If you ask FinTech CEOs about the state of Banking-as-a-Service, their responses paint a picture of an ecosystem in flux. Some examples from a recent roundtable discussion:
Innovation is a Bad Word:
“I don’t know if the glass is half-empty or half-full. On the plus side, the heightened regulatory environment has probably made us better in some ways. We’ve tightened up our policies and procedures in a number of areas.
On the half-empty side, we have been piloting an innovative new product. Our customers love it. Nobody else is doing it. But our sponsor bank made us shut it down. We asked Why!? Do you think it’s illegal? Do you think it’s discriminatory? Do you think it’s unfair? What about it bothers you?
The sponsor bank replied: It’s new. And we don’t want to have to explain it.
The response to “It’s new” used to be: That’s cool, tell me about it!
Now it’s like: “Ugh, really? It’s new? New is scary.”
Fewer Stronger Sponsor Banks:
“There will be shrinkage in the number of sponsor banks who do partnerships. But those who remain will invest more in the partnerships and be more compliant. The result will be fewer but higher quality sponsor banks. But there’s going to be a lull in innovation while the industry gets the third-party risk management right.”
Regulatory Rollercoaster:
“We’re a state licensed lender. Some of the states, we could be committing murder and so long as we paid our dues, they don’t care. One state sent us draft findings and we were like, um, we’ve never seen a government produce work this shoddy before. We fought them for two years. Eventually we won, then they billed us $30,000 for the examination. Other states are blindingly intelligent. They terrify me — if we start arguing, they’re going to win.”
Desire for Candid Dialogue:
“I wish we had a venue where we could ask regulatory questions of the higher ups in Washington, not our local examiner. I can’t go to my state regulator. They’ll read too much into it and it’ll come up in our next exam: Oh you thought about doing that new thing — it must be terrible. When we try to do something new and we go to a regulator to clear it in advance, the best we can get is a “non-disapproval.” We didn’t say no, but we didn’t say yes either.”
Conclusions:
- A fair amount of frustration
- A lot of unknowns
- A lot of smart people trying to navigate them
- A desire for open dialogue
