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Trending: Banking-as-a-Service Upheaval Will Stabilize

June 18, 2024

The PYMNTS team’s “What’s Next in Payments” series highlights hot topics in the payments industry. This month’s video is an Ingo Payments collaboration all about Banking-as-a-Service (BaaS).

The BaaS industry is making headlines related to significant challenges, such as Synapse’s filing for bankruptcy and Evolve Bank and Trust’s cease-and-desist order.

Despite these setbacks, our very own Ingo Payments Chief Revenue Officer, Lydia Inboden, believes BaaS will endure, though the industry is undergoing a necessary period of scrutiny and restructuring.

Inboden highlights that these events expose vulnerabilities within various business models. Regulatory frameworks are evolving to better govern FinTechs and their partnerships with financial institutions, predicting a shakeout among current players.

 Traditionally, few banks facilitated money movement and card issuance, but now over 30 sponsor banks are involved, with 76% envisioning future growth through FinTech partnerships.

Inboden advocates for direct relationships between FinTechs and financial institutions, enhancing compliance and oversight. These closer relationships allow for thorough vetting of FinTechs, ensuring better management of fraud, liquidity, and capital. She stresses the need for more scrutiny and transparent communication within these partnerships.

Regarding open banking, Inboden warns that larger institutions may hesitate to share data with riskier FinTechs, potentially hindering money mobility. Improved consumer education and transparency from digital-first brands are essential to maintain trust and ensure clarity about FDIC insurance coverage. Looking forward, Inboden envisions a more robust framework and playbook for operating these partnerships effectively.

Watch the video below for an in-depth interview with Lydia on all things BaaS.