“Partner banks don’t just support fintech innovation – they shape it – proactively choosing which business models get distribution, which customer segments are worth pursuing, and which innovations are worth betting on.”
Shifting the Narrative
The prevailing narrative of fintech is that sleek software startups drive financial innovation. These companies design compelling digital experiences, own the customer relationship, and move fast. Users download an app and manage their finances through intuitive, mobile-first interfaces.
Chime is a good example. With 8.6M active members and growing, Chime looks like the picture of fintech success. Its brand has become synonymous with modern banking. Out with the old and in with the new.
But beneath the surface, Chime’s S-1 filing reveals a more complex reality. Chime is, in its own words, “a technology company, not a bank.” Every financial product it offers – from accounts to cards – is powered by its partner banks: The Bancorp Bank and Stride Bank. These institutions are not just service providers. They are the legal and regulatory backbone of Chime’s business.
In the prevailing narrative, the fintech company is the principal and the partner bank is the agent. The fintech designs the product, markets it to consumers, and delivers the user experience. The partner bank is an agent – interchangeable infrastructure behind the scenes.
But this framing overlooks a deeper structural truth: what the bank provides isn’t software – it’s a charter. A charter is a scarce, tightly regulated asset. It grants the legal authority to accept deposits, issue loans, and access interbank payments systems – privileges that fintechs (generally) cannot obtain on their own. If a tech company wants to offer banking products, it must (almost always) partner with a chartered bank.
This raises an important question: who actually holds the power in the relationship?
The regulator’s point of view supports an alternative narrative – and perhaps provides an answer. From the regulator’s perspective, the bank – not the fintech company – is where the buck stops. Any compliance failure, risk oversight, or regulatory breach falls entirely on the charter-holder, not the technology provider. In this view, the roles reverse: the bank is the principal, and the fintech the agent.
Seen this way, partner banks are the gatekeepers of fintech innovation. Far from being passive vendors, partner banks are proactive participants in the relationship. Partner banks choose which fintech companies to work with based on their own strategic goals and risk tolerance. If the regulatory climate tightens or the macro environment shifts, the calculus for choosing partners changes too.
In this view, banks don’t just support fintech innovation – they shape it. Partner banks decide which business models get distribution, which customer segments are worth pursuing, and which innovations are worth betting on.
How Partner Banks Think
To better understand how and why partner banks shape fintech innovation, it’s useful to step into the partner bank’s shoes. (Feel free to skip to the next section if you’re familiar with how banks work.)
Simply put, banks are financial factories: deposits are the raw materials; loans and payments are the finished goods. Banks purchase deposits by offering interest to consumers and businesses. They then deploy those funds to earn revenue by lending the money out or routing it elsewhere for a fee.
Revenue broadly consists of: (a) interest income and (b) noninterest income. Interest income is earned when the bank turns deposits (liabilities) into loans (assets) and charges interest. In the context of a partner bank, noninterest income is earned from deposit-associated activities, which include deposit programs and payments. Expenses associated with noninterest income – e.g. managing compliance of fintech partners – sit in noninterest expenses, which also houses overall operating expenses for the bank.
Banks watch Return on Assets (ROA), Return on Equity (ROE), Net Interest Margin (NIM), and the Efficiency Ratio to see how well they are doing:
ROA is net income divided by assets, and shows how well a bank uses its assets to turn a profit. A higher ROA means the bank is using its resources wisely.
ROE is net income divided by equity, and shows how much profit the bank makes for every dollar of money invested by shareholders. A higher ROE shows the bank is making good use of its invested capital.
NIM measures the difference between the interest a bank earns on loans and the interest it pays on deposits. A higher NIM means the bank is (a) originating “yieldier” (oftentimes riskier) loans and / or (b) keeping the cost of deposits down.
The Efficiency Ratio shows how much the bank spends to make one dollar of income. A lower number here is better, and means the bank is keeping costs low while making money.
One final metric is the Liquidity Reserve Rate (LRR). This measures how “sticky” deposits are. If deposits are considered unstable – or likely to leave the bank – the bank must keep more in reserves. This means less money to lend out, which hurts the bank’s ability to earn interest from those funds. A lower liquidity reserve rate means that the bank deems the deposits stickier; higher means flightier.
How Partner Banks Assess Fintech Partnerships
Partner banks look at the above metrics – ROA, ROE, NIM, efficiency ratio, LRR – and then choose fintech partners that improve those metrics.
This strategy has worked. Many partner banks have outperformed their peers by working with fintech companies. In a low-rate environment, deposits from fintech programs gave banks access to cheap funding. And because most partner banks are under $10B in assets, they have been able to charge higher debit card interchange fees under the Durbin Amendment – boosting noninterest income from payment-focused fintechs.
Here’s where the revenue tends to come from:
Revenue Stream
Income Type
Mechanics
BaaS / Deposit Programs
Noninterest income
Fintech companies pay per-account or platform fees for ledgering, debit card issuing, and statement services.
Payments / Interchange
Noninterest income
Fees from card interchange, ACH origination, and instant payments tied to deposit accounts.
Loan Origination & Servicing
Noninterest income
One-time and trailing fees for booking or servicing fintech-sourced loans; often sold off.
Treasury / Fed Balances
Interest income
Surplus deposits invested in overnight Federal Reserve balances or short-dated Treasuries.
Consumer Lending
Interest income
Bank retains some fintech-originated loans, earning interest.
