UMB Bank’s Post

Fintechs and other #BaaS partners continue to innovate ways to improve the financial lives of their customers. We have been glad to be part of that progress for more than 40 years. Strict adherence to regulatory needs is part of the program—with the right collaboration, it doesn’t have to be painful. Head over to the UMB blog to learn more about why fintechs should ask what, exactly, ‘Regulatory Playbook’ means.

Fintechs and other #BaaS partners continue to innovate ways to improve the financial lives of their customers. We have been glad to be part of that progress for more than 40 years. Strict adherence to regulatory needs is part of the program—with the right collaboration, it doesn’t have to be painful. Head over to the UMB blog to learn more about why fintechs should ask what, exactly, ‘Regulatory Playbook’ means.

Here are several questions fintechs should ask of potential BaaS partners to avoid regulatory missteps.

The fintech world is in danger of writing off BaaS platforms as a useful business model.  That would be a mistake. The chart comes from Alex Johnson's excellent take on the state of play in BaaS  (link in comments👇).  To be clear, Alex is not saying that all BaaS platforms have weak compliance, but it would be easy to get that impression from the chart alone. It’s certainly true that, without naming names, some BaaS platforms have acted as gatekeepers that have inhibited communication between banks and programs and hindered effective partner bank oversight.  But there are good reasons to believe that, with well-designed roles and responsibilities, BaaS Platforms have a role to play in program management that both has value to clients and enhances partner bank oversight.  In the card world, Marqeta has been doing this for years. What’s the value in platforms performing some program management functions?  It’s easier and more cost effective for a partner bank to effectively oversee one KYC program or Reg E dispute process being used by 30 clients, than it is to oversee 30 different programs.  As long as the bank contracts directly with the end client and directly oversees the things they are responsible for, like marketing and the customer interface, partner banks benefit when partners use the same technology and operations. This means there is no reason to believe that Unit tech and program management overseen by its newer partner banks, like Thread and i3, is intrinsically worse (or better) from a compliance perspective than the Warp Core banks. Speaking of Warp Cores, or platforms integrated into a bank, Main Street Bank and its platform Avenu belongs on the chart. Jackie Reses and William Hockey are fintech royalty for good reason and their banks are building terrific developer experiences.  But the banks are unproven at the risk and compliance aspects of BaaS at scale.  By contrast, Main Street Bank has a team that has absolutely top tier regulatory and risk experience, but lacks the superstar developer credentials. The fintech world will naturally gravitate towards the Leads and Columns of the world.  But if a bank like Main Street can build good enough tech, enterprise clients looking for embeddable finance solutions might well feel more secure building on top of a platform integrated into a bank with outstanding regulatory chops, even if they think the tech is not quite as good. #fintech #BaaSPlatforms #PartnerBanks

Truly interesting posts commenting on the status and state of the art for BaaS and fintech banking solutions. The products are still shaping and trying to find their sweet spot where they can flow smoothly with compliance regulations and the necessity of being an innovative, digital, disruptive, and frictionless solutions. In fact, there is still a vast majority of potential users and clients who don't even know that these types of solutions are being offered by fintechs around the world. People are still paying way too much money with overpriced costs and fees. The "dormant" demand is huge. As Alex Johnson and Adam Shapiro have pointed out, those who nail the correct balance between tech evolution and compliance requirements, are going to be the real game changers of the ecosystem. I am a real believer that, on one hand, things are bound to have a massive change for the sole benefit of the consumers, and on the other hand, the traditional and "legacy" banking system is going to catch up at some point using the same recipe they have used for centuries, "paying its way around." Exciting times are ahead, and of course LaTam is a vastly unexplored market. Buckle your seatbelt and enjoy the ride. #baas #fintech #bankingsolutions #digitaldisruption #digitalbanking

The fintech world is in danger of writing off BaaS platforms as a useful business model. That would be a mistake. The chart comes from Alex Johnson's excellent take on the state of play in BaaS (link in comments👇). To be clear, Alex is not saying that all BaaS platforms have weak compliance, but it would be easy to get that impression from the chart alone. It’s certainly true that, without naming names, some BaaS platforms have acted as gatekeepers that have inhibited communication between banks and programs and hindered effective partner bank oversight. But there are good reasons to believe that, with well-designed roles and responsibilities, BaaS Platforms have a role to play in program management that both has value to clients and enhances partner bank oversight. In the card world, Marqeta has been doing this for years. What’s the value in platforms performing some program management functions? It’s easier and more cost effective for a partner bank to effectively oversee one KYC program or Reg E dispute process being used by 30 clients, than it is to oversee 30 different programs. As long as the bank contracts directly with the end client and directly oversees the things they are responsible for, like marketing and the customer interface, partner banks benefit when partners use the same technology and operations. This means there is no reason to believe that Unit tech and program management overseen by its newer partner banks, like Thread and i3, is intrinsically worse (or better) from a compliance perspective than the Warp Core banks. Speaking of Warp Cores, or platforms integrated into a bank, Main Street Bank and its platform Avenu belongs on the chart. Jackie Reses and William Hockey are fintech royalty for good reason and their banks are building terrific developer experiences. But the banks are unproven at the risk and compliance aspects of BaaS at scale. By contrast, Main Street Bank has a team that has absolutely top tier regulatory and risk experience, but lacks the superstar developer credentials. The fintech world will naturally gravitate towards the Leads and Columns of the world. But if a bank like Main Street can build good enough tech, enterprise clients looking for embeddable finance solutions might well feel more secure building on top of a platform integrated into a bank with outstanding regulatory chops, even if they think the tech is not quite as good. #fintech #BaaSPlatforms #PartnerBanks

