Banking as a Service

02/20/25 • 73 min

Our podcast show today features Jason Mikula, publisher of Fintech Business Weekly; a newsletter going beyond the headlines to analyze the technology, regulatory and business model trends, driving the rapidly evolving financial services ecosystem at the intersection of traditional banking, payments, FinTech and crypto. We discuss his recently released book, titled “Banking as a Service: Opportunities, Challenges, and Risks of New Banking Business Models” (Kogan Page 2024).

The publisher describes the book as follows:

“This book provides a comprehensive look at banking-as-a-service (BaaS), equipping readers with an understanding of the origins, evolution, future and applications of BaaS and the key differences across global markets.”

BaaS is a game changer in the financial services sector, radically transforming both how consumers experience financial products and the business models delivering them. “Banking as a Service” cuts through the hype to provide a measured overview of BaaS, helping readers to demystify a complex evolving field, and understand its key opportunities, challenges, and risks. It provides a framework for understanding where BaaS came from, how BaaS changes the economics and business models of banking products and services, its impact on key stakeholders, and its key regulatory implications.

“Banking as a Service” explains how business and operating models work, exploring different models such as interchange, deposit gathering, loan origination-to-distribute, legacy, API-first, own license, match-making and bank service providers, and offers a framework for thinking about whether or not they're sustainable. It explores how BaaS operating and business models compare in different global territories and is supported by real-world examples and cases profiling organizations such as Blue Ridge Bank, Unit, Synapse, Goldman Sachs, Railsr, Starling, Solaris, Cacao Paycard, QNB, OnePipe, Airwallex, Nium and Pomelo. It also explains the differences between BaaS, embedded finance and “open banking.”

Alan and Jason discuss the answers to the following questions and topics:

1. What do we mean when we say "banking as a service"?

2. What are the different BaaS business models/operating models?

3. What led to the explosion in banking-as-a-service?

4. Why have bank/fintech partnerships had a rough go of it lately in the US and is that likely to change with a new administration?

5. What is (or what should be) regulators' role in supervising non-bank entities in the BaaS value chain (eg, middleware, customer-facing fintechs)?

6. What is an FBO and are FBOs the "original sin" of banking-as-a-service?

7. What advice would you give to banks considering getting into the BaaS space? How do you see the market evolving from here - for banks, for technology providers, and for customer-facing companies?

8. What advice would you give to fintechs that rely on a bank partner or are looking for one?

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

The publisher describes the book as follows:

Alan and Jason discuss the answers to the following questions and topics:

1. What do we mean when we say "banking as a service"?

2. What are the different BaaS business models/operating models?

3. What led to the explosion in banking-as-a-service?

4. Why have bank/fintech partnerships had a rough go of it lately in the US and is that likely to change with a new administration?

5. What is (or what should be) regulators' role in supervising non-bank entities in the BaaS value chain (eg, middleware, customer-facing fintechs)?

6. What is an FBO and are FBOs the "original sin" of banking-as-a-service?

7. What advice would you give to banks considering getting into the BaaS space? How do you see the market evolving from here - for banks, for technology providers, and for customer-facing companies?

8. What advice would you give to fintechs that rely on a bank partner or are looking for one?

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Previous Episode

The Fall of The CFPB, The Rise of The State AG

In this episode of the Consumer Finance Monitor Podcast, Ballard Spahr partners Mike Kilgarriff and Joseph Schuster break down the seismic shifts in consumer financial regulation following the dramatic changes at the CFPB. With the Bureau’s enforcement and supervisory activities on hold, state attorneys general are stepping in to fill the regulatory void. Mike and Joseph explore what this means for financial institutions, how businesses should navigate the evolving landscape, and the increasing role of state AGs in consumer protection enforcement. Tune in for insights on what’s next in the world of financial regulation.

Next Episode

The Patterns of Digital Deception

Our podcast show today features Gregory M. Dickinson, Assistant Professor of Law at the University of Nebraska, who was previously a guest on our show on August 3, 2023. Our 2023 episode was based on Professor Dickinson’s article titled “Privately Policing Dark Patterns”, 57 Ga. L. Rev. 1633 (2023). The show today focuses on Professor Dickinson’s more recent article, which builds on his 2023 article, titled “The Patterns of Digital Deception”, 65 B. C. L. Rev. 2457 (2024).

The abstract to this article states:

“Current consumer-protection debates focus on the powerful new data-analysis techniques that have disrupted the balance of power between companies and their customers. Online tracking enables sellers to amass troves of historical data, apply machine-learning tools to construct detailed customer profiles, and target those customers with tailored offers that best suit their interests. It is often a win-win. Sellers avoid pumping dud products and consumers see ads for things they actually want to buy. But the same tools are also used for ill—to target vulnerable members of the population with scams specially tailored to prey on their weaknesses. The result has been a dramatic rise in online fraud that disproportionately impacts those least able to bear the loss.

The law’s response has been technology centric. Lawmakers race to identify those technologies that drive consumer deception and target them for regulatory restrictions. But that approach comes at a major cost. General-purpose data-analysis and communications tools have both desirable and undesirable uses, and uniform restrictions on their use impede the good along with the bad. A superior approach would focus not on the technological tools of deception but on what this Article identifies as the legal patterns of digital deception—those aspects of digital technology that have outflanked the law’s existing mechanisms for redressing consumer harm. This Article reorients the discussion from the power of new technologies to the shortcomings in existing regulatory structures that have allowed for their abuse. Focus on these patterns of deception will allow regulators to reallocate resources to offset those shortcomings and thereby enhance efforts to combat online fraud without impeding technological innovation.”

During the show, we discuss the following questions:

What is digital deception?
What are some examples of digital deception?
How is modern online deception any different from old-fashioned, in-person fraud?
What have lawmakers been doing to address this issue? Have they succeeded? What sorts of restrictions are on the horizon?
What are the challenges to lawmaking in this area?
How do these challenges tie in with the “Patterns of Digital Deception”?
Given these challenges, what sort of approach should state and federal lawmakers take?

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.