Episode 21: BaaS: Compliance as a Competitive Advantage Pt. 2

Episode Description:

This week’s COMPLY Podcast is part two of a conversation all about BaaS (Banking-as-a-Service). If you haven’t listened to our previous podcast it contains part one of this conversation, so we recommend that you go back and listen to it. This week though we are rejoined by Paul Wilmore, PerformLine’s COO, Tanner Mayo, President of FedFis and The BaaS association and Amanda Swoverland, Chief Compliance Officer at Unit, as they discuss:

• The inconsistency in the regulatory climate in this industry – and thoughts on what’s to come.
• How players in this space can use compliance as a competitive advantage.
• How using a scalable platform to automate your compliance process can increase your number of fintech partnerships and thus growth.
• And what the next 6-10 months might look like in this space.

Show Notes:

• 4 Key Fintech Compliance Trends You Need To Know: https://bit.ly/3lc4ebE
• Partner Banks: Marketing Compliance Trends You Need to Know: https://bit.ly/3Tmgnan
• Why Partner Banks Love PerformLine for Marketing Compliance: https://bit.ly/3llQCub
• The State of Marketing Compliance for Partner Banks and Fintechs Infographic: https://bit.ly/3ZQSwCj
• The Compliance Checklist for Bank-Fintech Partnerships and BaaS Providers: https://bit.ly/3YNRhSX
• Connect with Paul: https://www.linkedin.com/in/paul-wilmore-6b1646/
• Connect with Amanda: https://www.linkedin.com/in/amanda-swoverland-4a6ba671/
• Connect with Tanner: https://www.linkedin.com/in/fintechcowboys/

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About COMPLY: The Marketing Compliance Podcast

The state of marketing compliance and regulation is evolving faster than ever, especially for those in the consumer finance space. On the COMPLY podcast, we sit down with the biggest names in marketing, compliance, regulations, and innovation as they share their playbooks to help you take your compliance practice to the next level. 

Episode Transcript:

Ashley:
Hey there COMPLY podcast listeners and welcome to this week’s episode. This week’s podcast is part two of a conversation all about BaaS or Banking-as-a-Service. If you haven’t listened to our previous podcast it contains part one of this conversation, so we recommend that you go back and listen if you haven’t yet. This week though we are rejoined by Paul Wilmore, PerformLine’s COO, Tanner Mayo, President of FedFis and The BaaS Association and Amanda Swoverland, Chief Compliance Officer at Unit, as they discuss the inconsistency in the regulatory climate in this industry and thoughts on what’s to come. How players in this space can use compliance as a competitive advantage. How using a scalable platform to automate your compliance process can increase your number of fintech partnerships and thus growth. And what’s to come in the 6-10 months in this space. Thanks for listening and enjoy!

Paul:
When you look at sort of the regulatory climate, it feels like there’s been also a little bit of, I don’t wanna say inconsistency, but like the OCC seems to be out in front and being much more aggressive about how they are managing this BaaS space. Feels like the Feds just catching up, CFPB doesn’t know whether or not it wants to jump into the game yet or not. And then you have some of the states, you know, the sort of the who’s the true lender, kind of that California ruling, which really seems to be an interesting ruling around APRs and stuff like that. So it feels like, to me, at least the regulatory angles that are being taken, whether it’s the consent orders that are happening from the OCC or this sort of state-by-state regulatory environment, they don’t always seem to be consistent with kind of how they’re looking at the regulatory environment. Are you, are you guys seeing that, or how are people expected to sort of keep up with all of that?

Tanner:
Yeah, you bet. We’re seeing it all over the place. And I think to your point, there’s, you know, they’re obviously their focal points different for obvious reasons, right? Which the perspective would change how you go about things. At the same time, I think the exposure from their side because of that is a little bit different. And so obviously the points that they would come after would be different. And I think, you know, the education level there has been difficult. I mean look, I could, I could sit in debate with, I mean, even amongst us here who’ve been at this for a while, what’s the difference between a fintech and a vendor and infrastructure, and me? I mean, you know, it’s a bit of a gray area, and I, you know, I could probably convince myself of a lot of things there.

Tanner:
It’s difficult, right? The lines are blurring, let’s say it that way. And so I think that poses a difficulty on the regulatory side. We have a lot, a lot of customers in that space, obviously, where we provide data. And with that comes training and education. So I get to sit in on those calls and hear those conversations. And I can tell you, it’s definitely something where they have an appetite to learn and improve, which is a darn good thing, I think, in the future. So I think everybody’s being honest and good in the performance of safety and soundness, right? So that’s what feels good for the future. I think also to your point, while there have been some actions they’re trying to find things that are clear problems, right? And attack those some of the things that are a little more fringe, which is probably where the questions come up in the future, will we see action on this or that?

