This episode delves into the evolving landscape of bank-fintech partnerships and banking as a service, exploring the regulatory challenges and existential risks faced by fintech companies.
In this episode of The Consumer Finance Podcast, Chris Willis is joined by Jesse Silverman, a seasoned member of Troutman Pepper's Financial Services team, and Alex Johnson, a fintech industry expert and author of the Fintech Takes newsletter. The episode delves into the evolving landscape of bank-fintech partnerships and banking as a service, exploring the regulatory challenges and existential risks faced by fintech companies. The conversation highlights the need for more robust regulatory frameworks, improved consumer disclosures, and the importance of serious, well-vetted partnerships to ensure the sustainability and innovation of the fintech sector. Tune in to gain insights into the future of fintech and the critical role of regulatory compliance in fostering a secure and innovative financial ecosystem.
The Consumer Finance Podcast: The Future of Bank-Fintech Partnerships and Banking as a Service
Host: Chris Willis
Guests: Alex Johnson and Jesse Silverman
Date Aired: July 25, 2024
Chris Willis:
Welcome to The Consumer Finance Podcast. I'm Chris Willis, the co-leader of Troutman Pepper's Consumer Financial Services Regulatory Practice. And today we're joined by a special guest to talk about the future of bank fintech partnerships and banking as a service.
But before we jump into those topics, let me remind you to visit and subscribe to our blogs. TroutmanPepperFinancialServices.com and ConsumerFinancialServicesLawMonitor.com. And don't forget about our other podcasts. We have lots of them. We have the FCRA Focus, all about credit reporting. We have The Crypto Exchange, about everything crypto. We have Unauthorized Access, which is our privacy and data security podcast. Payments Pros, all about the payments industry. And our newest podcast, Moving the Metal, which is dedicated to the auto finance industry. All of those podcasts are available on all popular podcast platforms.
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Now as I said, today we're going to be talking about the future of bank fintech partnerships and banking as a service. And to have that conversation, I'm joined by two special guests. One is my colleague, Jesse Silverman. Formerly of the CFPB and formerly in-house with a number of fintech firms, and who's now a member of our financial services team here at Troutman Pepper.
But we also have a very special guest, Alex Johnson. Alex is a former fintech operator and industry analyst who, in his own words, quit his job to document the future of fintech. And now writes Fintech Takes, a twice-weekly newsletter and a weekly podcast. Alex has spent 20-plus years in various marketing strategy and market research roles at a variety of companies, including Cornerstone Advisors, FICO, Mark Hader Advisory Group, and Zoot Enterprises.
He's a recognized expert in fintech. And his analysis has been featured in places such as the American Banker, The Wall Street Journal, and NBC Nightly News. Jesse, Alex, welcome to the podcast. And thanks for being here today.
Alex Johnson:
Thank you for having me.
Jesse Silverman:
Yeah. Great to be here. My resume sounds very, very inadequate after Alex's. I might have to brush mine up a little bit.
Chris Willis:
Well, Jesse, I think working here at Troutman Pepper is going to provide you all the resume boost that you may need.
Jesse Silverman:
Absolutely.
Chris Willis:
Well, Jesse, Alex, we've all seen the issues with the Synapse bankruptcy. But in today's episode, we want to talk generally, as I said, about the future of fintech bank partnerships and the role that banking as a service may have in the economy going forward. Alex, you talk regularly to a broad range of people in the fintech industry. What are you hearing from them about these subjects?
Alex Johnson:
Yeah. Everyone is very worried, as you might imagine, about everything that's happening in the space right now. Obviously, everything that's been happening recently is I think kind of the most dramatic chapter so far. But it's been a fairly long-running story around concerns with banking as a service. We've obviously seen quite a bit of regulatory crackdown on the banking as a service space over, what, the last 12-plus months? And so, in a lot of ways this is the continuation of a set of concerns I think that fintech operators and founders have in this space.
