What BaaS companies learned the hard way in 2024 — and what’s coming next

Is BaaS the land of the dead? Actually, not so much. 2024 was admittedly a difficult time for partner banks and fintechs alike when it came to BaaS. But through the fires of consent orders and lost customer deposits came a realization that all firms involved needed to look more deeply into how they structured their relationships.

Lauren McCollom, SVP and Head of Embedded Finance at Grasshopper, called 2024 an “enlightening and chaotic year” for BaaS players. As consent order numbers climbed into double digits, hitting institutions like Evolve Bank & Trust, Sutton Bank, and Blue Ridge Bank, many fintechs decided they had to pivot and find new partner banks to ensure their programs’ longevity and survival.

On the other hand, affected partner banks had to dig deep into their existing programs and look for weaknesses, while non-affectees saw more and more fintechs queuing up for partnerships. “This fintech outreach wave which fueled pipelines and enabled partner banks to engage with leading fintechs looking for safety and stability in long-term programs with an established partner bank,” said McCollom.

In today’s story, we look at the major challenges partner banks and fintechs faced in 2024 and what trends may emerge in the new year for these firms.

Recap: 2024’s BaaS trials

Here is a top down view of all the challenges partner banks and fintechs faced last year.

The regulators and BaaS programs: One major difficulty BaaS partners faced was dealing with enforcement actions, reconciliation issues born out of underbaked BaaS programs, and a desire by fintechs to build redundancy in their bank partnerships.

“What came from this period in early 2024 were inquiries and clarification questions from fintechs trying to cut through the noise. Overall this permitted the education of the industry and alignment on what ‘direct’ can mean in BaaS,” McCollom added.

Compliance became top of mind and ultimately led to a reinvigoration of compliance technology providers and a deeper look at how these tools could be used to strengthen existing BaaS partnerships in the face of regulatory scrutiny.

On the other hand, fintechs that foresaw trouble decided they needed a change of partners and sought to migrate their programs leading to a few partner banks seeing more traffic. And while this narrowed the number of partner banks operating in the BaaS landscape, those that continued built much stronger foundations in compliance.

Balancing act: Given the regulatory focus on the industry, firms had to carefully manage building better compliance capabilities while looking after the bottom line. “The balancing act of investing in the necessary infrastructure, controls, and capabilities while maintaining a profitability model added further complexity to the equation,” said Richard Rosenthal, Principal at Deloitte.

The solution to evolving BaaS programs to be resilient to regulatory headwinds for many was putting in place the right infrastructure. There is a class of partner banks and fintechs emerging now that focus on implementing the right controls and processes, added Rosenthal.

Expectations and trends for 2025

Regulators aren’t done yet: Industry experts like McCollom expect a continuation of enforcement actions in the new year, as well as changes in regulations and policies, like the proposed brokered deposit rules as well as any changes by the new administration.

For partner banks, this means that their work on compliance is not done yet and that these firms need to “button up their respective fintech programs where deficiencies may reside,” said McCollom. The best approach here is to develop a strategy specific to BaaS and “align on what specific types of activities or fintech programs [banks] will support,” she added.

This means that the number and types of fintechs partner banks are interested in working with has decreased and may continue to fall, leading to fintechs having to be more competitive from the outset. Here, partner banks can help interested fintechs by clarifying whether they will enter into a BaaS relationship with a given fintech as soon as possible. “Giving a fintech a quick ‘no’ is more helpful than a long drawn-out ‘maybe,’” she added.

Building a strong tech foundation: BaaS players are now contending with changing regulatory requirements as well as growing customer expectations in a digital-first environment. In 2025, a significant challenge for partner banks will likely be ensuring that the right technological infrastructure is in place to support program growth as well as rigorous compliance demands. “Partner bank legacy systems may often require significant upgrades to support modern technology and partnership needs,” said Rosenthal.

This emphasis on using technology to bolster compliance processes may make fintechs that are built on newer and more robust technological infrastructure more attractive partners. “Banking regulators will hold the partner bank ultimately accountable for the risks triggered by their role and functions in the BaaS model, as a bank owns what it books,” he added.