Tanner:
There hasn’t been a knee-jerk reaction, which I think is a positive. I do think, you know, we mentioned crypto a minute ago, that’s kind of an obvious, right? Something that’s just real messy for many reasons. So I think as you watch this evolve the regulators are taking the necessary time, the necessary education, right? Really bettering themselves to be able to do a good job. And then I think on the bank side, like we mentioned before, the lack of guidance means you need to kind of self-govern, which is always a best practice as we know, right? And be in a good position, educate yourself there also.

Paul:
Got it. Amanda, anything to add on that?

Amanda:
No, I think Tanner summarized that really well. I do think, I mean, I’m just with, you know we are seeing relative consistency, you know across some of the folks that we interact with and where things are going. But it’s all around the right angles, right? And safety and soundness and really wanting to take that prudent approach of just understanding what’s happening and learning about the ecosystem. So I think we’re heading in the right direction.

Tanner:
Amanda, can I ask you a question? With your background, I’m a big fan, by the way, everything you did at, at Sunrise and everything, and I know you did a lot of cool things there. From a banker perspective, typically the approach here on a regulatory topic like this is more information, more regulation, more guidance is a good thing. That way we can, you know, operate in something that’s clearly defined. So my feeling has been that increasing this sort of fear factor topic that’s coming up in the industry right now, oh my gosh, there could be more regulation, there could be changes. It actually feels like a very good thing from a traditional community banking sense. Am I crazy? Do you feel the same way?

Amanda:
No, like, I actually am like, you know, just, I don’t panic right now, right? Because like, I, again dating myself, you know I lived through everything, through the prepaid, you know, side of things. And you know, like it’s unfolding almost exactly the same way right to today of, you know, it wasn’t a big part of banking balance sheets, and then it became a big part of banking balance sheets. It catches everybody’s attention. There’s a few actions, and then everybody kind of, you know, uses those as the roadmap to kind of build everything out. And then maybe a couple years later, there’s some more formal guidance that comes out, like the prepaid rule, and then we all move on with our lives. You know, those people who played in that prepaid space, it’s still live and it’s still thriving, and it’s still doing very, very well.

Amanda:
And so right now they’re can be a tendency to get nervous about what’s gonna happen, but I think we’ve seen the roadmap already of like, what happens in these situations. Yeah. Like, it’s just maturing, right? And so we just need to, we just look at the roadmap that’s there. We look at the guidance that we already have in front of us, and you know, we follow those things and we welcome more clarity, right? So if there’s more clarity that comes, then we know exactly what we need to do, and we build that roadmap and that infrastructure to be able to do that. So I think we all should kind of know what’s coming because it’s happened before, right? Like this, this isn’t new or shocking to us.

Paul:
That’s great. I’m very comforted to hear that there’s sort of an optimistic view towards that. And I think you’re exactly right. You know the topic or the name of the topic here is around compliance as a competitive advantage, which I think in some ways people would view as an oxymoron, right? A lot of people look at compliance as bureaucracy. They look at it as slowing things down. They look at it as sort of having to jump through a lot of other hoops. But in a lot of ways, having the right type of compliance, I think allows you to go faster, allows you to be more flexible, allows you to gauge and build other things. I would love Amanda, from your standpoint, how do you think of compliance as a competitive advantage in this space?

Amanda:
So, I’ll supplement, I’m a little bit biased in terms of that, but you know, I think if you went back and asked anybody that I’ve worked with in my career, it’s more about the finding the path to yes, than the way to no, right, to do that. And I think sometimes there’s a stereotype around compliance that it’s the department of no. But I think if you talk to a lot of compliance professionals, they really wanna partner with the business lines, you know, to be able to find what that path yes is. And it’s really about risk management, right? In terms of building controls and in identifying what the risks are to do that. And maybe ultimately the risks are so high in what’s being presented that you have to say no, because it’s just not sustainable.

Amanda:
But I think taking that collaborative approach and inviting compliance to the table, and I’ve been very fortunate in my career, you know, that the successes that I’ve had have come from the management of those organizations, right? To really bring that voice to the table to say, how can we partner together and really build this, build compliance into the product and make it seamless and to be able to do that. So I think that when you have that, that approach of just make it, build it in, make it a core tenant of what you do, you know at Unit, it’s one of our core company principles, right? Compliance inside, it’s part of everything that we do. And I think that if you just have that right mentality of that it’s not a stigma, it’s not the department of no, it’s actually the department that allows you to play.

Amanda:
Like if you’re compliant, you get to stay in the game. If you’re not compliant, you don’t get to play in really putting that at the forefront and in building it in a proactive way versus coming to talk to the compliance team after is, is really how you can succeed and how you can grow. And, you know, I think if you look at the industry, those that have really put compliance first are the folks that have that longevity and can grow with that. But that’s been my mantra for years.