But since 2022, the environment has changed. Rising interest rates have made many fintech partnerships less attractive than they once were.
Fintech companies that were once happy with basic account functionality are now asking for market-rate yields on the deposits they bring. This has forced partner banks to pay much more for funding that used to be cheap – or even free. At the same time, higher yields on the asset side of the balance sheet (loans and investments) mean banks can now hit their return targets through more traditional strategies – especially if they already have a stable, low-cost deposit base. This has made certain fintech programs, particularly those tied to high-cost or volatile deposits, harder to justify. Higher rates have also brought more credit stress. Default rates have risen in some partner-driven lending portfolios, adding another layer of risk.
As such, partner banks are reevaluating the economics of their fintech programs. Deposit-focused partnerships that once generated fee income now come with much higher interest expense, squeezing NIM and cutting into profitability. Payments revenue may still look good on paper, but if the associated deposits are volatile, banks may need to hold more in reserve – reducing funds available for lending and pressuring ROA.
The table below breaks down common revenue streams, how rising rates are changing their economics, and what that means for key performance metrics:
Revenue Stream
Current High-Rate Implications
Impact on Performance Metrics
BaaS / Deposit Programs
In a zero-rate world, these fees boosted income. Now, fintech companies demand market-rate yields and revenue shares, while banks face higher FDIC assessments and liquidity reserves, squeezing margins.
ROA/ROE: Declines as margins shrink and liquidity reserves dilute asset returns. Efficiency Ratio: Rises due to compliance costs. LRR: Increases (worse) as volatile deposits require larger reserves.
Payments / Interchange
Fees per transaction hold steady, but regulators flag rapid-turn settlement balances as volatile, forcing higher liquidity reserves that erode returns.
ROA/ROE: Falls as reserves reduce usable assets. Efficiency Ratio: Stable unless fraud losses climb. LRR: Rises (worse) due to volatile balances.
Loan Origination & Servicing
Higher rates curb loan demand, cutting origination volume and fees. Limited credit exposure (loans are moved off the bank’s balance sheet) minimizes loss impact.
ROA/ROE: Dips with lower fee income. Efficiency Ratio: Stable, as servicing costs are low. LRR: Unaffected, as loans are off-balance-sheet.
Treasury / Fed Balances
Elevated rates boost yields if deposit costs stay low. Volatile fintech deposits often leave quickly, limiting benefits.
ROA/ROE: Rises if deposits are sticky, falls if costly. NIM: Improves with higher yields, eroded by deposit costs. LRR: Increases (worse) for volatile deposits.
Consumer Lending
Higher rates lift asset yields but increase defaults and capital charges.
ROA/ROE: Grows if credit risk is managed, else declines. NIM: Boosts with higher yields, offset by defaults. Efficiency Ratio: Rises with risk management costs. LRR: Unaffected unless tied to volatile deposits.
Enforcement Reshapes the Landscape
Regulatory pressure has added to the broader shift brought on by rising rates. Since 2022, a wave of enforcement actions from the FDIC and OCC has pushed partner banks to rethink how they manage third-party risk. These “consent orders” have required stronger KYC and AML controls, more robust oversight frameworks, and – in many cases – explicit regulatory approval before launching new fintech programs.
Many of these actions were tied to specific fintech relationships that fell short of expectations. In some cases, these were a result of the rapid growth and loose controls of the 2020–2021 cycle. The message from regulators has been clear: banks are responsible for what happens under their charter.
Then came the April 2024 bankruptcy of Synapse, a banking-as-a-service intermediary. The result was chaos – missing funds, frozen accounts, and a breakdown in trust across the ecosystem. Regulators responded quickly. The FDIC, OCC, and Federal Reserve all increased scrutiny, demanding faster fixes and tighter controls from partner banks.
Several partner banks have since exited certain fintech partnerships – or the space altogether. Evolve Bank & Trust and Blue Ridge Bank ended multiple relationships. Goldman Sachs pulled back from Apple Card, and Wells Fargo stepped away from Stripe. In early 2025, MainStreet Bank shut down its in-house BaaS unit, Avenu, after bringing in just $41M in deposits by the end of 2024 – far short of its $200M goal.
The takeaway for banks is straightforward: the compliance burden is the same whether the fintech is a startup or a household name. This means scale matters more: bigger partners with real revenue can better justify fixed compliance costs.
The Future of Fintech-Bank Collaboration
The partner banks that remain active today tend to share three traits: they work with fintech companies that operate with bank-grade compliance, manage funding costs with discipline, and are quick to exit programs that don’t perform. Fintech partnerships still offer strong upside – top partner banks continue to outperform peers on ROA and ROE – but the bar is now higher.
In this tighter environment, fintech companies need to do more than deliver growth. They need to support the bank’s financial and regulatory objectives – contributing directly to the bank’s performance targets. That means offering stable deposits, sharing risk in aligned ways, and building with compliance in mind from the start. Partner banks are gravitating toward fintech companies that improve their core business – and cutting loose those that do not.
So – what’s the right way to understand the fintech–partner bank relationship?
It’s not principal-agent, and it’s not vendor-client. It’s a layered system: the bank supplies the regulated core, and the fintech builds the interface. Success depends on alignment – operational, financial, and regulatory. The best fintech companies don’t work around the charter, but through it. The front end matters, but what sets lasting fintech companies apart is their ability to strengthen the partner banks they rely on.
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