A FinWise Bank Editorial by Kolten Bader, AVP, BaaS Operations Manager
Historically, banking and fintech partnerships were defined by a clear division of responsibilities. Banks provided access to regulated infrastructure, payment networks, and financial products, while fintechs focused on innovation, customer experience, and distribution. This specialization enabled multiple generations of fintech growth and shaped the modern sponsor banking industry.
That distinction is rapidly disappearing today. Fintechs are acquiring banks, pursuing charters, and building sophisticated compliance and risk capabilities. At the same time, banks are investing in technology platforms, embedded finance solutions, and fintech-focused business lines. What were once two distinct industries are increasingly converging. If this trend continues, the next decade may leave us talking less about “banks” and “fintechs” and more about a single financial services ecosystem where institutions differ not by category, but by the capabilities they choose to own, acquire, or access through partnerships.
The Original Division of Responsibilities
Traditional Bank Responsibilities
- Access to the financial system through lending, deposits, and payment networks.
- Regulatory framework that enables financial services to operate safely and at scale.
- Infrastructure, oversight, and institutional trust needed to bring innovative products to market.
- Accountability for program compliance, risk management, and regulatory obligations.
Traditional Fintech Responsibilities
- Identify customer needs that traditional financial institutions were often slow to address.
- Leverage technology, speed, and customer-centric design to create new ways to access and manage financial services.
- Focus on product innovation, customer experience, and distribution.
- Partner with banks rather than pursue banking charters or regulated infrastructure directly.
The Forces Driving Convergence
Converging Capabilities
For more than two decades, banks and fintechs partnered by focusing on their respective strengths. Over time, however, both began developing capabilities that had traditionally belonged to the other, creating increasing overlap across technology, compliance, risk management, and operations.
Fintechs invested in compliance, risk management, fraud prevention, and operational capabilities, enabling them to assume greater regulatory responsibilities and, in some cases, pursue banking charters through acquisition or application. Banks expanded their technology, product development, and customer experience capabilities to reduce reliance on third parties and compete more effectively in a digital-first environment.
As each side developed capabilities once unique to the other, the boundaries between banks and fintechs began to blur. What was once a partnership built on specialization increasingly became a model of overlapping competencies, setting the stage for the convergence we see today.
Regulatory Expectations Increased
As fintech innovation accelerated in the early 2020s, regulators increased their focus on sponsor banking partnerships. High-profile industry failures and regulatory actions underscored the risks that can arise when operations, data, and controls are spread across multiple organizations.
The industry’s response accelerated convergence. Banks strengthened governance, oversight, and third-party risk management, while fintechs expanded compliance, risk, and operational capabilities. As a result, competencies once unique to either side increasingly became shared requirements for operating at scale.
Economic Changes
During the late 2010s and early 2020s, fintech growth was fueled by abundant capital and a focus on customer acquisition and scale. As interest rates rose and venture funding became more selective, investors shifted their attention toward profitability, operational efficiency, and sustainable business models.
In response, both banks and fintechs reevaluated their operating models. Additional intermediaries reduced margins, increased complexity, and created dependencies, prompting organizations to determine which capabilities should be owned, acquired, or outsourced.
This shift further accelerated convergence. As growth-at-all-costs gave way to sustainable economics, banks and fintechs increasingly invested in many of the same capabilities that had once differentiated them.
Three Models of Sponsor Banking
As banks and fintechs continue to develop overlapping capabilities, sponsor banks must make deliberate decisions about which parts of the value chain they want to own and which they are willing to outsource or support through partnerships. While the Banking-as-a-Service ecosystem includes many participants, this discussion focuses on the three primary roles: the core provider, the program manager, and the sponsor bank.
Utility Model
- Sponsor bank provides regulatory access, oversight, and financial infrastructure.
- Technology providers enable connectivity and operational capabilities. In some cases, act as the program manager.
- Fintechs create differentiated products, customer experiences, and act as the program manager where the technology layer is not doing so.
Platform Model
- Sponsor bank continues to provide the same level of access and oversight with the addition of the technology layer that grants access to accounts and payment rails.
- Fintechs continue to create products and experiences on top of the sponsor bank’s technology and maintain the role as program manager.
Converged Model
- Sponsor bank is facilitating the regulatory access, the technology, and deploying financial products via different distribution channels and brands fulfilling all three roles.
While these models provide a useful framework for understanding sponsor banking today, our perspective has been shaped less by theory and more by experience. Over the past decade, FinWise has operated across each of these models, making deliberate decisions about which capabilities to own, acquire, and access through partnership.
FinWise’s Journey
Founded in 2000, FinWise entered sponsor banking in 2016 through partnerships with marketplace lenders. Since then, the bank has originated more than $29 billion in loans, partnered with approximately 30 fintechs, expanded into Banking-as-a-Service, built proprietary lending and payments platforms, and grown through strategic acquisitions.
Along the way, FinWise has operated across utility, platform, and increasingly integrated sponsor banking models. Those experiences reinforced a core belief: success in sponsor banking is less about choosing a single model and more about making deliberate decisions regarding which capabilities to own, acquire, and access through partnerships.
That philosophy began early in our fintech journey when we concluded that being the lender of record required more than a contractual designation. Rather than relying solely on partner systems, we built a proprietary platform for receiving, evaluating, and decisioning applications submitted through fintech partners. What began as a compliance and risk-management decision ultimately shaped our technology strategy, operating model, and perspective on sponsor banking.