And it's tough. I don't think there are a lot of industries that are similar to fintech in that you have as a fintech founder or operator this sort of existential risk to your business. Because if you don't have a banking partner, or you can't find a banking partner, or if you've been offboarded from your existing banking partner and have to find a new one, that is an existential risk to your business.
And we've seen fintech companies have to quickly pivot based on changes that have happened with their bank partner or with the middleware platform provider that they're using. And we've seen a lot of fintech companies, unfortunately, go out of business as well just because this particular part of their infrastructure that's just as critical as your cloud computing provider or any other piece of core infrastructure, it sits at the very bottom of your stack. When that becomes jeopardized or when access to that becomes a little bit harder to get, it ripples through the entire ecosystem. Everyone who I talk to in fintech is thinking in very different terms I think than they used to about the existential risk of bank partnerships. And what can be done, if anything, right now to mitigate that risk?
Jesse Silverman:
I think, A, that's certainly what I hear as well when I talk to people in the industry. I just find it fascinating. Because I think that existential risk that you're discussing, that should have been made clear when SVB failed. That to me was the wakeup call to the industry. I had always been aware – obviously, I've been in-house GC at several fintechs. Some of those we had sponsor bank partners. And banks have different names for it. But that to me was always, as you put it, the existential risk.
And even before SVB, that risk to me was – that was a binary risk. You don't have a bank partner, you don't exist. And it shocked me how little changed amongst many in the fintech world between SVB and what's happening now today to sort of mitigate that risk. And I often wonder why.
And I can give you my first thoughts. But I'd be curious to hear yours. It's just hard to onboard a new – not even onboard. It's hard to be onboarded to a new bank partner. A lot of early days fintech where you're just trying to survive to the next day, it's hard to say not only am I going to have one bank partner. But I need to have two. That's a resource constraint that is tough. But I wonder if can you even exist as a fintech if you can't solve that problem? That's just tough.
Alex Johnson:
Yeah. I totally agree with that. I mean, the thing I've always been sort of struck by is that fintech tends to move in these waves, right? And because fintech is fundamentally a technology business, technology moves in these very, very quick cycles. Right? And so, you have these new generations of entrepreneurs that get dumped into fintech every, I don't know, four to seven years. Right? And so, one of the things I've observed over 20 years is that the environment that you get dropped into shapes your expectations for the work that you're going to have to do.
And you mentioned my background, which is not nearly as impressive as you guys made it sound. So thank you. But when I started in fintech 20 years ago, the company I was working for was delivering cloud-based fintech infrastructure to large banks. That's what they did. And when I say cloud-based, obviously, it was being delivered over the internet. But that was before AWS existed, right? There was no kind of public cloud computing resources.
And so, I'll tell that story sometimes to fintech founders who are sort of just coming into fintech now and they look at me like I'm from Mars. Right? Because they're like, "Well, what do you mean you can't just spin up a computing instance?" I'm like, "Oh, no. We didn't have that. So we built our own data center in a field in Montana. And then we got all these big banks to onboard us as a vendor. And we had to go through all of these data security checks. But we got it done. And I think we only spent like $20 million to build the data center." And they're just looking at me like it's like the craziest story they've ever heard.
And I think that banking partnerships are actually very similar to that. Where if you go back and talk to early fintech founders from some of the first neo banks that appeared in the US in 2009, 2010, 2011, they were like blazing a path for getting bank partnerships and getting banks to think about what we now call banking as a service. But there was no name for it back then.
I've talked to those founders and they'll tell just horror stories about like we made a list of 800 banks that we thought might make sense for them. And then we narrowed it down to 50. And then we called all 50 and 49 of them told us to go away. And then the one was like open to a conversation, but they didn't really get it. And they spent like years and years and years trying to just get one partnership with a bank, right?
And so, I think back in those days, because there was no choice, if you wanted to start a neo bank or you wanted to start a P2P lending business or any of the sort of early fintech innovations that we saw in the 2010s, you had to do it the hard way. Fast forward to a more recent generation of fintech where we have obviously cloud computing. We have all of this fintech infrastructure. And importantly, we have lots of banks that want to provide banking as a service. And we have these banking as a service middleware platforms. And all of them exist to basically be an easy button that you can push as a fintech founder. And I don't even really blame the fintech founders for this. Why would you think it's hard?
