Exploring Cloud-Based Digital Solutions and the Rise of Banking as a Service

The banking industry is undergoing a massive transformation driven by emerging technologies like cloud computing, open banking APIs, and artificial intelligence. Traditional banks face competition from agile fintech challengers, while customer expectations for digital experiences have soared. This storm pushes banks to reimagine their technology infrastructure and core banking offerings.

Many banks embrace cloud computing to gain agility, enable innovation, reduce costs, and keep pace with customer demands. Cloud’s on-demand scalability, resilience, and pace of innovation are compelling reasons for banks to migrate away from legacy on-premises systems. This shift also enables new banking models like Banking-as-a-Service (BaaS), which allows non-banks to embed financial services via APIs.

Cloud Computing Overview

Cloud computing refers to delivering computing services like servers, storage, databases, networking, software, analytics, and intelligence over the Internet. With cloud digital banking solutions, banks can access technology services on demand anywhere, anytime.

Some key characteristics of cloud computing include:

  • On-demand self-service – Banks can provision cloud computing capabilities like server time and network storage automatically as needed without human interaction with the cloud provider.
  • Broad network access—Cloud capabilities are available over the Internet and can be accessed through standard devices like laptops, mobiles, etc.
  • Resource pooling – Cloud providers pool computing resources to serve multiple consumers using a multi-tenant model with different physical and virtual resources assigned dynamically based on demand.
  • Rapid elasticity – Capabilities can be rapidly provisioned and scaled up or down to match demand. This gives banks flexibility to scale up for spikes in banking activity.
  • Measured service – Resource usage is monitored, controlled, reported, and billed transparently based on utilization. This gives banks transparency into costs.

Cloud computing allows banks to consume technology services flexibly, like utilities, without upfront infrastructure investments. It enables banks to be agile and innovative in meeting customer needs.


Benefits of Cloud for Banks

The cloud offers significant benefits that are appealing to banks and financial institutions:

  • Banks can scale services and storage up or down on demand with the cloud. This allows them to support fluctuations in usage and demand without overprovisioning local resources. Rather than managing their physical infrastructure, banks can leverage the cloud’s elastic scaling.
  • The cloud automates infrastructure management, backups, failovers, and more. Rather than manually managing infrastructure, cloud automation efficiently handles these tasks, freeing up IT teams from maintenance duties.
  • Lower costs. The cloud shifts infrastructure costs from capital expenditures to operating expenditures. Banks pay only for the resources they use rather than purchasing and maintaining their infrastructure. The cloud provides access to enterprise-level infrastructure at a fraction of the cost of legacy on-premises systems. The cloud reduces hardware costs, IT personnel costs, and facilities costs.

By leveraging the cloud’s scalability, automation, and lower costs, banks can focus their efforts on innovating and providing better financial services rather than managing infrastructure. The cloud’s agility and flexibility allow banks to keep pace with changing demands. Cloud computing solutions tailored for banking provide the performance, security, and reliability needed for core financial systems.


Cloud Deployment Models

Banks can utilize three primary cloud deployment models: private, public, and hybrid.

Private Cloud

A private cloud is a cloud computing model that provides dedicated infrastructure for a single organization. The cloud is hosted on the bank’s data center or a third-party service provider. Private clouds offer the highest level of control and security but require the bank to purchase and maintain all the hardware and software.

Public Cloud

A public cloud is hosted by a cloud provider like AWS, Microsoft Azure, or Google Cloud Platform. The infrastructure is shared between many organizations. Public clouds are highly scalable and flexible, but banks need more control and security compared to private clouds. However, public cloud providers offer robust security measures and compliance controls.

Hybrid Cloud

A hybrid cloud combines private and public cloud models. Banks can host sensitive data and applications on a private cloud while leveraging the public cloud for scalable computing resources. A hybrid model provides control over the private cloud with the flexibility and cost-efficiency of the public cloud. Banks can choose between private and public to meet their needs.

The choice between private, public, or hybrid depends on the bank’s security requirements, need for customization, and the desired level of cost-efficiency. Large banks often opt for a hybrid model to optimize across these factors.


BaaS Explained

BaaS, or Banking as a Service, is a business model where banks integrate with third-party technology providers to offer digital financial services. Instead of building all technology in-house, banks leverage APIs and cloud platforms from fintech partners.

With a BaaS model from leading BaaS providers, banks can rapidly deploy innovative digital banking capabilities without massive in-house development. Key capabilities offered via BaaS include:

  • Digital account opening—By integrating bank APIs with client onboarding software, customers can conveniently open accounts via web or mobile apps, facilitating remote or digital banking.
  • Payments – BaaS platforms connect bank accounts to ACH, card networks, and real-time payments. This allows pushing payments from bank accounts and processing non-card payments.
  • Lending – Banks can integrate loan management systems and origination software to offer digital loan applications, underwriting, servicing, and more. This makes lending faster and more accessible.
  • Personal finance management: Banks can use BaaS solutions to provide customers with account aggregation, budgeting tools, automated saving/investing features, and personalized insights.
  • Fraud prevention – Integrating bank systems with modern fraud detection and analysis tools improves security and prevents financial crimes.
  • Compliance as a Service – Banks can outsource compliance obligations, including KYC, AML, sanctions screening, and regulatory reporting, to dedicated RegTech platforms.

The core value of BaaS is that it allows banks to leverage modern cloud infrastructure, ready-to-use fintech tools, and APIs to bring new digital banking products to market quickly. This gives traditional banks an innovative edge without massive in-house software development.


BaaS Use Cases

Banks leverage BaaS in three key areas: lending, payments, and card issuing.


BaaS is transforming lending by enabling banks to launch and scale digital lending platforms rapidly. By leveraging BaaS, banks can provide embedded lending experiences within their apps and enable lending integrations with third-party apps. This allows for innovative lending use cases like point-of-sale financing, Buy Now Pay Later (BNPL), and more. BaaS lending solutions offer pre-built credit scoring, decisions, and loan servicing components, simplifying and accelerating lending platform development.


BaaS powers banks’ next-gen payments capabilities. This includes building mobile wallet apps, integrating digital wallets into banking apps, enabling peer-to-peer payments, and more. BaaS provides access to payment networks, APIs, and pre-built components for tasks like KYC/AML compliance, transaction processing, and settlement. This makes it faster and easier for banks to roll out modern payment experiences.

Card Issuing

With BaaS, banks can issue their users digital debit and credit cards with just a few API calls. This cards-as-a-service model means banks don’t need to build and manage their card-issuing infrastructure. Key benefits include issuing cards instantly, creating customized card programs, managing card lifecycles and security via APIs, and embedding card capabilities into mobile apps. Top use cases include commercial cards, spend management cards, and digital employee expense cards.