Blue Ridge Bank, a community bank in Virginia that dove headfirst into the business of partnering with fintechs, has been in a pinch ever since getting hit with
After nearly a year of turmoil, the company's new CEO
Since that interview was published, the stock price of parent company Blue Ridge Bancshares has fallen more than 50%, adding to a rout that was already underway. The market punished the bank when its compliance problems first surfaced, then punished it again when executives decided to scale back the bank's exposure to the fintech market.
Blue Ridge's travails illustrate the perilous path facing numerous small banks that did not pay enough attention to compliance as they embraced the high-growth business of partnering with fintechs.
That business — often called banking-as-a-service — may now be in a consolidation phase, according to industry watchers. "Banking-as-a-service as a silver bullet for community banks — I think that idea is dead," said Alex Johnson, an industry veteran who writes the Fintech Takes newsletter.
The pressure is mounting on not just small banks, but also middleware providers that stand between those banks and fintechs. Community banks may now be more hesitant to work with middleware platforms than they were in the past, Johnson said.
One such firm, Synapse, said it
Blue Ridge, which declined to comment for this article, has been reeling since it entered into
Initially, Blue Ridge aimed to bolster its fintech division. In January,
But in May, the $3.2 billion-asset bank signaled a potential strategic pivot, hiring a veteran community banker named Billy Beale as its CEO. Two months later, Beale became chief executive of Blue Ridge Bancshares following
In late July, Blue Ridge announced a net loss from continuing operations of $19.5 million, which more than offset its profits during the previous four quarters. The bank said that the large quarterly loss was primarily related to specialty finance loans that it placed on nonaccrual status. Company executives did not explain whether the loans were tied to its fintech business.
Later in the summer, Beale told S&P Global that Blue Ridge was in the process of winding down its current fintech and banking-as–a-service partnerships.
"Blue Ridge grew very quickly," Beale said in the interview. "There were some mistakes made along the way, and so I'm here to fix those mistakes. That's my priority."
Beale is the former CEO of two community banks, and his comments signaled a renewed focus on the traditional business model used by many small banks, though he also said that the bank did not plan to exit the fintech business entirely.
One challenge that Blue Ridge — founded in 1894 in Luray, Virginia — faces now is that traditional community banking is not the most attractive business for investors. The bank's stock price closed at $3.65 on Monday, which was up less than 1% on the day, but down nearly 80% from its peak in 2021.
Not every community bank that has embraced banking-as-a-service finds itself in a similar squeeze, but the increased regulatory scrutiny is being felt widely. One of the largest players in the sector,
"We've seen the regulatory community take a much harder look than they have in the past at these relationships." said Allen Denson, a partner at the law firm Morgan Lewis who represents financial institutions and fintechs.
