Why Do Fintechs Need Banks?

Within the last year, Financial Technology (Fintech) has raised $111 billion in global investments, according to KPMG, spawned countless startups and forced mainstream financial regulators to ponder the new technology’s position and potential in the marketplace. None of this could have been done without banks.

Old-fashioned and pre-digital as they may be, banks represent the lifeblood of up-and-coming Fintechs. Without them, Fintechs wouldn’t be able to provide the seamless transactional capabilities they do, nor would they possess the regulatory oversight necessary to survive in the financial sector.

So, what’s so special about partnering with a bank, you ask? Ultimately, it boils down to two things – oversight and assets.

Dollars and Cents

Banks have money they can lend to consumers; Fintechs don’t.

It sounds like a no-brainer, but without the liquid assets of a bank, a Fintech wouldn’t be able to help consumers move money online or from their phone. Deposits, loan interest, shareholder equity and debt all contribute to a bank’s capital.

Banks also have their funds insured up to a certain dollar amount for each depositor. This type of regulatory safety net isn’t found within the world of Fintechs.

Similarly, banks have developed a level of trust and familiarity with consumers since their inception. Of course, not everyone is a fan of banks, but these financial institutions have more regulatory safeguards than any other mechanism used to store and transfer money.

Keeping Fintechs in Compliance

Handling people’s money is a great responsibility. So it’s no surprise banks are regulated to the nines to ensure consumer assets are adequately accounted for.

The Office of the Comptroller of the Currency (OCC), FDIC and United States Department of the Treasury all regulate and supervise banks within their jurisdiction. Without these regulatory mechanisms, banks couldn’t operate, and, therefore, Fintechs couldn’t either.

No one is going to entrust their hard-earned cash to an organization with no regulatory oversight. Transferring and holding money won’t fly unless your institution is in compliance.

Banks provide the oversight necessary for Fintechs to enter the marketplace and become successful.

“We’re explaining (the Fintech) to our regulator,” said Sunrise Banks National Products Chief Strategy Officer Eric Schurr of working with Fintechs. “We need to be the best defender of their product.”

What We Do

Sunrise works with numerous Fintechs, providing the banking and regulatory wherewithal needed for success.

We partner with like-minded, mission-driven Fintechs that are helping to solve issues of financial inequality for consumers around the country and the world.

Click here for more information on our Fintech partnerships.