BY ADAM SHAPIRO
Banking as a Service (BaaS) is not only here to stay, it came to play: according to a recent Juniper Research report, BaaS platform revenue is forecast to top $38 billion by 2027 - a 240% increase from 2022.
But that doesn’t mean everything in partner banking land is a bed of roses. In fact I’d argue the opposite is true. Partner banking may be growing, but fintechs are in trouble. With VC funding down, markets inhospitable to exits, and interest rates giving the advantage to banks, failures are inevitable. This was clearly top of mind for OCC Acting Comptroller Michael Hsu when he asked in his September 2022 speech, “What happens when fintechs fail?”, and examiners will increasingly expect partner banks to be able to provide compelling answers.
My colleague Stephanie White Booker and I had the opportunity recently to share some thoughts with Law360 on how partner banks should be thinking about the possibility of fintech failure and what they should be doing now to prepare. The short answer is that partner banks need to address this across the life-cycle of their partner risk management programs from contracting and onboarding forwards. In particular, partner banks should establish detailed contingency plans addressing the possibility of both temporary outages and permanent failures that will mitigate the negative impact of a program failure on the bank and its customers, as well as reporting protocols that will provide early notice of potential problems. If you haven’t yet developed contingency plans for fintech failure, or are worried yours isn’t strong or comprehensive enough, give us a call - we’re happy to help.