Fintechs niche down: With fewer partner bank options out there and an increase in selectiveness, fintechs will need to find ways to differentiate themselves from their competition. The key here may be focusing on targeting niche customer segments. Products that bring in a new segment of customers like underserved populations into the system may be more effective in gaining a ‘yes’ from partner banks, according to Srinivasan Seshadri, Chief Growth Officer and Global Head of Financial Services at HCLTech.

Have the right customers: While partner banks focus on onboarding the right fintechs, fintechs on their part will have to focus on acquiring the right customers. To do so, fintechs will have to translate their partner bank’s expectations into their own context. “This means going beyond checking a box on a bank due diligence checklist when you are first onboarded by a partner bank, and developing a core risk and compliance program that addresses the risks faced by the products offered,” said Rosenthal.

Softening attitudes on Capitol Hill: Trump’s new administration may create a friendlier environment for BaaS players in 2025, shifting policies towards a more “commercial focus” according to Deloitte’s Rosenthal. “This may include the finalization of a pending FDIC proposed regulation on custodial recordkeeping,” he added, speaking to FDIC’s proposed rule first set out in October in 2024, which helps ensure that customers don’t lose money in case of reconciliation issues among BaaS partners.

Finalization of such a rule may bolster consumer trust and engagement with BaaS products as well as better prepare the industry for addressing the sticky issue of who really owns the customer.

Sidebar: The BaaS partnership manual

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The Quarterly Review: How Zelle’s GM Denise Leonhard plans on leading the firm to $1 trillion a year and beyond


Notes from the desk: Welcome to this month’s Quarterly Review, a series where I dive into what executives from some of the best brands in financial services are focusing on in this quarter, as well as how they are planning to achieve their goals. It’s a chance for the industry to learn about what goes on behind an FI’s four walls and how leadership manages their priorities. 

But that’s not all: a review implies no mandates, a check in. So stay tuned next quarter to learn whether the executive achieves her plans and translates theory into reality.


In this edition, we focus on Denise Leonhard, GM of Zelle.

Half a trillion dollars were transferred over the Zelle network in the first half of 2024, according to Zelle’s report in October. This came with a 27% increase in transaction volume YOY for the firm, showing how quickly the Zelle network is expanding. 

At the start of 2025, Denise Leonhard, Zelle’s GM, joins the The Quarterly Review roster to report that the firm is doubling down on this growth and plans to surpass that golden $1 trillion mark very soon. Her strategy spearheading this effort to go beyond the growth benchmark is a mix of focusing on fundamentals like consumer experience and security, as well as a strategic move to let the growing adoption numbers “do the talking” and attract more banks into joining the network. 

The focus: Growing the network while providing an optimized payments experience to meet the financial needs of Americans

Leonhard: Our goal is to continue that trajectory and surpass $1 trillion in transaction volume by the next edition of The Quarterly Review. We aim to be the largest and most secure platform for Americans to send money to people they know and love, and small businesses they trust.  

1. Expanding the number of banks on the Zelle network: One specific angle of growth we are prioritizing in 2025 is increasing the number of banks on the Zelle network. We connect more than 2,200 banks and credit unions, and we are engaging with financial institutions every day to grow that number. Americans rely on Zelle, and any person with a bank account should be able to have access to safe and fast peer-to-peer (P2P) payments through their bank.  

We’re proud that we have banks of all sizes on our network. In fact, 95% of the financial institutions on our network are community banks and credit unions, including nearly 50% of Minority Depository Institution (MDI) banks. Without Zelle, these smaller institutions may not be able to offer P2P payments and would struggle to compete in the marketplace. Their customers, who depend on those local banking relationships, are already underserved by the broader financial system and would be left further behind by the shift towards digital payments. 

2. Meeting financial needs: A recent Bank of America Institute study found that 26% of all American households are living paycheck to paycheck. With Zelle, money is directly received in the bank accounts of consumers who are least able to wait for transfers to process, making it easier for them to pay or get paid, and to access their money almost immediately. That immediacy of funds is critical for millions of people across the country

This is also true of the small businesses who use Zelle to pay people or receive payments for services performed. Payment via Zelle powers local economies by providing businesses that rely on our service with access to instant liquidity that not only puts food on the table for their families, but enables them to pay for their expenses, and be better prepared to grow and thrive.  

