Everybody is familiar with Software-as-a-Service or SaaS. It is the prevalent way to sell software these days. The days of the purchase of a CD to install a software are long gone. Everything can be “as-a-service”. What about Banking-as-a-Service or BaaS? Is it the same as SaaS? Fintech Review asked a few questions to Sankaet Pathak, Co-Founder and CEO of Synapse. It is the largest regulated banking-as-a-service BaaS platform. Synapse provides payment, card issuance, deposit, lending, compliance, credit and investment products as APIs to more than 18 million end users.
Tell us more about Synapse. What is your elevator pitch?
Synapse is the largest Banking-as-a-Service (BaaS) provider and one of few that is licensed and regulated. We work with banks, fintechs and enterprises to launch and scale a wide range of financial services. Fintech partners, as well as enterprises launching digital-first products with embedded financial features. To date, our platform has powered payment, card issuance, deposit, lending, compliance, credit and investment solutions to more than 18 million end users.
What is your background and what is the story behind the company?
I came to the U.S. from India to study Computer Engineering, Mathematical Sciences, and Physics at the University of Memphis. After immigrating to the U.S., I experienced first-hand the difficulty of opening a U.S. bank account. And getting approved for credit without a financial history.
I did not fit into the traditional financial framework for access to U.S. banking. I realized there must be millions of others experiencing the same problem. Even simple requirements such as an official current U.S. mailing address or Social Security number, which seem like small hurdles, can feel like insurmountable barriers to those behind them. But I soon realized that the true barrier to entry was outdated banking infrastructure. I founded Synapse in 2014 with a mission to ensure that everyone around the world has access to best-in-class class financial products. Regardless of their net worth.
What are the latest trends in BaaS?
There are two trends that I would highlight. The first is around the post pandemic global economy and how it is increasingly interconnected across many countries. As we emerge from the pandemic, remote work has become the norm rather than the exception. Talent pools are now global. Then you have other segments of the global workforce. Such as freelancers, gamers and social influencers, who earn income through platforms that know no borders. This is on top of ongoing demands for cross border financial services. Services that enable travelers, students or expatriates to spend like locals. All this combined has spawned a growing need for financial services that span national borders.
The second trend I would highlight is an outgrowth of the recent shocks to the banking sector based on the collapse of FTX and other crypto-based companies. And the few but surprising bank failures that have occurred more recently. Not surprisingly, safety and security of funds for deposit holders is a rising concern. At the same time, regulators, banks and fintechs are all increasingly focused on compliance, risk diversification and retaining trust among their customer base. This is a climate we will be in for some time. Yet it is healthy for the entire financial services industry.
How is Synapse positioned to respond to these trends?
Today, through our platform, we empower fintechs to provide accessible financial services for the borderless workforce. Such as gig workers, influencers and freelancers as well as immigrants and travelers from around the world. To further support these populations, Synapse launched Synapse Global Cash. It is a secure cash management account enabling residents in 35+ countries to invest, hold and spend U.S. dollars. As an added benefit, Synapse Global Cash end users in countries experiencing high inflation or negative interest rates receive access to more stable stores of value than their local currencies. In turn, enabling them to build financial security.
To address the safety and security of banking as a service infrastructure, we have taken three pivotal steps:
First, Synapse created two regulated entities: Synapse Brokerage LLC, a registered broker-dealer and member of FINRA and SIPC, and Synapse Credit LLC, a licensed U.S. state-by-state lender. These entities allow us to extend mechanisms to mitigate identity fraud and transactional fraud closer to the point of customer onboarding or transaction execution. In addition, it also enabled us to participate in the flow of funds, allowing us to take the second action, which was to launch Modular Banking.
Modular banking is an approach in which a licensed and regulated BaaS platform provider, such as Synapse, integrates with multiple bank partners. Each bank partner supports a set of use cases that best fit their strategy and risk appetite. For example, one bank partner may provide deposit and money movement services, while another may choose to offer international transfers. Fintech customers benefit from the best terms and services from any or all of the BaaS provider’s modular banking partners. Meanwhile, the banking partners generate new business while diversifying their sources of income with limited regulatory risk and compliance burdens.
Third and finally, as regulators and lawmakers continue to grapple with the unique challenges and opportunities surrounding innovation in fintech and the BaaS industry, Synapse recently announced the formation of a new Policy & Regulatory Advisory Board. The Board guides Synapse’s leaders on how to work with our stakeholders to best promote and support rules and strong governance within the industry. This announcement fits into Synapse’s broader strategic focus of collaborating with regulators to ensure end users are protected and around driving innovation within the space. Synapse also recently joined the Financial Technology Association and is the only regulated BaaS platform.
Any innovation in fintech more broadly that you are really excited about?
With the rise of new fintech companies and BaaS platforms, growing cellular capabilities, and evolving consumer sentiments and needs, we find ourselves on the precipice of an exciting banking revolution. According to findings from Zion Market Research, the global fintech-as-a-service platform market size is predicted to grow to around $949 billion by 2028.
I’m excited to see how this growth will impact the embedded finance ecosystem, which is currently still in its infancy. Consumers can now use “buy now, pay later” services for online purchases and make one-click payments on Uber, Amazon, or Walmart. As well as adding built-in insurance offerings to their travel and accommodation bookings. As the industry matures, we will only see more specialized and efficient banking services that will integrate into the fabric of our everyday digital experiences.
Any plans for the future or product roadmap you want people to know about?
Absolutely. This year we’re focused on making it even easier for customers to launch financial products. We do that through more powerful features on our platform. We plan on enhancing our modular banking infrastructure by partnering with additional banks and ensuring our fintech customers have continued access to the best financial services available.
Synapse is also working on a global credit solution, broadening our existing credit platform to offer various credit product experiences. Such as open loans, revolving loans, one-time loans, and cash advances, worldwide.
Perhaps most importantly, we will continue to empower fintechs with a focus on providing the unbanked with critical financial services that are cost-efficient, easy to use and fast.
Banking-as-a-Service: the future is now. Interview with Sankaet Pathak