The Unique Revenue Lines
A BaaS platform that provides card issuing, account infrastructure, and payment processing to client businesses generates revenue across several distinct lines. Each line has different characteristics in terms of predictability, margin, and sensitivity to external factors. Understanding this revenue composition is the foundation of investor communication for a BaaS business.
Interchange Income
When a card issued on your platform is used to make a purchase, a portion of the merchant service charge (MSC) paid by the merchant is returned to the card issuer as interchange. For a UK BaaS platform issuing Mastercard or Visa consumer debit cards, interchange rates are regulated: the Interchange Fee Regulation (IFR) caps consumer debit interchange at 0.2 percent and consumer credit interchange at 0.3 percent. For commercial cards, interchange is higher and unregulated.
Interchange is volume-driven: it scales directly with the payment volume (TPV) processed on your platform. The margin on interchange is high in absolute percentage terms (you receive the fee without incurring direct variable costs proportional to each transaction), but the absolute income per transaction is small. A £100 consumer debit transaction generates £0.20 of interchange for the issuer.
The BaaS-specific complexity is whether you recognise interchange on a gross or net basis. If you are a principal in the payment transaction (you are the issuer of record, holding the FCA authorisation), you typically recognise the full interchange as revenue. If you are an agent (the regulated entity is a partner bank and you provide a platform layer above it), your revenue may be the net margin after paying the sponsoring bank's share. The gross vs net determination under IFRS 15 requires careful analysis of the principal/agent framework.
Float Income
E-money businesses and BaaS platforms hold customer funds in safeguarded accounts. Under the UK Electronic Money Regulations and FCA requirements, these funds must be held in designated safeguarded accounts, typically ring-fenced from the firm's own assets. The interest earned on those safeguarded funds can, depending on the regulatory structure and client agreement, accrue to the platform rather than to the customer.
Float income has been a significant revenue line for BaaS platforms during the high-rate environment of 2023 to 2025. A platform holding £500 million of customer float at a base rate of 5 percent was earning approximately £25 million per year in float income before safeguarding costs. As rates have fallen to approximately 3.75 percent, that income has fallen to approximately £18.75 million on the same balance, and it will continue to fall if the BoE delivers further cuts.
Fee Income and API Fees
Beyond interchange and float, BaaS platforms typically generate monthly platform fees from clients (a fixed access charge for the infrastructure), transaction fees for specific high-value or high-effort transactions (international transfers, faster payments above a size threshold, card replacement), and FX margin on cross-currency transactions. These fee income lines are generally more predictable and less sensitive to rate changes than float income, making them an important stabilising element in the revenue mix.
The Gross vs Net Revenue Debate
The most contentious P&L presentation question for BaaS businesses is the treatment of scheme fees, payment processing costs, and other pass-through costs. The debate is not just about accounting presentation; it directly affects the revenue and gross margin numbers that investors use to value the business.
The pass-through cost stack for a BaaS card issuing business typically includes: Mastercard or Visa scheme fees (charged to the issuer per transaction and per card), card manufacturing and delivery costs, payment network access fees, and in many cases a sponsoring bank fee (where the BaaS platform relies on an FCA-authorised partner bank for the underlying licence). These costs are often contractually passed through to the client, but the question is whether the BaaS platform is acting as principal or agent in the payment transaction for accounting purposes.
If the BaaS platform is a principal (it controls the goods or services before they are transferred to the customer), it recognises gross revenue (including the pass-through amounts) and gross costs. If it is an agent (it arranges for a third party to provide the service), it recognises only the net consideration.
"The gross vs net revenue debate in BaaS is not just an accounting technicality. It determines whether your revenue line looks like £50 million or £8 million for the same underlying business activity. Investors familiar with SaaS gross margins will misread a BaaS P&L that presents gross revenue without adequate pass-through cost disclosure."
The practical recommendation is to present both: show gross revenue at the top line, and show "net revenue" (equivalent to gross profit on the revenue before operating costs) as a clearly labelled sub-total. This gives investors the information they need to compare your unit economics with other BaaS businesses while preserving the IFRS-compliant presentation. The key metrics to disclose alongside the P&L are: TPV, take rate (net revenue as a percentage of TPV), and float income as a separate line with the average safeguarded balance shown as context.
A Model BaaS P&L Structure
The following shows a simplified but representative P&L structure for a BaaS platform, organised to give investors meaningful visibility of the different revenue lines and cost drivers.
Float Income Accounting and Rate Sensitivity
The accounting treatment of float income depends on the contractual structure of the safeguarding arrangement. Under the UK E-Money Regulations, e-money institutions must safeguard customer funds using one of two methods: segregating funds in a dedicated account at a credit institution, or insuring or guaranteeing the funds. In either case, the question of whether interest earned on safeguarded funds accrues to the firm or to the customer depends on the terms of the client agreement.
Most BaaS platforms have structured their client agreements to retain float income, which is lawful under FCA rules provided the arrangement is clearly disclosed and the client agrees. However, as rates have fallen, some clients are seeking to negotiate a share of float income. CFOs should model three scenarios for float income based on different rate paths: a base case reflecting current market expectations, a downside case assuming the BoE cuts rates to 3.0 percent or below, and a stress scenario assuming a new low-rate environment.
Regulatory Capital in BaaS
BaaS platforms that hold their own FCA authorisation (as an e-money institution or, from September 2026, under the new cryptoasset or payments regime) must maintain regulatory capital. This capital sits on the balance sheet and is not available for deployment in the business. For a growing BaaS platform, the regulatory capital requirement scales with the business activity (for EMIs, it is the higher of the fixed minimum, a percentage of outstanding e-money, and a percentage of payment volumes). Understanding this scaling relationship is essential for financial modelling and fundraising.
Key Takeaways
- BaaS revenue has four main components: interchange, float income, platform/API fees, and FX margin. Each has different volume drivers, margin characteristics, and sensitivity to rate changes. Present them separately to investors.
- The gross vs net revenue question is consequential for how your business is valued. Disclose both gross revenue and net revenue (after scheme fees and pass-through costs), and give investors a take rate (net revenue / TPV) as the key unit economics metric.
- Float income is materially sensitive to interest rates. Every 25 basis points of BoE rate cuts reduces float income by £1.25 million per £500 million of average safeguarded balance. Model three scenarios and disclose the rate sensitivity explicitly.
- The principal/agent determination for interchange and payment processing costs requires careful IFRS 15 analysis. Get this wrong and your revenue line will be significantly misstated, either in the direction of overstatement (gross where net is correct) or understatement (net where gross is correct).
- Regulatory capital scales with business activity. Build the scaling relationship into your financial model so that fundraising requirements are correctly sized as the business grows.
- Educate investors on the model before presenting the numbers. Five minutes of model explanation at the start of a financial discussion prevents hours of misunderstanding in due diligence.
- As rates fall, float income will compress. The businesses best positioned for the lower-rate environment are those with diversified revenue that does not rely disproportionately on float income to cover their fixed cost base.
