6 ms·
There are plenty of reasons to partner with a bank as a fintech other than to drive debit card revenue. 1. There are lots of regulations that say only banks ca
by aketchum 2y ago
There are plenty of reasons to partner with a bank as a fintech other than to drive debit card revenue.
1. There are lots of regulations that say only banks can do certain actions, like lend in all 50 states under the rules of a single state. Or open a FDIC insured checking account. Or have a unique account+routing number for each user to send ACH funds to (various reasons this could be preferred to everyone ACH to one single global account). These are valuable services without any debit card issued by the fintech.
2. It is basically impossible to become a bank. The government only approves a handful a year. Square (block) actually got approval recently but it is very difficult to do.
As a result of (1) + (2) is that if your company needs any banking products at all you need to partner with a bank because there is just no reasonable way to legally build that functionality yourself.
- iudqnolq 2y ago3. Smaller banks might be worse at preventing you from breaking the law. (This data dump exposes lots of customers that should have triggered KYC issues, like an American dog-walking startup remotely operated from Pakistan )
- trollbridge 2y ago(1) is absolutely true. (2) - well, it isn’t that hard to become a bank, but it is hard to become a bank when your business plan is “we want to operate well outside of established regulation and norms”. (Starting a state chartered bank is particularly straightforward.) There are many small banks that would like to be acquired and they are generally profitable. A VC-funded fintech would not have a terribly difficult time acquiring a bank, particularly one that wants to offer BaaS, like Synapse did.
- aketchum 2y agoSure - but that is buying a bank not forming a new bank. I do agree that in practice this is how well funded companies become banks.
- 0x3444ac53 2y agoCurrently working at a state chartered credit union. Although it is "easy" to start one, most states regulations are very strict and lag significantly behind federal ones. Hell, where I work we aren't even allowed to serve businesses, loans, deposits, or otherwise.
- quesera 2y ago> state chartered credit union Also not a viable option for a Fintech which aspires to having customers in all 56 US states and territories. You really need a national bank for a sponsor, and Evolve was the most startup-friendly, for many years.
- tombert 2y agoMy last job's [1] basic premise was trying to get around this by using their VC money to simply buy a struggling-but-still-FDIC-approved bank, and then try and make a fintech on top of that. It seems like that skirted a lot of the issues that most fintechs have to deal with. [1] It is not hard to find my work history but I politely ask you do not post it here.