Remember the early days of BaaS?
Regulators stopped that crazy train before too many banks went off the rails. (A few did.)
Fintechs promised “turnkey” partnerships. Banks would (supposedly) collect Net Interest Margin, provide payment rails, and cover deposits with FDIC insurance. The Fintech would handle the rest.
Regulators NEVER agreed that banks could lend their charters to third party tech firms in that way.
It is the bank (not the partner) that has the charter, the regulated products, the compliance obligations, and the regulatory oversight.
Whatever services are provided by tech partners… They must be subject to the bank’s policies, procedures, governance and oversight.
After discussing the old days with some good folks… I was inspired to prompt another Grok masterpiece… To the tune of Crazy Train by Ozzy.
———————
TITLE: CRAZY BANK
All aboard! Ha ha ha ha ha ha ha!
Ay, ay, ay, ay, ay, ay, ay
Risky, but that’s how it flows
Billions in assets, turning into woes
Maybe it’s not too late
To implement controls
And forget how to crash
Audit trails not sealing
Fines are a bitter claim
We’re going off the rails on a crazy bank
We’re going off the rails on a crazy bank
I’ve listened to traders
I’ve listened to suits
I’ve watched all the startups
Who bend their own rules
One firm conditioned to gamble and roll
The market demands it, and you pay the toll
Compliance wounds still bleeding
Driving boards insane
We’re going off the rails on a crazy bank
We’re going off the rails on a crazy bank
I know that ledgers are going wrong for me
You gotta listen to my words
Yeah
Heirs of a bailout
That’s what we’ve become
Inheriting scandals, we’re financially numb
Risky, we just cannot bear
We’re lending with something that just isn’t square
Oversight wounds not healing
Who and what’s to blame
We’re going off the rails on a crazy bank
We’re going off the rails on a crazy bank
[Instrumental break – imagine shredding guitars over balance sheets]
But hey, let’s turn it around
With governance sound
Keep risks in their lane, don’t let ’em compound
Partner with fintechs, build channels so tight
Efficient processes, everything right
Regulators smiling, compliance on lock
Good tech in the vault, we’re solid as rock
Mental checks now healing
Life’s a stable game
Stay on the rails, ditch the crazy bank
Stay on the rails, ditch the crazy bank