Sponsor Banks Discover That Deposits Don’t Have to Sit Still
Banking-as-a-service has traditionally had sponsor banks for doing everything themselves: issuing accounts, holding deposits, processing payments and financing lending.
But latest earnings from two sponsor-bank operators suggest some flexibility in the model, where deposits can be managed independently from the FinTech relationship itself.
First Internet Bancorp indicated that its banking-as-a-service fee revenue increased 172% from a year earlier while approximately $2.4 billion of FinTech deposits were moved off First Internet’s balance sheet through a deposit network. The strategy allowed the bank to continue growing FinTech relationships while reducing reliance on higher-cost funding, including brokered deposits and certificates of deposit.
Deposits Become a Funding Resource for Banks
That combination raises a broader question for sponsor banking: does a bank still need to own every FinTech deposit to earn the economics of the relationship? The results here and elsewhere in the sector indicate that sponsor banks may be moving toward a model in which deposits become a managed funding resource rather than a permanent balance-sheet asset.
Program management, payments processing, card sponsorship, BIN sponsorship, settlement services, compliance and lending all generate fees that can remain with the originating sponsor bank even if deposits are distributed elsewhere.
While deposits moved through a network, First Internet’s FinTech payment volume continued to expand and fee revenue accelerated sharply.
The Bancorp’s quarter reflects the same strategic direction, although through different operating lenses.
Management continued emphasizing growth in FinTech Solutions, sponsored lending and embedded finance while describing a business increasingly driven by higher-velocity, higher-return FinTech activity. Average FinTech loans rose to 18% of average loans, while FinTech fee income represented nearly 30% of total revenue. Credit sponsorship programs continued expanding, and executives highlighted additional sponsored lending launches expected within six months.
The Bancorp did not discuss moving deposits off its balance sheet through an external deposit network. Instead, executives emphasized increasing the profitability of the balance sheet itself by shifting toward higher-margin FinTech businesses, payments and sponsored lending while reducing funding costs and increasing fee generation.
First Internet’s details indicate that that deposits can be distributed while the sponsor bank keeps the operating relationship. The Bancorp is demonstrating that sponsor-bank profitability depends on the mix of FinTech activities occurring around those deposits. Deposits, then, might be viewed as inventory that can be retained, distributed or reallocated depending on funding costs, liquidity needs and capital efficiency.
That flexibility could become valuable as FinTech programs continue growing.
Rapid deposit growth can create capital requirements, liquidity management challenges and concentration concerns. Deposit networks potentially allow banks to continue serving rapidly growing FinTech clients without allowing balance-sheet growth to outpace their funding strategy.
For FinTechs, the shift could also reduce dependence on a single balance sheet. If deposits can be distributed while the sponsor bank continues providing program management, payments connectivity and compliance oversight, FinTech platforms may gain additional scalability without requiring their banking partners to absorb every dollar of deposit growth.
Deposits remain a critical source of funding, liquidity and franchise value. But this earnings season offered evidence that sponsor banking’s success is, and will be, tied to who owns the total relationship.
