be the rails, the processor, the engine — and do it at scale."

This kind of humility is rare in banking. However, it may be necessary for building lasting partnerships in the BaaS world.

The Tension Between Innovation and Regulation

Certainly, none of this happens without friction. Banks are still banks: they have to follow strict rules, report to regulators, and guard against fraud and risk. When they team up with companies that move fast and break things, those worlds can clash.

BaaS partnerships require deep trust, robust contracts, and clear roles. If something goes wrong (say, a fintech partner mishandles customer data or fails to deliver on promised features), the bank is still on the hook with the regulators.

That’s why so many banks are building internal BaaS divisions, like NatWest Boxed or JPMorgan’s embedded finance team. They’re creating structures specifically designed to work with other businesses, balancing compliance with collaboration.

"Banks are becoming more open to blockchain and other disruptive technologies, but they’re doing it carefully. They know the risks — but they also see the opportunity," says Fnality CEO Michelle Neal.

That dual mindset — cautious but curious — is what sets successful BaaS initiatives apart from failed ones.

How Branding Shapes Trust in BaaS

Brand trust plays a huge role in whether these partnerships succeed. Consumers aren’t necessarily aware there’s a bank behind the app they’re using, and typically, they don’t care. However, the brand delivering the service has to get it right.

If an app adds a savings feature or a freelance marketplace offers invoicing and loans, users will judge the experience by the brand they’re familiar with, not the bank behind the curtain. That means the digital brand has to think like a fintech, even if it isn’t one.

At the same time, the bank must ensure that whatever is launched under its infrastructure won’t tarnish its license or reputation.

When Stripe partnered with Goldman Sachs to launch Stripe Treasury, they built a solution that let businesses embed financial services like bank accounts and money movement directly into their products. However, they also built in compliance and risk tools from the ground up.

In a Stripe blog post, co-founder John Collison wrote, "We think financial services should be built into every business’s product, not just kept separate in a bank’s domain. But doing it right means deep collaboration — and deep trust — with banking partners."

Will Embedded Finance Become the Norm?

The lines between banks and businesses are likely to continue to blur. A likely scenario is that retail platforms will start offering loans at checkout, travel apps bundling travel insurance and payments, and social platforms launching their own branded debit cards.

For traditional banks, this is a chance rather than a threat. They can choose to open their infrastructure and build smart BaaS platforms to start participating in a much broader financial world without competing head-to-head in digital UX (which has never been their strength anyway).

There’s still a lot to figure out, however. Who is liable when things go wrong? Who ensures fair pricing and accessibility? How do these services stay aligned with financial wellness goals instead of simply pushing more spending?

These questions are worth asking because this model — banks as service providers, brands as experience owners — likely isn’t going away. It’s another new reality. If done thoughtfully, it can create a financial future that’s more responsive, more flexible, and more human.

Angela Ash is an expert writer, editor and marketer, with a unique voice and expert knowledge. She focuses on topics related to remote work, freelancing, entrepreneurship and more.