What We Believed
Stronger Partnerships
We believed the most effective sponsor banks would operate as peers to their fintech partners rather than solely as providers of regulatory access. By investing in technology, talent, and infrastructure that mirrored the sophistication of our partners, we expected to build stronger relationships, create greater alignment, and position FinWise to support our partners as they scaled.
Better Oversight Through Direct Visibility
We believe that accountability as the lender of record required more than periodic reporting and oversight. It required direct access to data, decisioning logic, and operational activity. By building infrastructure that provided real-time visibility into our partners’ programs, we sought to strengthen risk management, improve oversight, and demonstrate effective control of our lending activities.
Technology as a Strategic Capability
We believed technology would become a core differentiator in sponsor banking. Rather than relying entirely on third-party solutions, we wanted to develop internal capabilities that would allow FinWise to respond quickly to partner needs, adapt to changing regulatory expectations, and support the rapid pace of innovation occurring across the fintech ecosystem.
What We Learned
Culture of Owning and Building
What began as an effort to strengthen our role as lender of record ultimately had a much broader impact on FinWise. By investing in our own technology, we developed the internal talent, processes, and confidence required to build critical capabilities rather than rely exclusively on third parties. This fostered a culture of ownership and innovation that continues to shape the organization today. That culture enabled FinWise to expand beyond lending infrastructure and develop additional capabilities such as a payment hub, our payments hub and acquiring a servicing platform. These investments were driven by a desire to better serve existing partners, expand into new areas of sponsor banking, and exercise greater control over capabilities we viewed as strategically important.
Created Rapport with Examiners
One of the less obvious outcomes of building our own infrastructure was the credibility it created with regulators and examiners. By investing in platforms, FinWise demonstrated a willingness to take direct ownership of functions that many institutions outsource to third parties. This ownership model provided greater visibility into partner activity, reduced dependence on external providers, and strengthened our ability to monitor key controls. As regulatory expectations around fintech partnerships increased, these investments helped establish confidence that FinWise maintained meaningful oversight of its programs and the risks associated with them.
Deeper and More Scalable Partnerships
The decision to own critical infrastructure also improved our ability to scale partnerships. Through our platforms, FinWise grew to approximately 25 lending partnerships while maintaining consistent oversight and access to operational data. The development of payments hub further expanded the value we could provide to partners by offering payment distribution capabilities across ACH, wire, RTP, FedNow, and Mastercard RPPS. What began as a lending relationship could now evolve into a broader banking relationship. This created opportunities for greater economies of scale, increased partner lifetime value, and stronger long-term partner retention.
Lessons Learned
Accountability Cannot Be Outsourced
Our experience reinforced a simple reality: while activities can be delegated, accountability cannot be outsourced. As sponsor banks, we remain responsible for the safety and soundness of the programs we support regardless of how many third parties participate in the operating model. Building and owning critical infrastructure gave us greater visibility into partner activities, strengthened our control environment, and improved our ability to demonstrate oversight to regulators and examiners. Ultimately, this experience taught us that certain capabilities are too important to outsource entirely.
Ownership = Responsibility
Owning technology creates strategic advantages, but it also creates new obligations. Unlike third-party solutions, internally developed systems must be maintained, enhanced, monitored, and governed by the bank. Every issue becomes your issue, and every enhancement competes for limited resources. While ownership can reduce third-party risk and increase operational control, it also requires meaningful investment in technology leadership, change management, testing, and governance.
Product Prioritization
As we expanded our fintech partnerships, we discovered that technology development is rarely constrained by ideas rather it is constrained by capacity. Every partner has features they want delivered, integrations they want completed, and timelines they want accelerated. Managing competing priorities across multiple partners requires a disciplined product organization capable of balancing strategic objectives, regulatory requirements, and partner expectations. Over time, we learned that product prioritization is not simply an operational exercise, it is a strategic capability that directly impacts partner satisfaction, growth, and retention.
The Future of Sponsor Banking
The continued convergence of banking and fintech may ultimately render those labels less meaningful than they are today. As fintechs pursue charters and banks expand their technology capabilities, the industry may evolve into a broader financial services ecosystem where organizations are defined less by category and more by the capabilities they own, acquire, or access through partnerships.
That evolution may also create new ownership structures. Some institutions will continue supporting independent fintech partners, while others may deploy wholly owned fintech brands focused on specific customer segments, products, or distribution channels. In these models, the distinction between sponsor bank and fintech becomes increasingly blurred as regulatory infrastructure, technology, and customer acquisition operate under a common strategic vision.
Yet convergence is unlikely to produce a single winning model. Utility, platform, and converged institutions will continue to coexist, each creating value in different ways. The organizations that succeed will not be those that attempt to own every part of the value chain, nor those that outsource everything. Instead, they will be the ones that make deliberate decisions about which capabilities create differentiation, which require direct oversight, and which are best accessed through partnership.
Ultimately, competitive advantage will come less from what type of institution you are and more from the capabilities you control. The future of sponsor banking will be shaped not by a single model, but by each organization’s ability to determine what it should own, acquire, and access through partnerships.
Want to learn about partnering with FinWise Bank ?
Get in touch with our team: https://hello.finwise.bank/fintech-solutions-contact