Although Banking-as-a-Service (BaaS) is new, banks have been making their services available behind the scenes for decades. What’s changed in recent years is the explosion of fintech firms seeking to partner with banks to access the payment rails historically limited to regulated financial institutions.

A greater number of participants has led to the need for more standardized language about BaaS.

In the past, it was easy enough for a bank to communicate with a brokerage firm about setting up deposit accounts for its customers so they could benefit from FDIC insurance coverage. Any questions about how that worked, and who was responsible for what, would naturally get worked out as a matter of course.

Now, by contrast, multiple fintechs may be talking with multiple banks about multiple services…and all using slightly different terminology. That can slow down the solution-building process, especially when the solution involves several entities.

Besides speed to market, there’s another reason for banks and their clients to establish and use clear terminology: risk management. Getting payments right within the guardrails of the regulatory environment is essential. Connected parties may jointly touch many thousands of transactions on a daily basis. To effectively communicate about varied roles and responsibilities particularly related to risk and regulation, it’s imperative to have communication clarity.

To help promote a unified understanding of Banking as a service terminology, UMB has helped to develop a set of shared definitions as a part of its work with the Alloy Labs Alliance‡. Here, with permission, are five of the most foundational terms in the BaaS landscape. To read more, we invite you to read Alloy Labs’ The New Nomenclature Behind the BaaS Partnership Boom.


Acronym for banking-as-a-service. A partnership model in which a financial institution leverages its bank charter to enable one or more non-bank financial services companies to offer deposit accounts directly to consumers. (For models offering card products without deposit accounts, see BIN Sponsor.)

BaaS models can be direct or indirect. In a direct model, the bank supplies the technology solutions and APIs required for the non-bank financial services provider to connect to the bank’s system of record or account ledger. Some banks may also offer compliance or other advisory services to their non-bank financial services customers. In an indirect model, a third-party middleware provider (defined below) supplies the technology and APIs required for the bank and the non-bank financial services provider to exchange data.

Middleware providers may also assist non-bank financial services providers with forming relationships with sponsor banks and other technology firms that provide services such as payment processing, account holder verification, and onboarding.

Bank of Record

A name for financial institutions offering BaaS. Non-bank financial services companies may list their sponsor bank as the “bank of record” on legal disclosures. (Synonyms: Sponsor Bank, Charter Sponsor)

BIN Sponsor

Acronym for bank identification number sponsor. A partnership model in which a financial institution leverages its position as a member of one or more payment card networks to enable non-bank financial services companies to issue debit, credit, or prepaid products directly to consumers. (Synonym: Issuing Bank)

Embedded Finance

Refers to payment or lending services that are provided directly to consumers by companies that are not financial services firms. Embedded finance tools are typically used to help consumers complete checkout experiences or access credit quickly.

These experiences are often instant and can be invisible to the consumer. In most cases, the consumer never encounters the financial services brand that facilitates these transactions in the background.

Middleware Provider

A technology firm that provides the API connections which enable banks to exchange data with their non-bank financial services clients. Some middleware providers go beyond this basic model to connect non-bank financial service providers to other third parties for products like payment processing, account holder verification, and onboarding.

Some middleware providers also help to match charter sponsor banks with non-bank financial services companies who are seeking a sponsor.

Learn how UMB can support your financial institution or fintech with integrated banking solutions, insured deposit accounts and Banking-as-a-Service. Contact us to schedule a consultation.

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