Money as a Service: How Does It Work?

Key Takeaways:

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• Money as a Service (MaaS) involves the delivery of financial infrastructure to non-bank companies, in turn integrating the technology with existing services
• This provides end users with a variety of new financial services
• MaaS promotes financial inclusion and freedom from traditional banking
• Regulatory compliance and economic growth are key considerations
• The Money as a Service sector could reach $46 billion by 2028

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Introduction

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Money as a Service (MaaS) is one way of providing and accessing digital financial services.

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MaaS involves the delivery of financial infrastructure to non-bank businesses, which in turn offer financial services to their own customers through an existing website or platform.

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The term is related to Banking as a Service (BaaS), which similarly refers to the delivery of banking infrastructure to non-bank companies via an API. Sometimes, MaaS refers to a broader suite of digital financial services that fall outside of the scope of traditional banking, including but not limited to payments, remittances, and currency exchange.

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Together, MaaS and BaaS allow for the provision of familiar financial services in a new way. These approaches do not simply exist outside the traditional banking sphere. Instead, they go beyond the limits of what was previously possible through new innovations.

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We’ll examine MaaS in greater detail throughout this article.

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Key Components of Money as a Service

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Businesses can use MaaS services to provide a variety of common financial services, including payments, remittances, currency exchange, and digital wallets.

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MaaS services also feature key components that underlie each application. Businesses often access MaaS services through an API, or Application Programming Interface, allowing the company to integrate the services with their existing online platform or website.

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Often, MaaS services are cloud-based, meaning that businesses can use each service without providing much in the way of computing resources or administration. 

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MaaS services are frequently modular, meaning that businesses can adopt only the services they need, or, if necessary, subscribe to a variety of services simultaneously.

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Examples of MaaS Services

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MaaS ultimately allows public-facing companies like fintech startups, e-commerce platforms, and other businesses to offer financial services to their customers.

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One example of a MaaS service is Shopify. Alongside its well-known storefront service, the platform offers payment, lending, fundraising, and inventory and tracking tools to merchants.

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Another example is Square. Though it is best known for its payments app and point-of-sale terminals, Square also offers additional features such as business loans, payroll management, and marketing tools that can be said to fall in the category of Money as a Service.  

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Klarna is another notable example of MaaS. The service provides payment processing services, including "buy now, pay later" (BNPL) features. Businesses that integrate Klarna can do so either directly through an API or through other popular platforms.

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Impact on Financial Inclusion

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Because MaaS services are highly available, they have greatly expanded access to financial services among unbanked and underbanked populations. This sort of broad, open access is sometimes referred to as financial inclusion. 

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In other words, Money as a Service tends to be available to individuals and businesses regardless of their wealth, net worth, or broader financial standing.

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Latin America is one notable locus for financial inclusion. In countries like Argentina and Mexico, MaaS-powered digital wallet services are gaining popularity because they allow users to spend and save money even if they cannot access bank savings accounts.

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Meanwhile, in the UK, small “challenger banks” that are in part powered by MaaS services have begun to offer traditional financial services — including but not limited to savings accounts, credit and loans, and credit cards. Once again, these services are highly accessible to UK citizens who might not be able to access traditional bank services. 

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Economic Implications of MaaS

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Money as a Service can contribute to economic growth in numerous ways. 

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Because MaaS services are extremely convenient, and because competing services provide a variety of options, a rapidly expanding MaaS sector can attract money from customers. 

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The same trend can also allow companies to bring in greater revenue and profits. Furthermore, the digital nature of Money as a Service means that growth in this area can promote online sales and business activities, thereby strengthening online commerce.

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Growth in all areas, including MaaS, can contribute to a country or region’s broader economy.

Countries that experience growth also typically demonstrate greater financial stability. Naturally, regions that accommodate new financial technologies stand to benefit the most from MaaS.

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Data-Based Outlook

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Though little data is available on the size of the MaaS market, the BaaS market is on the rise, and its growth could coincide with progress in the MaaS sector. 

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Data from Grand View Research suggests that the size of the BaaS market is surging. The global BaaS market was larger than $22 billion in 2022 and could see more than $74 billion in revenue in 2030, representing a compound annual growth rate (CAGR) of 16.2%.

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North America represents the largest market for BaaS, with a revenue share of 34.16% in 2021. The fastest growing markets are Southeast Asia and Oceania, including Australia.

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Regulatory Considerations and Challenges

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Though many countries and regions do not have regulations specifically aimed at Money as a Service, the sector is generally regulated under broader financial requirements.

