A positive view on regulators and BaaS

Editor’s note: This column was included in the May 16 version of The Pulse, a weekly BankBeat email newsletter sent to subscribers.

Last month in this space, I wrote of my worry that regulatory over-caution could stifle innovation around bank-fintech partnerships, especially in the banking-as-a-service space. While I’m still somewhat skeptical about the impacts, I attended a panel at an industry meeting a few weeks ago that allayed some of my fears.

A trio of bankers — two from Missouri, one from Iowa — spoke of their institutions’ experience in the BaaS space and other digital initiatives. Their take was much more positive about the current state of digital innovation and bank-fintech partnerships. Chris Bornheimer, president and CEO of Bank of Orrick, Mo., even sounded pretty upbeat about the spate of recent guidance and heightened scrutiny. Bank of Orrick, which has both BaaS and lending-as-a-service partnerships, has benefited from the clarity that unified guidance has brought, he said.

Bornheimer contrasted the current outlook with a “wild west” situation when the bank started exploring the space in 2018: “There wasn’t any guidance from regulators. They all treated it differently.”

Melissa Eggleston, chief deposit and operations officer at nbkc Bank in Kansas City, Mo., seemed similarly unfazed. She stressed the importance of third-party risk management along all risk vectors, but emphasized the connection with the fintech partner which underlies those things. “With some of the enforcement actions or public consent orders, you’ll see it’s all about the bank not having proper oversight and not having a connection with their partner,” she said.

The third representative, Ben Grimstad, president and CEO at Decorah Bank & Trust in Iowa, added a cautionary note about matching the bank’s risk appetite to the activities undertaken. None of those on panel were dismissive of the care needed when approaching fintech partnerships. All three bankers emphasized the need to assemble the right team with the right skills, including adding directors with the relevant expertise to their boards.

Ultimately, communication is a lynchpin, whether it’s to employees, customers, fintech partners or regulators. “We’ve been in constant contact with our regulatory partners, and that’s been really important to us as we’ve continued to innovate,” Bornheimer said.