Starting a fintech company is easy. It's really easy to get onboarded with a bank. All of these banks have always been available to us. We've never had any problems with banks not wanting to work with us. And so, why would we think about contingency planning? Why would we think about mitigating our downside risk? And why would we ever try to do the hard work of negotiating with a bank directly when we can just kind of push a button and get access to the banking system?
That's been the most modern version of what it's meant to build in fintech. And I think that what we're seeing now are a lot of fintech founders who are finding out the hard way that it hasn't always worked that way. And as you guys know very well, banking is cyclical. Right? Regulators will come into a space and kind of crackdown on it. Then they'll leave or they'll go pay attention to a different area and things will be a little easier to build. And it just kind of comes back and forth and cycles. And if you haven't been through those cycles before, it's brutal to find out what they're like.
Jesse Silverman:
I just want to make this one quick point. This has been a maxim that I have learned over the last decade of bank partnerships on the fintech side, which is your likelihood of success is inversely proportional to the amount of time it takes you to onboard with your bank partner. I've seen that for 10 years now. The harder it is to join up with that bank, the more likely that relationship is to be successful. It is absolutely true. I have 20 personal experiences to demonstrate that.
Fintech founders, operators, if you're out there listening, don't take the easy path. The easy path is more likely to lead you to ruin in these relationships, because they are the most critical relationships that you have. And if you don't do the hard work up front, it's going to hurt you in the backside. If I could leave anyone listening with one thought, that would absolutely be it. Thanks, Chris.
Chris Willis:
Yeah. No problem. And I think it makes perfect sense, Alex, the point that you made about how, at the beginning of fintech, there was not a lot of bank willingness to do it. But then there became a lot of bank willingness to do it. And what's changing now is the regulatory pressure on the banks.
Because of instances of alleged harm to consumers, or lack of regulation, or whatever, the banks are getting pressure from their regulators who then the banks are then putting that pressure on the fintechs. And raising sort of the bar to entry not necessarily of their own volition, but because it's being forced on them by their regulators.
And one of the interesting sort of historical stories here that you're comments reminded me of was what happened to payday lending bank partnerships. There was a lot of that going on in the late 1990s and early 2000s. And then one day, the FDIC just said, "Nope. We're not allowing our banks to do it anymore," in about 2004. And it's a perfect example of the existential threat that can manifest itself to a bank partner. And that it's at the will of the regulator, not that the will of the banks that this may happen.
Now that we have this sort of change set of circumstances with the higher regulatory pressure, have you seen any changes in the industry and how people are thinking about bank fintech partnerships to respond to this sort of new higher bar for entry that's being driven by regulatory pressure?
Alex Johnson:
Yeah. Absolutely. I mean, I think you described the dynamic really well, which is that it's sort of raised the floor. Right? And I've always thought of banking as a service as fundamentally a market that's driven by supply and demand, right? And so, supply is all of the banks that want to participate in banking as a service.
And as you guys know very well, particularly for community banks that might not have a lot of other avenues to grow or to drive greater levels of profitability, banking as a service is I think seen by many community bankers, not without reason, as being kind of a life raft that they have to get to.
And so, that's what's driven a lot of the banks into thinking about banking as a service. And what I've noticed on the supply side since this sort of regulatory crackdown has begun is you're seeing a big division between banks that are committed to banking as a service and are serious about it and banks that are not. Right? And so, there were definitely quite a few banks that got into banking as a service because it seemed like a nice little side business that we could add. In some cases, I would hear stories about, "Well, we don't know anything about banking as a service. But my brother's neighbor's daughter just was starting a tech company. And she said that she was looking for a bank partner. And we're a bank. And couldn't we do that?" There's a lot of like my neighbor's daughter's sister's nephew-in-law was thinking about doing a tech company. Lots of just random entries into banking as a service.
