Ask five people in banking what “banking as a service” (BaaS) is, and you’re likely to get five different answers—which is not as bad as if they all replied “huh?”

A new report from Cornerstone Advisors, commissioned by Synctera, defines banking as a service and forecasts the future revenue opportunity for banks to realize from this growing trend.

What is Banking as a Service?

Cornerstone defines banking as a service is:

“A strategy where a financial institution partners with a fintech or other non-financial institution brand to provide financial services to the partner’s customer base, leveraging the institution’s charter and capabilities like account management, compliance, fraud management, payment, and/or lending services .”

For all the discussion and confusion surrounding the concept, BaaS really comes down to being a distribution channel play. According to consultancy Oliver Wyman:

“For a financial institution, BaaS is an opportunity to reach a greater number of customers at a lower cost. For the distributor, offering financial products opens up new revenue lines at attractive margins and can deepen its relationships with customers, and can then capitalize on cross-selling opportunities.”

Embedded Finance is Driving Banking as a Service

The rise of interest in banking as a service is the result of the growing embedded finance trend. There are different views of what embedded finance is. My definition: