Long Take: Is Banking as a Service dead?
The clash between financial innovation and regulatory oversight
Gm Fintech Architects —
Today we are diving into the following topics:
Summary: In this analysis, we delve into the implications of recent FDIC consent orders against Banking-as-a-Service (BaaS) companies like Unit, Synapse, and Treasury Prime. Despite BaaS companies rejuvenating outdated systems by facilitating the integration of fintech innovations, regulatory scrutiny has intensified, questioning their compliance with Anti-Money Laundering (AML) and risk management standards. This has led to layoffs and strategic reassessments within the BaaS sector, overshadowing the actual systemic risks posed by rapid interest rate adjustments by the Federal Reserve. We argue that BaaS and concepts like open banking and embedded finance represent crucial advancements for the financial industry, despite current regulatory challenges, and suggest that political engagement may be necessary for fostering a more conducive regulatory environment for fintech innovation.
Topics: FDIC, Unit, Synapse, Treasury Prime, CBW, SVB, Silvergate, Signature Bank, Congress, SEC, Federal Reserve.
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Long Take
The Rules of the Game
It is easy to swim in the water and never realize its existence or shape.
So when we read about all the FDIC consent orders against Banking-as-a-Service companies, covered most accurately and emphatically by
, our intuition is to look at the shape of the water. At the rules of the game.
Why is one of the main banking regulators doing its best to squash technology firms — Unit, Synapse, Treasury Prime — that have given a new lease of life to old systems? Is it really a repeat failure of AML and risk management that creates existential risk for the US banking system? As a result of these actions, a bunch of the companies in this space, like Treasury Prime, Synapse and Synctera, have laid off staff, and important pioneering banks like CBW are up for sale.