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All financial services must be authorised/licensed and comply with local and international financial regulations. Such regulations include but are not limited to KYC/AML regulations, privacy regulations, and rules aimed at digital financial services and non-bank companies.

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Another consideration is the changing regulatory landscape. Governments continually change and revise laws and regulations in order to adapt to technological changes. 

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This responsibility extends to companies: Money as a Service providers and companies that integrate MaaS services must keep up with rapid changes and comply with changing laws.

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UK and EU Regulations

Though regulators rarely target MaaS directly, certain rules are particularly relevant. 

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The European Payment Services Directive (PSD2) and its upcoming third version set out rules and allowances for Payment Service Providers (PSPs) that fall outside of the usual banking system. If MaaS services fall in the category of PSPs, PSD2 rules may apply to them.

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The UK has transposed PSD2 into its own laws in the form of The Payment Services Regulations 2017. The UK also has an open banking initiative, which aims to permit and encourage participation from a variety of new service providers.

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The Evolution of Money Services

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Banking has been a service for as long as currency has existed. 

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Though the banking system has undergone countless changes over thousands of years, the implications for customers are clear. Until recently, businesses and the general public could typically access financial accounts and services only through traditional banks.

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When the transition to digital banking began in the mid-20th century, traditional financial institutions dominated new innovations. Banks began to add mainframe computers starting in the 1950s, which largely were reserved for internal use for the next several decades. 

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Just a few innovations reached customers. In the 1960s, banks began to offer ATMs. By the 1980s, early digital banking services were available via phone and videotex in some locations.

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However, the advent of the internet in the 1990s marked the beginning of modern digital finance. Online banking continued to grow alongside the internet in the decades that followed.

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Modern Digital Finance

Today, the widespread presence of digital finance allows for more financial services than ever before, including Money Service Businesses (MSB). 

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MSB is a regulatory category that includes non-bank financial services. Though not all MSBs are online services, many companies in the category are in fact online.

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Another related development is mobile money, a trend fuelled by the rise of smartphones circa 2008 and compatible digital wallets. Now, for the first time in history, individuals and businesses can send, spend, and accept funds through a variety of mobile services — even if they don’t have a direct membership with a bank or a major credit card network.

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Banking as a Service (BaaS) and Money as a Service (MaaS) are related to these trends. They allow companies to provide open and digital financial services outside the confines of the traditional banking system, and they allow for integration with mobile and online platforms. 

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Future Trends and Innovations in MaaS

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MaaS can be integrated with other financial trends and innovations, many of which are cutting-edge and rarely seen within the traditional financial system.

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Blockchain and Cryptocurrency

One emerging financial trend is cryptocurrency. Cryptocurrency tokens and transactions are represented on public, transparent ledgers called blockchains. 

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Because many blockchains are programmable, companies can build new services that may be considered a type of MaaS. Even companies that don’t build applications directly on-chain can route crypto transactions through firms that work closely with blockchain.

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The popular crypto exchange Coinbase, for example, provides an API that allows merchants to accept cryptocurrency payments through its Coinbase Commerce service.

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Though cryptocurrency services usually are not explicitly promoted as Money as a Service, certain services that provide crypto access in this way are similar to MaaS.

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Artificial Intelligence

Another trend that may be relevant to MaaS is artificial intelligence (AI). AI has clear applications in finance, as it allows for user spending and activity recommendations, account management decisions, fraud prevention, compliance monitoring, and automated assistance.

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The traditional banking system has not adopted AI thoroughly. But because AI services are typically offered online and can be accessed by developers, MaaS services and other digital financial companies might be first in line to adopt the technology.

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Stripe, notably, has opened a partnership with ChatGPT creator OpenAI on various fronts. The two companies are working to integrate each others’ services mutually. OpenAI will use Stripe to power payments, while Stripe will add OpenAI’s services to its own products. Some of these efforts, such as streamlined ways to buy AI credits, will reach customers.

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Once again, this partnership is not explicitly promoted as MaaS, but it is an example of non-bank companies exchanging modular and digital financial services.

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Conclusion

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Money as a Service is transformational for a variety of reasons. First, the technology is disruptive to the traditional banking industry, and it can help build new approaches to finance.

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In addition to promoting economic growth and meeting regulatory requirements, MaaS can also connect to emerging technologies such as blockchain and artificial intelligence (AI). Applications for MaaS are virtually limitless, bound only by the current state of the sector. 

Finally, MaaS is highly beneficial to users because it is financially inclusive. Financial services powered by MaaS are often accessible to users regardless of their situation. Companies offering their own financial services can also use MaaS services easily.

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To learn more about Banking as a Service, read our guide on BaaS.