Plan of action

For the millions of consumers who rely on our service, the best thing that Zelle can be is available.

1. Ensuring we are up and running: Reliability is the most important promise to deliver on for a technology like ours. Our users expect to be up and running whenever someone needs to pay a landscaper or cover their share of dinner. That means every step we take to expand requires even more investment in our foundations. Our engineers work nonstop to ensure that we have a strong and resilient platform.

We need to deliver a strong and reliable network that can continue to grow and innovate.

2. Leverage network effects: To achieve growth, we need to continue to optimize the experience for our users. The more that people are using Zelle to pay the people they know and trust, the more their relationship with their bank is reinforced, and other banks and credit unions want to join the network and offer the same great service to their consumers.

The question becomes: How do we improve the user experience? The answer: By meeting consumers where they are.

3. Prioritizing consumers’ user experience: Our design teams do extensive research, asking Zelle users about how they use the product, what is working, and what could be better. Then, they work closely with our product teams and bank partners to act on those insights. We are constantly thinking about new ways to deploy Zelle overall or help small businesses save time by using Zelle instead of cash or checks.

4. Centering safety of consumer funds: Finally, if you want to provide the best P2P payments experience you need to work to be the safest. Last year, the FTC received 2.6 million fraud reports with only 5% of those scams occurring through P2P networks. The constant threat to consumers is a serious issue, as we all face an unrelenting stream of fraudulent texts, calls, social media posts, and more- all from criminals trying to swindle them out of money.

Fighting fraud and scams is not a new initiative for Zelle. It is part of our DNA and something that we do every day. We are working on new technologies to help participating financial institutions identify potentially suspicious payments and to help consumers remain vigilant to the threat of bad actors.

In 2023, we processed 99.95% of transactions without a report of scam or fraud, but we know the work to stay ahead of criminals is never done. There have been criminals for as long as there has been currency, and unfortunately, that will likely continue.

Since the network’s inception in 2017, Zelle has maintained a steady and positive trajectory. We will continue that momentum in the year ahead by strengthening our foundation, refining our service, and providing even more consumers with a safe, reliable, and easy way to pay people they know and trust.


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Looking back and moving forward: How fintechs will beat back the dark clouds of 2024, capitalize on trends like AI, and build resilient firms in 2025

From ‘BaaS is dead’ to discussing how Gen AI and Open Banking could significantly change how fintechs connect to banks, serve customers, and help push the industry forward, 2024 has been a really happening year for fintechs. 

In this new year we look at how fintechs fared in 2024 and explore what shifts we can expect from these companies in this new year. 

Victoria Zuo, Principal at QED investors, says after a few years of headwinds she expects 2025 to be a year of recovery. 

The turnaround for fintechs was most evident in the uptick in public markets. It restored confidence in fintech companies following successful IPOs, according to Zuo. On the other hand, the private market continued to cherry-pick fintechs that exhibited they had what it takes to reach profitability, she added. 

Most importantly, in this year of many changes, fintechs had to find a way to pivot away from ‘growth at all costs’ and towards efficient scaling and operational discipline. 

“The year showcased the resilience of the sector as it adapted to macroeconomic challenges and recalibrated for long-term success,” Zuo added. 

Looking back: The trials of 2024 

Last year came with challenges that destabilized assumptions about what it takes to build fintechs, run them, drive them to success:

a) The interest rates paradox: At the start of 2024, interest rates remained high and the uncertainty surrounding cuts continued to challenge fintech leaders to think on their feet about how their firms will make money. “Rising rates squeezed margins for lending-focused fintechs, forcing them to diversify revenue streams and focus on underwriting excellence,” said Zuo. 

Source: SVB

Research by SVB backs this up, showing that fintechs have had to focus on acquiring high quality borrowers instead of extending credit to borrowers that may carry revolving balances. But as a result of this strategy, fintechs have had to reap their profits from interchange fees.

Elusive funding: Fintech leaders had a hard time chasing VC dollars in 2024, pushing them to focus on their business models. “Access to venture capital remained limited, prompting startups to extend their runways through cost optimization and prioritizing monetization over growth,” she said.

