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The Problem with Traditional Sponsor
Bank - BaaS - Fintech Ecosystem
All-or-Nothing Risk Burden for Sponsor Banks
Each sponsor bank bears 100% of the financial and regulatory risks for each fintech it supports
For banks, these all-or-nothing obligations present a sizable barrier to entry, limiting their ability to fully participate in growth opportunities presented by fintechs. And for community banks with relatively lower asset volume, the balance sheet risk associated with onboarding multiple fintechs can be too high to even consider market entry.
Expanding fintech product requirements have added additional barriers to entry for sponsor banks to participate in the fintech market opportunity. It takes more time to build the right infrastructure to manage and mitigate risks arising out of multiple fintech services across multiple products and companies.
Modular Banking is a Game Changer for many Banks
Modular Banking changes the game for many sponsor banks, particularly community banks
Through Modular Banking, it’s no longer all-or-nothing. Sponsor banks can choose to specialize in a selected set of offerings, such as ACH processing, FedWire processing or Card issuance, at levels that are within their risk tolerance.
Benefits of Modular Banking for Sponsor Banks
Lowers barriers to entry into fintech-served markets.
Limits regulatory risks and compliance burden to only selected offerings.
Allows for capping of regulatory risk and compliance burden within risk tolerance levels.
Shares compliance burden with a licensed and regulated BaaS platform provider.
Simplifies ongoing risk management and compliance obligations supporting fintech operations.
Boosts ROI of fintech market operations, providing market access at low marginal operational cost and complexity.
Modular Banking is possible only through a licensed and regulated
BaaS platform provider like Synapse.
Synapse Brokerage LLC is a registered broker-dealer and member of FINRA and SIPC. As a result, Synapse can participate directly in the flow-of-funds and thereby, segment and distribute core services across multiple sponsor banks, yet deliver these services as unified solutions to its customer fintechs and their end-users.
In addition, through our lending entity, Synapse Credit LLC, we are able to underwrite and originate loans for individuals and businesses in designated states without needing a sponsor bank. This approach enables us to build a much more modern stack for our fintech customers as well.