Paul:
I well, I love the path to yes. I think that’s a great way to look at it. And I think you’re right. Compliance is one of those things that can’t be off to the side. It needs to be built integrally into your product and into your processes all along the way. Tanner, you get to see a lot of these different companies out there. How would you view compliance as a competitive advantage?

Tanner:
You bet. So I think the interesting thought or topic would be compliance as a service. I don’t know why, it just, like, it rings for me, right? And I think in community banks, it’s a tremendous point, it’s financially a burden, it’s a process and operational burden that now in this space, actually is something that is an existing burden and challenge that you have, that you can turn into a service and make money on. I mean, it’s as simple as that, right? And so, if we’re going to be compliant and safe and sound organizations and carry the infrastructure required to do that in the operations, why not use it to make money? It makes a ton of sense. If you think about how that relates, as I mentioned earlier to let’s say the vendor community, I mean, you’re doing everything on your core today, right?

Tanner:
Think about even things like e-statements, I mean, mobile deposit, right? Item processing, everything that goes into these things you’re already doing. How much different is a fintech or brand shades of gray, right, definitely. You want some best practices, things like monitoring, right? And you wanna watch out for that distance between the charter and the end consumer, right? And how much fog and gray area that brings into things like monitoring. Outside of that, it’s very similar, right? Very similar to what the banks do today, but I think it’s an opportunity to make some money on that business line. And I think the last point that I’d make, we see a ton of institutions out there of that 116 BaaS banks, the vast majority of that is doing a couple of programs. And so you see that probably with, if you think about their volume and their bandwidth, and that sort of compliance is a service mindset.

Tanner:
They have the opportunity to handle a couple of programs, right? Make a little extra money, and all of a sudden they go from somebody who’s mediocre, maybe struggling a little bit, maybe their geographical market isn’t what they wish it was to now they’re a high performing nice little community bank, right? It’s pretty cool. What’s funny about it is it’s almost like a drug, right? We’ve seen a lot of those that fit that model, and then they’re like, let’s add 40 more programs next month, you know which we all get, right? It makes a lot of sense because it’s so successful. And I think that’s where some of the challenges come in, you know, and where we’ve seen some of the actions and problems. But it’s strangely enough while, while those may be booboos, that actually is kind of a cool opportunity when you think about it, right? Somebody was doing so well with something that they wanted to do more. Yeah. That’s a cool thing.

Paul:
I think that’s great. Look, compliance as a service that rings in my heart, you know, at PerformLine, you know, a lot of what we’ve built is around a scalable solution, right? To your point, it’s not, you know, two or three where you can still do it manually. It’s doing 40 or 50 where you need that automation, that platform that can automatically do it. And it is interesting. I feel like a lot of these new players are sort of cutting their teeth a little bit as they ease their way in. But I think as they build the infrastructure, I think that scalable model is certainly an interesting way to increase your reach very quickly.

Amanda:
Yeah, we love partnering with you all to help with that scalability. You know again, to one of my earlier points nobody has to go this alone. Yeah, right? Like, there’s plenty of resources that are out there and available to help with all of these things. And I think that really sharing information, sharing best practices, sharing resource calculators, right? How many people does it take to run one of these things at a community bank? What do we need to do? I think there’s those of us in the industry that know those things because we’ve seen the model, we’ve built it, we understand that. And so just, you know, helping each other out so that nobody stumbles is super important because that’s not where the secret sauce is, right, in doing that. There’s no secret sauce in that. Like, just make sure we have the right resources, the right oversight building those tools. And I think collectively the industry has done a good job of sharing information and in some of those best practices. And I think if we continue to do that more, more and more positive things will happen.

Tanner:
The barrier to entry is a lot lower, right Paul? I mean, think about four or five years ago, I mean, just from cost alone, it’s a lot less expensive to get in the game today if you’re a community bank, right? And I think guys like you guys in PerformLine are a real testament to that, right? You’re basically SaaSing BaaS, which is cool, right? And we’re all seeing whether it’s monitoring or all these different reporting reconciliation, right? All the words that we all work with everyday attacking these very specific little problems and finding neat little, you know, parts and pieces that can scale that out. It’s a cool thing.

Paul:
Yeah, you’re right. Look, we’re all in this together, right? We all have a vested interest in making sure this is successful. And, you know, the more we can be successful and sort of create our own guide rails, the less someone else is gonna have to come in over top and do it for us. And so I think we’re all sort of looking at this from the same direction. Because in order for this to really continue upon its sort of acceleration growth curve we need to self-monitor, you guys sort of have said it, the guidelines, and a lot of that comes from us that are touching it every day. So I’m super encouraged to hear that from both of you guys. Any sort of final thoughts as we think through kind of what the next six to twelve months might look like? The macroeconomic environment is it’s tough right now, right? Things are probably gonna get a little bit bumpy as we go forward. Any thoughts on kind of what the next six to twelve months might look like?