And I think what regulators have made very clear is if you're going to do this, you have to think of it as an entire part of your business. It's a business unit, right? And it's not even the equivalent of like spinning up a new branch. It's really like you are going into an entire new business line. And you have to invest in it that way. You have to build the right controls and processes around it. You have to recruit all of your partners and all of the different vendors and pieces of infrastructure they're going to use for this very, very carefully. And be very thoughtful about that. This isn't something you just jump into.
And so, a lot of banks that jumped into it somewhat half-heartedly or just because they were mildly interested in it, a lot of them are sprinting the other way out of banking as a service right now. But by contrast, you also see banks, including some that have gotten public consent orders or have kind of gotten their hand slapped by regulators who are saying, "You know, we are committed to this business. And we're going to double down on it. We're going to invest in fixing whatever problems regulators have identified. But we're serious about it."
And quite frankly, if you look at the most successful and profitable banks that do banking as a service today, for the most part they're all ones that got consent orders 5, 10 years ago. And they worked through those. They built the scar tissue and the infrastructure to do it well. And now they're thriving and they're doing very well. I do think the supply has steadied out or is in the process of steadying out. But I think there are definitely fewer bank partners than there used to be. And for the ones that are operating today, they have a much higher bar for the fintech companies that they want to work with.
I went to Money20/20 in Las Vegas last year, and I know quite a few of the bank executives who run banking as a service at the different community banks. And so, I'd kind of meet with them at a coffee shop or whatever. And as soon as they saw anyone walk by who might be like a fintech company, they would dive behind the bushes to like hide from them, which is very different than the dynamic that there used to be where they were trying to solicit as much business as possible.
Now from a supply and demand perspective, even though supply has been constrained a little bit, there's still a tremendous amount of demand. And on the demand side, fintech companies, they're not quite as manic as they were in 2021. There's obviously less funding going into fintech than there was a couple of years ago. We're not at the high point that we were in 2021 when I think one out of every $5 invested in VC globally went to fintech in 2021. We're not at that height anymore. But there are still a lot of new entrepreneurs that are coming into the space that want to build a financial services company of some kind. More of them are B2B than are B2C these days. And they still need bank partners.
And so, I would say, in general, the supply has been more constrained. And the demand, while lower than 2021, is still relatively high. And that's leaving a lot of fintech companies, and I'm sure you guys run into these folks all the time, who just cannot find a bank that is willing to work with them. And it's not because they're doing something crazy or high-risk like crypto, or cannabis, or touching some area that banks are just never going to go into. They're doing stuff that's pretty vanilla, pretty plain. But they might not have raised as much money. They might not be quite as profitable. They might not have the right team of experienced sort of second and third-time founders.
Jesse Silverman:
I think that's been – from my view into the field, the standards for those bank partners to take on the fintech, they want to see a lot more experience on that team. They're not looking for that 23-year-old who founded a company in his mom's basement. The wonderful Silicon Valley story. They want real experience. They want a team that is really experienced.
And I just think back to some of my onboarding with bank partners, and it's such a wide range. Just to sort of go back to my earlier comments about the amount of time it takes to onboard is inversely proportional to the likelihood of failure, right? The more time you spend. I can think of one particularly large bank that I partnered with, which it felt like it was basically like a six-hour banking exam that I had to go through as the compliance officer at this particular fintech to go through our AML, KYC, CIP. Walk through the decisions. Walk through the amounts. What was the volume triggers that were going to exist for us to hire new compliance FTE? That level of granularity.
And I can tell you, that relationship was infinitely better than the conversations that I had with banks that were saying, "Hey, show us your policies and procedures. Okay. That looks good. You guys are onboard. Here are the economics."
