The Synapse / Evolve Bank and Trust situation graduated from a breaking story in banking/fintech circles to a global tale picked up by the broader business press like Hugh Son of CNBC and widely distributed publications like the New York Times. It became significant enough for heads of regulatory agencies to make comments and for the OCC to issue an RFI related to Third Party Relationships.
Insiders are debating important regulatory and structural questions but, the mainstream is asking a more fundamental question: Did fintech fail?
Ron Shevlin will accuse me of a clickbait title. Yes. Yes it is a clickbait title.
The word “fintech” paints with too broad of a brush.
Fintech is a broad category that encompasses many different products and types of relationships.
Banking as a Service is a subset of fintech and it too has many different models.
Each relationship, product, and model brings about different types of risks. These are not nuances but major structural differences.
It is irresponsible to manage and talk about risk without making it specific to the type of relationship, product, and model.
My biggest problem with the Interagency Guidance on Third Party Risk Management issued last year was it used the broad brush of “fintech” and it was too generic to be useful. Ambiguity and inconsistency caused problems. The new OCC RFI is a step in the right direction because it recognizes at least 6 different models and is not limited to BaaS.
One of my big fears in the inevitable increased regulatory “oversight” via enforcement action is the potential hesitation from banks to leverage third parties to better serve customers.
I had this conversation with Gilles Gade, CEO of Cross River Bank, on this topic last week. Cross River is working through a second consent order related to third party relationships. Gilles was surprisingly unphased. His reasoning: Cross River remains true to the mission of creating access to financial services. The consent orders are steppingstones, not stumbling blocks, to learn from and improve upon.
“Progress is impossible without change.” - Walt Disney
I used this quote with our risk and compliance departments when I was an operator, reminding them we couldn’t expect different results if we didn’t change and without change, there couldn’t be progress.
I am sympathetic for the customers caught up in the Synapse/Evolve situation. I am optimistic, however, that changes in how risk is managed and the level of innovation happening within banks around how they work with partners will only make this industry better.
Did fintech fail us? No. No it hasn’t. We’ve just gotten started.
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