Tanner:
I would start by saying from the economic headwinds, if I really need deposits, and that’s a difficulty, if rates are a very, very interesting, I mean, either way, toss a coin right? It’s gonna probably gonna be interesting both ways in the next twelve months, right? That’s interesting. So lending, eh, right. And even if I can make the loans, do I want to, right? And so I actually, I like cards and interchange at the moment a lot, right? It’s sort of one of the few areas, you know, think about non-interest and fee income side. And I think BaaS comes into play there as a deposit strategy, as an interchange strategy. Never a better time, right? And so it’s kind of funny, and Amanda you may disagree with me, but I feel like the star is kind of aligned on the economic side, right?

Tanner:
I mean, the banks that invested in the last 12 months, you know how it is, we educate for a period of time, but certainly before we do something strategic. And I think I have talked to so many in the last year, I think there’s a massive wave of institutions on the way that are very geared up and educated to participate that are taking those next moves right now. And most of ’em that you talk to in the last few months are like this needs to work. And we’re really glad that we’re invested in this direction just because of the economic headwinds. So I think for BaaS particularly, it’s a good time. For the rest of us in everything we do, and if you wanna buy a car, it’s probably not the best of times going forward. Everything seems to be a challenge, but I actually think it all aligns well for BaaS.

Amanda:
Yeah. It’s, you know, it’s infrastructure building time, right? Yeah. And you know, getting things buttoned up and to be able to do that. So yeah, I agree with you Tanner. I think, you know, in this time period when we stop and we look at things, it’s really a time for all of us to really calibrate and just look at, you know, make sure everybody in the ecosystem is looking at that third party risk management guidance that’s out there. Just making sure that we’re building products and services that are straightforward, easy to use, that the customers understand that, you know, that the marketing of those products is in compliance and is done properly with that. Really making sure that we’re emphasizing building strong controls. Like look at your control environment, whether you’re at the bank, a BaaS provider, if you’re at a technology company who’s wanting to build that program making sure that we’re continuing, and this has always been the case, but identify and report bad actors no matter where you sit in the ecosystem.

Amanda:
You know, making sure that we’re really putting an emphasis on how we can find bad actors in the ecosystem. And then just having really high standards for privacy and data security, right? Like these tenants have held for years, you know, 20 years ago that would’ve been the same thing. But I think that, you know, as we think about the next twelve months and new regulation and existing regulation that’s out there, just really, you know, think collectively as an industry really focusing on those five things I think we have. I think that has been our tenant to do those things. And I think telling that story of we have been doing this and we’re gonna continue to do this is gonna be super important because those are all things that keep us all safe.

Paul:
Yeah. Hey, look, I love how optimistic both of you guys are around the bad space and so am I, right, I think it’s the right time. And it provides a whole nother avenue, especially for a lot of these community banks. But it is about sort of self-governance. I think it’s about setting the right guidelines for yourself, sort of setting yourself up for success, right? And that doesn’t mean just having the biggest engine out there means having the right level of, you know, brakes and steering components and everything else, not just the huge engine, right? And I think to me, that’s why compliance is a competitive advantage. It allows you to go faster and maneuver into other places, whereas if you didn’t have that level of sort of guidance or breaks you wouldn’t be able to go there. So I think both of you sort of were right spot on this and I really look forward to kind of what’s gonna happen over the next twelve months.

Tanner:
You bet. Paul. I wanna say, just if you don’t mind a quick shout out to you guys, I think I laugh. I looked at your backdrop and I can see the word monitor back there now, and I think I said that five times, right? I’m such a huge fan from that perspective of monitoring everything that’s going on because we are expanding the footprint absolutely in this space today, right? And I think that’s where Amanda made good points there about sort of the maturation process of any industry and expanding that footprints part of that. And we’re gonna have bumps and stumbles as we go along. So, you know, people like you guys solving those problems, that actually helps the whole go faster, right? Even if somebody isn’t your customer, we should still be supportive and have a lot of respect for what you guys are doing, and I know I sure do. So thanks.

Paul:
Oh, Tanner, thanks. Greatly appreciate those words. Yeah, that’s really nice.

Ashley:
Thanks for listening to this episode of the COMPLY podcast! If you’re in this BaaS-partner bank-fintech ecosystem, we have several resources that I’m gonna drop into today’s show notes for you including, a blog on marketing compliance trends that both banks and fintechs need to know and a compliance checklist for fintech partnerships + BaaS providers. As always for the latest content on all things marketing compliance you can head to performline.com/resources. Thanks again for listening and we’ll see you next time!