Alex Johnson:
Yeah. I mean, everyone is self-selecting for seriousness I think is like a good way of thinking about it. Everyone is looking for – fintech companies want the most serious buttoned-up, highly compliant, like rake us over the coals and make this onboarding process hurt bank partner. That's what they're all – to their credit, experienced fintech founders are like the bank that does that is going to be the bank that I'm going to have no trouble with once I get on board. And they're going to have the fewest amount of headaches dealing with their regulator.
And then by the same token, the banks – and not all banks have been like this in banking as a service. But the banks that are still in banking as a service and are serious about it are self-selecting for serious fintech founders. Which means, usually, you're experienced. You've done this before. You have backing from VCs that we think know what the hell they're talking about. And we want to see a serious business that thinks about a lot of the downside stuff. Right?
I mean, one of the things that is also really interesting about fintech kind of culturally is fintech founders, like most tech founders, are very optimistic by nature. And so, they don't think about downside. They don't think about the worst-case scenario. And so, when you ask them about like –
Jesse Silverman:
That's why they have lawyers.
Alex Johnson:
Right. Right.
Jesse Silverman:
That's what the lawyers do.
Alex Johnson:
No. Exactly. Well, and in the case of lawyers doing it, a lot of them won't put money to hire good lawyers to think about those things. Because they're like, "Ah. That's not important. We're going straight up. We're scaling to the moon." Everything is all about being up and to the right.
And I think what I've taken away from this kind of most recent mess in banking as a service is if you're operating in financial services, it's your job to think about the bad stuff, and the worst-case scenarios, and the downside. And to have operational resilience and plans in place to deal with those things. And it goes all the way through from having redundancies around bank partnerships to ledgers, and reconciliation, and what that process looks like. To being willing to sacrifice not necessarily having the piece of fintech infrastructure that you want to use. But compromising on the one the bank wants to use. Because that's probably the safer choice even though it's a slightly worse experience. It's just being willing to be serious about protecting people's money. And I think we're seeing a lot more of that now in banking as a service than we were.
Jesse Silverman:
If there's one thing the world of fintech is now focused on and bank partnerships is that what happens in that end of life? Because we are watching that play out painfully in real-time. What happens when you haven't adequately considered all aspects of that end of life?
And I have to say, I am a cynical guy. I've been a consumer finance lawyer for almost 25 years now. I'm still surprised on a regular basis just how bad that end of life can be when you haven't adequately – and like I said, very rarely do I wake up and say, "Holy cow. Here is a whole risk that did not consider in those 25 years." This has been a wakeup call for me, too.
Chris Willis:
Gentlemen, do you think that the current regulatory structure is sufficient for the challenges that we're seeing with bank fintech partnerships? And if you think there should be changes made, what would they be?
Jesse Silverman:
Alex, you take this one first. But this to me is the million-dollar question.
Alex Johnson:
I totally agree with that. I totally agree. I do not think the regulatory approach we have right now works. And I think there's ample evidence to suggest that that's true. Two things to me are worth looking at and thinking about. One is – and I know lots of other people have been banging the drum about this. It's sort of become a popular topic again after sort of going quiet for a bit. But as we've just been talking about with existential risk, banking as a service as the only mechanism to allow early stage fintech companies to operate at a small scale in a regulated way is probably not sufficient. Right?
And the thing that I really struggle with is if you throw the gates open really wide on banking as a service, then what happens is what we've been going through, which is a whole bunch of banks get into it. Not everyone takes it seriously. They onboard a whole bunch of fintech companies that aren't all very serious. And then a lot of messy stuff happens. Some of it good. Some of it innovative. And then a lot of it bad that leads to consumer harm. Or in some cases, safety and soundness risks for individual banks.
On the other hand, what we're going to now when we're swinging to the other side of the pendulum is regulators crack down on banking as a service. Lots of banks getting out of the space. And the banks that stay in the space raising the floor on who they're willing to work with. And I think it's worth reiterating that – I mean, Jesse, to your point, they're looking for much more experienced operators.
Here's one of the problems with that though. A lot of experienced operators aren't necessarily the ones who are building the fintech innovations that we need. And I talked to a lot of founders, and it's unfortunate, but it tends to hit minority founders more. It hits women. It hits people of color. But there'll be these people who have these ideas for things they think need to be built in financial services.
