The Banking-as-a-Service (BaaS) crisis has repeatedly shown the dangers of third-party risk in the context of support for fintech programs. The challenges have pushed sponsor banks and vendors within the space to rethink their business models, and regulatory action has spooked bankers outside the BaaS industry. Lost amid that turmoil is the changes vendors are making in response to issues with third party fintech partners and what those changes may mean for the future of bank technology.

The point of a technology provider that supports BaaS is to enable third-party integration with a bank’s product and services, abstract banking features and functions that are better suited to a cloud-based, API-native platform, ensure that the bank has oversight and control over partners’ compliance practices, and in some cases provide white-labeled products and front-end developer tools to third-party partners. These platforms were designed for BaaS, but there’s little to stop banks from using them for direct channels.

With matchmaking services on their way out and some existing or prospective sponsor banks reconsidering a BaaS line of business, vendors’ focus on enabling technology is on its way in. Without a BaaS line of business, the absence of fintech or other third-party channel partners substantially reduces the burden of third-party risk management even when the same enabling infrastructure is in place. Tools for building and maintaining direct channels remain — the bank is effectively its own partner and in tight control.

Technology that has been branded as new, with novel applications, becomes familiar from a compliance perspective: the third-party relationships are with the platform and its vendor partners, and the bank owns the end customers. The dashboards and controls for managing channel partners should be valuable to the bank for its own purposes, such as fraud monitoring, BSA, AML, and CFT obligations, and the ability to monitor controls and address adverse events. It may also serve as an extensible layer that abstracts or replaces core banking features.

Use cases apply not just to the back end. Banks may lack the development resources to build digital channels themselves and be dissatisfied with turnkey options from their core provider — they may seek to customize their digital experience, perhaps using low- or no-code tools. Products designed explicitly to help nonfinancial brands integrate banking services with their solutions could just as well be used to help banks build their own digital banking services.

These tools start to sound a lot like third-party software for the bank’s features and functions. Perhaps the niche for BaaS infrastructure providers was just a starting point and there’s a new form of competition in solutions for direct channels. The seemingly vast opportunity for BaaS that supports consumer fintechs has expired and banks no matter their interest in supporting third-party channels may have new ways to implement and augment the products that support their own customers.