Over the past decade,
These partnerships are now at risk. Along with innovation and customer choice.
Bank partnerships, once a niche concept, have become one of the most important innovations in financial services. Banks provide regulatory licenses and hold deposits, while their partners provide technology and distribution. They promote competition and consumer choice, and they give
If companies want to keep partnering with banks to build innovative financial services, they need to stop thinking about regulation as their partner banks' problems and start being part of the solution. They need to develop standards that clearly define robust risk management and regulatory compliance. They need to get assessed against them by independent third parties, holding themselves (and each other) accountable. They need to bring themselves into the regulatory fold.
The rapid growth of banking partnerships over the past few years has rightfully caught the attention of regulators. Recent events, such as
Regulators are acting on their alarm. In the first half of 2024, there were 46 formal enforcement actions brought by the federal banking agencies — the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. — with almost 24% of them received by banks partnered with nonbanks.
The message is clear: Consumer protections must be unassailable. The safety and soundness of our banking system is mission critical.
At the same time, we cannot let our fear undermine the need for competition and consumer choice. Nearly 20 years ago I opened my first bank account at Washington Mutual. JPMorgan Chase absorbed them. A few years later I joined First Republic Bank — they underwrote me for a mortgage that JPMorgan Chase would not. Last year's acquisition of First Republic means I'm again a JPMorgan Chase customer. A few weeks ago, JPMorgan Chase boldly
Fintech app Yotta filed a lawsuit against partner bank Evolve, arguing that it conspired with Synapse to misuse customer funds.
When I looked for community banks in the area, I found many had closed. Digital-first products built by companies partnered with banks offer some of the best alternatives. Not surprisingly,
As community banks face increasing pressure from big banks that are now bigger than ever, these collaborations offer a lifeline. The impact is clear: Banks engaged in partnerships saw a median sequential deposit growth of
Regulators have made abundantly clear that they will hold these banks accountable for their partners. But this model will break if we only focus on the banks' role in overseeing fintechs — their partners need to support the ecosystem by formalizing compliance and risk management standards through which they operate.
It's time for these fintech partners to step up.
Companies partnering with banks must take a more proactive role in standardizing risk management expectations. They need to translate their innovative business models into terms that both their partner banks and regulators can easily digest.
As a founder and CEO of a company that partnered with a bank, I know how important it is for banking partners to shoulder more responsibility. It's the same philosophy we adopted at my previous fintech — we knew early on that absorbing some of the burdens around compliance and security with banks would be critical for the long-term viability of open banking.
The financial services industry stands at a crossroads. Banking partnerships offer a path to a more competitive, innovative future. But this future depends on the willingness of partners to collaborate as an industry and set standards for compliance, risk management and certifications along with regular audits. Even though these companies are not themselves banks, they are increasingly an extension of financial services and must help their banking partners certify to compliance rigor.
Otherwise, the partnerships that are today a lifeline to banks and consumers may tomorrow inadvertently break the back of the very community banks they are trying to help.