And I talk to these founders all the time, and the ideas are great. They're like, "Here's a problem that I see from my vantage point in my experience where I want to build a fintech solution to solve for this community or this group of consumers. And it's absolutely necessary." And then they go to try to get a bank partner in an environment like this and they absolutely cannot. They have zero chance of doing it. And they have a very low chance actually of raising a lot of funding from VCs.
We want to have, I believe, a much more accessible on-ramp to trying out new fintech ideas in the US. And so, while banking as a service works for a certain scale and certain type of fintech company, I absolutely am a fan of having more novel charter types at a national level available to fintech companies to get started with the process of, "Hey, I have an idea. I want to see if this works. I want to do it in a regulated way. And I want to do it at a small scale where we can limit any potential harms."
And if that eventually grows into something where then I move to a bank partnership or I pursue a de novo charter, whatever the path is from there, we need a better on-ramp. And I know we've talked about from a policy perspective in the past creating a national fintech charter. I won't get into the reasons for why that didn't happen. I may write about it at some point in the future. But suffice it to say, I think that's a conversation we need to revisit. That's one.
And then the second one, and, Jesse, this is probably going to tee you off as well, is the whole consumer disclosure "I think my money is safe" thing, we need to completely revamp. I believe the FDIC is a victim of its own success in a lot of ways, because they've really driven home this idea that, as long as you see the acronym FDIC on a website, your money is safe. And, obviously, that's not what the FDIC has been trying to say. I read their most recent consumer bulletin that they published sort of clarifying that if you work with a fintech app and the fintech app fails, that doesn't necessarily mean that your money is going to be accessible to you right away even if the underlying bank is still in healthy condition.
And I think that whole thing needs to be completely revisited. I don't think it's consumer's fault when they go to a website and the website says this is a fintech company, a financial technology company. Not a bank. Banking services provided by XYZ bank. Member FDIC. We can't blame consumers for reading that and assuming that access to their money is going to be something they're going to have even if someone in that value chain runs into a problem. That's just not a realistic expectation. Nor is it a realistic expectation that consumers just don't ever bank with fintech apps and just bank directly with banks. Neither of those two outcomes is good. Nor is it something we can necessarily expect that they'll do. And so, we have to solve for that consumer confusion issue as well.
Jesse Silverman:
I've got a couple of thoughts on that as you will know. One, first of all, I think if there's one thing that we have learned from this latest sort of fintech chaos, consumers plainly do not understand the nature of the relationships. But I'm going to take that even a step further. In many cases, I don't know that they could. I don't know that this is something that they could know.
As I mentioned, I'm a fairly seasoned consumer finance lawyer, and I have tried to parse through some of the disclosures, some of the terms of use. Whether or not the consumer's money is in an FBO account or a DDA account. And I, for the life of me, in many circumstances, I can't figure it out. The chance of John Q. Public actually being able to determine that is somewhere near zero.
I think the industry write large needs to do a better job of disclosures. And, frankly, that's something that I'm thinking about, we're thinking about as lawyers for the industry is how exactly do we improve those disclosures so that the consumer is not surprised at the end of the day?
And here's where I'm going to go with a more classic lawyer response, which is do I think the existing structure is adequate? I think my honest answer is yes. I think the existing structure is adequate because we don't see this happening every day. The chaos that’s happening now, it took a lot of failures by a lot of people in a lot of places for this to happen. We don't see this happen all the time.
Now, that being said, do I think the system could be improved? Absolutely. Unquestionably. A federal charter, I think that could make everyone's lives easy. There's lots of reasons why that doesn't seem to happen. I've had conversations with on the state side. I wouldn't be surprised if what comes out of this right now. We're going to see some states that are going to try and create new license types. I don't know if they're going to call it a neobank license type or they're going to call it something. But I would not be surprised if a state takes this opportunity to say, "Hey, here's this regulatory gap. Frankly, the regulatory gap was identified by a federal bankruptcy court judge. And I'm going to leverage that to create a new license type." I've already had conversations with folks on the state side who are contemplating that.
