One of the themes in PYMNTS’ monthly “What’s Next in Payments” series is that the banking-as-a-service (BaaS) model is currently under pressure.
Synapse Declared bankruptcymeanwhile Evolve Bank & Trust It was issued Cease and desist orderThis includes the company Federal Reserve Establish new FinTech partnerships.
Ingo Payment Chief Revenue Officer Lydia Imboden In an interview, Imboden said the BaaS industry may be going through a turbulent time, but it has the power to last. His view is that Synapse doesn’t mean a systemic shutdown of BaaS, but it also doesn’t mean a one-off event, but rather a confluence of different scenarios that reveal a bigger picture.
“These incidents highlight the vulnerabilities of various business models,” she said in her “Future of Payments” series on BaaS.
Regulators are currently developing additional frameworks that will dictate how partnerships with fintechs and financial institutions should be managed, she said.
Imboden said a shakeout of at least some players is on the horizon. Traditional models — the commoditization of bank charters, the disintermediation of banks from fintech programs — are what she called the “consumer marketing arm,” and that’s where things are starting to break down.
Just a few years ago, in the early days of BaaS, there were around six sponsoring banks focused on funds transfer and card issuance. Today, there are more than 30 sponsoring banks, and 76% of banks say some form of FinTech partnership is key to their future growth.
As a result, more companies are moving, or need to move, to a direct business model.
These are relationships where fintechs have direct relationships with financial institutions that hold consumer funds, she said, and the commingling of consumer funds within these technology platforms. Obtained This needs to stop and there needs to be more of a one-to-one correlation between fintech programs and financial institutions.”
The benefits of a direct relationship
Imboden said the direct relationship makes it a little easier to vet fintechs more thoroughly from a variety of perspectives, including anti-money laundering and other compliance programs, as well as relationships with third and fourth parties. Occur Across the entire FinTech ecosystem.
“Financial institutions need to demonstrate appropriate oversight capabilities with all of their downstream partners,” she told PYMNTS.
Direct communication will inform and shed light on whether a fintech has the “runway” to manage fraud and marketing activities. Similarly, fintechs can gauge whether their banking partners have sufficient liquidity and capital, and what fintech committees and other committees might look like.
“These partnerships need to be subjected to further scrutiny and monitoring in both directions,” she said.
What is the impact on Open Banking?
Asked by PYMNTS how open banking might impact them, Imboden noted that large financial institutions may be reluctant to share data with fintech partners whose downstream activities are perceived as high risk. Early warning Fintechs and neobanks cannot access banking data directly through APIs or through resellers. The net effect could be a disruption to the movement of funds.
“There needs to be some education on the consumer side,” Imboden said, adding that most consumers don’t read the terms and conditions.
She says“There There is no way for the end consumer to know this. Really of Federal Deposit Insurance Corporation“Insured account”
To bridge this gap, digital-first brands You will need As fintech companies establish themselves as the “face” of banking service delivery, this will enable clearer and more transparent communication.
Speaking about the future, she said:As I think that when the tea leaves “fall,” we will have a better operating framework. [these partnerships] …Banks need playbooks.”
