Bank-Fintech Partnerships in 2025: Challenges and Outlook

The financial services industry continues its journey of digital transformation fueled by bank-fintech partnerships.

These dual-sided programs (some variation of Banking-as-a-Service, aka BaaS) propelled early-stage fintech firms to offer financial products over the last 10 years — no need to obtain their own charter or licensing, as the partnership utilizes the infrastructure and regulatory frameworks of sponsor banks. Some of these fintechs became well-established market leaders that we see today (e.g. Chime, Brex, Mercury, Stripe).

The explosive growth in this arena increased access to financial services globally — however, lack of regulatory guidance, poor oversight by bank partners, minimal risk management from fintechs, and negative impact to end-users (e.g. Synapse / Evolve reconciliation fallout) generated calls to action from regulators.

Enforcement actions, data breaches, and disputed users funds show how brittle these partnerships can be.

Let’s delve into the 2025 challenges facing sponsor banks and fintech partners, current regulatory landscape, operational hurdles to partnership growth, and higher expectations for compliance & risk management. We close out the discussion with an outlook for these collaborations over the next 12 months, sharing insights into how stakeholders can maneuver this turbulent ecosystem.

Refresher on the Rise of Bank-Fintech Partnerships

Bank-fintech partnerships revolutionized modern financial services, enabling tech-savvy fintechs to offer customized banking products (i.e. accounts, payments, cards, lending) to underserved segments — via sponsorship from licensed banks.

The core benefit for fintechs: faster market entry due to bypassing a bank application charter (lengthy & expensive process); for banks: market expansion (customers, deposit, transactions) without having to open a new retail branch (large investment with uncertain results).

API integrations are a main component of BaaS models, which allow for banks to participate in these partnerships without having to overhaul their legacy banking core.

New challenges presented with this model include: (i) modifying policies to compliance and data security, (ii) ensuring fintechs follow bank policies & regulatory standards, and (iii) increasing operational oversight of 3rd party partners and new users.

No one anticipated just how much volume this sector would have between 2018 - 2022. The rate of growth quickly exceeded the response rate from regulators — leading to ambiguous guidelines/frameworks & delayed enforcement actions.

Regulatory Oversight & Enforcement Actions

Starting in 2022, regulatory agencies (such as the Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, and state-level authorities) ramped up their analysis of these partnerships.

The most recent wave of consent orders (involving Quaint Oak & Hatch Bank) showcase the ongoing concern of third-party risk management (TPRM) and proper anti-money laundering (AML) compliance processes.

The enforcement actions align with previous guidance requiring heightened oversight & controls from sponsor banks, deployment of independent testing, and ongoing reviews validating compliance with the Bank Secrecy Act (BSA).

What stood out in the case of Hatch Bank was how both federal & state authorities delivered consent orders — a leading indicator that regulators are planning to work together in calling out program gaps and ensuring proper remediation plans.

In responding to these actions, it’s critical for both banks & fintechs to not only create better internal processes for oversight, but also continuously monitor and identify areas for improvement.

As the Synapse/Evolve case enters its second year, regulators are also voicing concerns of risk in documenting flow of funds and ensuring ledgering/reconciliation that is transparent for all stakeholders. Account structures and systems of record will be a critical priority for all bank partners going forward.

Operational Challenges & Risk Management

The dependencies between banks & fintechs in these partnerships present complexities when it comes to adequate risk management and monitoring.

Banks must be flexible in how they balance being an innovation enabler AND maintaining rigorous oversight of compliance, data security, and operational policies.

The initial challenge is agreement of compliance standards between both parties. Tech-forward fintechs lack the experience of adhering to regulatory requirements. Banks (especially new sponsors) are unaware of what a proper partnership program looks like that reduces exposure to enforcement actions from regulators.

With banks allowing customer-facing fintechs to directly manage user relationships, there’s added pressure for banks to ensure customer disclosures and agreements are properly presented and acknowledged.

Lastly, data security and access between multiple parties (bank, fintech, technology vendors) can create numerous vulnerabilities if left unchecked. Banks have a history of protecting sensitive customer information, but lack the experience of monitoring the cybersecurity practices for fintechs.

The Regulatory Landscape Continues to Evolve

The regulatory environment may be settling down when it comes to responding to bank-fintech partnerships, but agencies still have room to go in establishing clear guidelines & frameworks.

Regulators have been adamant in demanding that banks run detailed due diligence processes in advance of starting a partnership.

These types of reviews should include evaluation of a fintech's compliance experience, program management expertise, and risk management practices & policies. For early-stage startups looking to partner with a bank, the requirement would be to hire a compliance officer (either as a fractional or permanent resource) to help develop internal compliance programs and AML policies.

This momentum of joint operational responsibility is in stark contrast to the posture of outsourced oversight from 2018 - 2022. Based on future examinations performing well (with minimal findings), this structure may be sufficient for near-term bank-fintech partnerships.

What’s Ahead for Bank-FinTech Partnerships?

Stakeholders should gradual expect an emphasis of clear risk management protocols from regulators in forming new partnerships.

Until further notice, sponsor banks will continue to operative in a conservative manner when exploring programs with fintechs. Partners with a strong compliance frameworks and proven experience in sustainable growth will be prioritized over fintechs that lack operational resilience. Anticipate a drop in new partnerships over the next year as banks & fintechs continue to adjust to a higher standard — especially on the bank side due to less appetite for risk.

In meeting these requirements, both partners must understand that total program costs are increasing to support the compliance tools, resources, and staffing to adequately manage programs. Enhancements from artificial intelligence and machine learning will strengthen monitoring efforts. It’s an investment towards the future state of partnerships, which can lead to more trust among all parties (including regulators).

The banks & fintechs that move the industry forward will be willing to make the upfront investment and adjust (as necessary) to regulatory changes.

Final Thoughts

The synergy between innovative banks & fintechs launched a new era of financial services that meet the needs of various types of consumers and businesses.

The unprecedented growth of these partnerships came with unforeseen complexities that impacted multiple parties (including customers and regulators). Enforcement actions highlight how regulatory agencies are trying to catch up with curbing potential risk in these new relationships.

As the industry continues to find its footing with best practices, new product enhancements, and alignment with compliance responsibilities, unexpected challenges may come up — namely interacting with stablecoins and cryptocurrency, and enabling expedited payments.

Only partners (banks & fintech) committed to collaboration and transparency will be the pioneers of the next level of transformation.