It's just more complication. Again, I don't love the – I'll get into the policy side. I've always been a big fan of the mortgage SAFE Act, which came out after 2008, as a philosophical model which is the federal government passed legislation and said, "Hey, here is the floor. These are the standards every state has to meet. But guess what? States, you state banking regulators. You still get to register. You still get to examine. You still get to enforce. That to me has always been the model of this sweet spot between let's create some harmonization across the country so that it's not unwieldy for institutions to comply with. But, states, you're still the local cops on the beat. And, by the way, you're still going to get your registration fees. You're still going to survive as an institution.
That to me has always been the model of the compromise between the federal state regulation, which seems to be the barrier for solving lots and lots of these problems. I would love to see something like that. And, again, the devil's always in the details. But I think that would be a viable path that if I were King George here, I could get both the feds and the states. Then, again, I guess if I'm King George, I don't have to care what the feds of the states.
Alex Johnson:
Just do away. Do away with all the other ones. Yeah, I mean, the other thing I was thinking about – and I think that's a really interesting way of framing it. The other one I was thinking about is I do think that even when you hone in on a particular agency – again, the FDIC is kind of in the spotlight with this just because a lot of it is like consumer access to funds. But one of the things I find interesting about lots of different regulatory agencies is they'll have like two different sides of what they do. And the two sides don't really talk to each other or harmonize.
And so, in the case of the FDIC, there's the insurance fund and then there's the credential regulatory arm. And I think it would make a lot of sense for a more harmonized approach to say something along the lines of, "Look, when we talk about pass-through insurance, when we talk about sort of is this, not only bank, but the entire value chain built on top of this bank, safe for consumers? Well, we can provide a greater level of guarantee or trust there. Because not only are they FDIC insured, the bank at the bottom of the stack. But the regulator that is overseeing this particular bank is also the FDIC.
And they've done safety and soundness examinations where they've looked at all of the different levels of the stack, all of the banks' partners. They've looked at their third-party risk management and how they're approaching questions like reconciliation and ledgering. And we have sort of stamped this one as being okay.
I mean, I think that we need to see more cooperation within agencies. But also, I mean, among some of my other bank nerd friends I talk about this stuff with, there are also these other tools that don't get used maybe as much as they could or should be, like the Bank Service Company Act, which exists to be sort of enforced across credential regulars. I mean, there's lots of tools in the toolkit.
And I will say to the credit of regulators both on the state level and the federal level, they are really actively engaged in everything that's happening with banking as a service right now. Not just to like sort of slap the hands of individual banks that have been sort of stepping over the line, but to think more broadly about what changes do we need to make systemically to help fix some of these things? And it's a tricky balance, because you want to ensure obviously safety and soundness. You want to ensure consumer protection and access to funds and trust in the banking system. But you also – and there are lots of regulators who talk about this, you don't want to just throw away all of the innovations that fintech has brought to the industry, right?
And I always default back to even simple examples like overdraft fees. It's really, really helpful to have someone in market who's providing a product that basically says, "Yeah, that thing that those guys do, that's not right. We're not going to do that." And as soon as someone in the market offers an alternative, the whole market kind of swings to something that's more rational and better for consumers. And I think fintech has done that on a huge number of different topics and different product areas.
And so, I really hope we don't throw the baby out with the bathwater, because fintech innovation has I think been a net-positive for consumers and for small business owners. And whatever regulatory fixes we make need to sort of guarantee that that innovation can sustain.
Chris Willis:
I think that is the perfect note on which to end our recording today, Alex. Because that really sums up I think where we all are in terms of our views on the current regulatory environment here. That we don't need to throw out the baby with the bath water. Alex, thank you for being on the podcast today. Jesse, thanks for joining us as well. And, of course, thanks to our audience for listening to this episode as well.
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