Banking as a Service and Self-Inflicted Wounds

The “unbundling” of financial services through banking-as-a-service arrangements cast risk and compliance into a gray area. This was underscored by the failure of BaaS provider Synapse, which landed in bankruptcy, thus throwing consumer accounts into a state of chaos and uncertainty. In the aftermath, discussions about risk and compliance—core functions of banking that cannot be off-loaded to a third party—are moving front and center as the BaaS space recalibrates. 

This Javelin Strategy & Research report looks at what happened with Synapse—injuries that were largely self-inflicted in an approach to risk and compliance that bordered on reckless—and how players in the BaaS space can adjust to better protect themselves, their partners, and the consumers who ultimately use the products. BaaS isn’t going away, but a new era is dawning, along with a renewed focus on the industry by regulators.

Key questions discussed in this report: 

• How is banking as a service being recalibrated in the aftermath of the failure involving provider Synapse? 
• How has the Synapse failure changed discussions around risk and compliance? 
• What is the likely future for banking-as-a-service partnerships?

Companies Mentioned: 

Dave, Evolve Bank & Trust, Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, FIS, Mercury, Office of the Comptroller of the Currency (OCC), Synapse