I wanted to repost this since I think everything Adam Shapiro is saying is exactly correct. BaaS Platforms can work, and there are some very smart and ethical people trying to make them work. And to Adam's point, program management provides a tremendous amount of value (for both banks and fintech companies), so it's worth trying to figure out how to do it in a fully compliant way (Unit is the BaaS Platform I'd bet on in this respect). I also think Adam's point about BaaS Warp Cores is right on. Lead and Column get a lot of attention because of their credibility with fintech developers, but I called these companies warp cores for a reason. The combination of world-class developer tools and bank charters is a volatile mixture. If you don't nail the compliance, you'll cause a massive explosion. I could absolutely see traditional banks catching up on the tech side (at least enough) while doing a better job on compliance and becoming slightly different versions of Lead and Column. Names to watch for here include Mainstreet/Avenu (which I had never heard of!), Cross River, Fifth Third, and a few of the really big banks if they decide to stick with it (JPMC, Goldman, Citi).

Truly interesting posts commenting on the status and state of the art for BaaS and fintech banking solutions. The products are still shaping and trying to find their sweet spot where they can flow smoothly with compliance regulations and the necessity of being an innovative, digital, disruptive, and frictionless solutions. In fact, there is still a vast majority of potential users and clients who don't even know that these types of solutions are being offered by fintechs around the world. People are still paying way too much money with overpriced costs and fees. The "dormant" demand is huge. As Alex Johnson and Adam Shapiro have pointed out, those who nail the correct balance between tech evolution and compliance requirements, are going to be the real game changers of the ecosystem. I am a real believer that, on one hand, things are bound to have a massive change for the sole benefit of the consumers, and on the other hand, the traditional and "legacy" banking system is going to catch up at some point using the same recipe they have used for centuries, "paying its way around." Exciting times are ahead, and of course LaTam is a vastly unexplored market. Buckle your seatbelt and enjoy the ride. #baas #fintech #bankingsolutions #digitalbanking #digitaldisruption

The fintech world is in danger of writing off BaaS platforms as a useful business model. That would be a mistake. The chart comes from Alex Johnson's excellent take on the state of play in BaaS (link in comments👇). To be clear, Alex is not saying that all BaaS platforms have weak compliance, but it would be easy to get that impression from the chart alone. It’s certainly true that, without naming names, some BaaS platforms have acted as gatekeepers that have inhibited communication between banks and programs and hindered effective partner bank oversight. But there are good reasons to believe that, with well-designed roles and responsibilities, BaaS Platforms have a role to play in program management that both has value to clients and enhances partner bank oversight. In the card world, Marqeta has been doing this for years. What’s the value in platforms performing some program management functions? It’s easier and more cost effective for a partner bank to effectively oversee one KYC program or Reg E dispute process being used by 30 clients, than it is to oversee 30 different programs. As long as the bank contracts directly with the end client and directly oversees the things they are responsible for, like marketing and the customer interface, partner banks benefit when partners use the same technology and operations. This means there is no reason to believe that Unit tech and program management overseen by its newer partner banks, like Thread and i3, is intrinsically worse (or better) from a compliance perspective than the Warp Core banks. Speaking of Warp Cores, or platforms integrated into a bank, Main Street Bank and its platform Avenu belongs on the chart. Jackie Reses and William Hockey are fintech royalty for good reason and their banks are building terrific developer experiences. But the banks are unproven at the risk and compliance aspects of BaaS at scale. By contrast, Main Street Bank has a team that has absolutely top tier regulatory and risk experience, but lacks the superstar developer credentials. The fintech world will naturally gravitate towards the Leads and Columns of the world. But if a bank like Main Street can build good enough tech, enterprise clients looking for embeddable finance solutions might well feel more secure building on top of a platform integrated into a bank with outstanding regulatory chops, even if they think the tech is not quite as good. #fintech #BaaSPlatforms #PartnerBanks

Are you operating in the realm of cross-border payments and want to learn more about what is in store for you in 2024? Some trends to watch include (1) an increased number of initiatives focusing on enabling #realtime, interoperable & cost-effective #crossborder #payments; (2) more #fintechs to build #payment #infrastructure for real-time cross-border payments; (3) #compliance & #security take centre stage. Mirela Ciobanu from The Paypers shares more #crossborder #payment trends at https://bit.ly/42CX4yj