Again, Alloy's report on #embeddedfinance and #BaaS is a great view into what's going on in BaaS #compliance. Some of the highlights include: ▶️ 𝗙𝗼𝘂𝗿 𝗶𝗻 𝟭𝟬 𝗼𝗳 𝘀𝗽𝗼𝗻𝘀𝗼𝗿 𝗯𝗮𝗻𝗸𝘀 𝗹𝗼𝘀𝘁 𝗮𝘁 𝗹𝗲𝗮𝘀𝘁 $𝟮𝟱𝟬𝗞 𝘁𝗼 𝗰𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 𝘃𝗶𝗼𝗹𝗮𝘁𝗶𝗼𝗻𝘀. Given that stat, it isn't surprising to hear that 80% of the banks said that meeting compliance requirements is challenging. ▶️ 𝗙𝗼𝘂𝗿 𝗶𝗻 𝟭𝟬 𝘀𝗽𝗼𝗻𝘀𝗼𝗿 𝗯𝗮𝗻𝗸𝘀 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁 𝘄𝗶𝘁𝗵 𝗳𝗶𝗻𝘁𝗲𝗰𝗵 𝗽𝗮𝗿𝘁𝗻𝗲𝗿𝘀 𝘃𝗶𝗮 𝗮 𝗕𝗮𝗮𝗦 𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺. That number is declining, but the industry is still a far ways off from a "direct only" model. This notion of a "direct" model is misunderstood, however. As the report notes: "While BaaS platforms are becoming less common at the contract layer, they are still prominently used as part of the tech layer." (This was a key point in my #Fintech Snark Tank post How To Be(come) A Great Partner Bank In The BaaS Space https://lnkd.in/eKBggUU7 ) ▶️ 𝗧𝗵𝗿𝗲𝗲 𝗶𝗻 𝟭𝟬 𝘀𝗽𝗼𝗻𝘀𝗼𝗿 𝗯𝗮𝗻𝗸𝘀 𝘄𝗮𝗻𝘁 𝘁𝗼 𝘀𝗹𝗶𝗺 𝗱𝗼𝘄𝗻 𝘁𝗵𝗲𝗶𝗿 𝗲𝗺𝗯𝗲𝗱𝗱𝗲𝗱 𝗳𝗶𝗻𝗮𝗻𝗰𝗲 𝗽𝗿𝗼𝗴𝗿𝗮𝗺 𝗼𝗿 𝘀𝗵𝘂𝘁 𝗶𝘁 𝗱𝗼𝘄𝗻 𝗲𝗻𝘁𝗶𝗿𝗲𝗹𝘆. This stat is going to get twisted--it's going to be used without the "slim down" part and people will say that 3 in 10 sponsor banks want to shut their programs down. What does "slim down" really mean? According to the report, a third of the banks surveyed have 11 or more partnerships. Would it be surprising to find that many of them want to weed out some of the more risky and less successful fintechs they've taken on? The split between "slim down" and "shut down" is important here. Wish Alloy had broken that out. ⬛️ Parilee Edison Wang's prediction that we'll see "a consolidation of players, with dabblers exiting the market" is spot on. As I wrote in my Forbes article: "The big banks will get into BaaS. The level of compliance, operational, and technology resources need to get into the BaaS space and grow the business is going to prove too much for a lot of sub-$10 billion banks." Kudos to Tommy Nicholas, Laura Spiekerman, and the Alloy team for a great report. Find it here: https://lnkd.in/eB4VrGSw
Kathryn Cook
3mo
Thanks for the share, summary and thoughts, Ron Shevlin! One other highlight that really stuck out to me from our report: 51% of both sponsor bank’s revenue and deposits are driven by embedded finance/BaaS fintech partnerships. And at the same time, as you noted, 80% of sponsor banks find it challenging to meet compliance requirements in the current environment. So banks are really evaluating reward vs risk here. Products like Alloy for Embedded Finance (AFEF) are already helping sponsor banks better collaborate with their fintech partners to manage compliance AND growth. It’s an exciting space and I’m really intrigued to see where the industry goes next.
Alloy
3mo
Thanks so much for sharing Ron Shevlin and we'll work to make that distinction between slim down and shut down in future reports!
CEO, audax | Pushing frontiers, Solving for happiness.
3moWhy focus only on embedded finance the way it is practiced in Europe and the Americas? Might be good to look elsewhere for larger scaled capabilities.