Source: SVB

The looming regulator: In 2024, regulators started to contract the freedom the industry had available to innovate and pushed its leaders towards building more safeguards and guardrails. This was most evident in how fintech-bank partnerships became strained due to a towering amount of consent orders for bank partners. “The regulatory landscape, especially in areas like BNPL and crypto, grew more stringent, pushing fintechs to invest in compliance and risk management,” Zuo added. 

Capitol Hill in flux: 2024 was an election year and the fintech industry was no stranger to this. FIntech leaders were caught in between red and blue, as questions about the Biden administration taking a more pro-regulation stance through government bodies like the CFPB clashed with ideas how a Trump administration could shift this focus. 

“A new administration could bring a more business-friendly approach, particularly in areas like crypto, financial inclusion, and open banking,” said Zuo. 

The regulatory push didn’t just impact how fintechs chose partners and structured products but also impacted their bottom lines. 

“Compliance costs have risen due to rising regulatory pressure, especially regarding BaaS partnerships. Fintechs are now responsible for more compliance requirements, leading to higher operational costs and a greater focus on regulatory diligence,” said SVB’s Head of National Fintech and Specialty Finance, Nick Christian.

But Zuo feels that moving ahead, this focus on building a strong compliance-forward foundation could be beneficial for the sector, saying that the stricter regulatory environment served as a “forcing function for fintechs to strengthen compliance” and will help in building consumer trust and robustness in the system in the long term. 

The making of a hero: The fintechs that rose up from these challenges were focused on improving cash flows, lengthening their runways, and had an eye on customer pain points, as well as regulation shifts. “Companies that proactively engaged with regulators and invested in compliance infrastructure navigated regulatory changes more effectively,” said Zuo. 

Moving forward: 2025 and fintech, the comeback kid

1. Global tensions will motivate local innovation: Given the geopolitical tensions of last year, fintechs that helped people connect and run businesses across geographies fared well, like those focused on cross border transactions. These tensions birthed a demand for tools that helped with things like risk management, and the expectation is that the impetus for 2025 will be AI – helping with automation in supply chain tasks and also powering productivity gains across the industry. 

2. B2C is still cool: While VC interest in B2C fintechs has generally cooled, Zuo believes that fintechs have made enough of a case in capturing the interest of and serving niche consumer segments that their momentum will likely continue. “Neobanking products tailored to niche demographics – such as gig workers, SMB owners, and specific cultural groups – will stand out by offering hyper-personalized experiences,” she said. 

3. VC dollars will quit playing hard to get (maybe):  The change in administration may have an impact on how strict the regulatory environment is for fintechs in the coming year making this year a “turning point” for the industry.  “Next year may bring a thaw, driven by pent-up demand and the possibility of more favorable regulatory and monetary policies,” she said. 

But the VC dollars are still likely to give precedent to those that can hit the golden trio: strong strategy for achieving profitability, capital efficiency, and clear differentiation in market positioning. 

4. The new kid on the block – Chief Compliance Officer:  To stay ahead of the regulators many fintechs have already started to build compliance programs that can stand comparisons with those by traditional FIs. One role that has emerged from this shift is the Chief Compliance Officer. “Many of these companies have appointed Chief Compliance Officers earlier in their lifecycle to handle the increasing complexity of compliance,” said SVB’s Christian.

As execs in these roles gain more experience, we may start to see a shift in how fintechs partner and position in the market.

5. Do you have what it takes? Asks the bank: The BaaS honeymoon period is decidedly over and bank partners are becoming more discerning in their partnership behavior. Recently, we heard from Newline by Fifth Third’s Director of Revenue Strategy, Dan Dall’Asta about how the bank prioritizes partnering for the long term.

“As clients are coming to us now, the first thing I tell them is, if you want to get to market fast, go elsewhere. We’re looking to build 10 to 20 year partnerships, and that has to be driven by oversight,” said Dall’Asta. 

This cherry-picking combined with the precedent set by 2024’s regulatory heat may motivate some bank partners to pull away from BaaS partnerships. “We may see fewer partner banks as fintech companies become more discerning, opting to collaborate with institutions with more robust compliance programs,” said Christian. 

Sidebar: ‘Tis the year for Gen AI and Open Banking?

Two technologies have dominated the conversations in this industry for the last year: Open Banking and AI. Open Banking, because the 1033 rulemaking started a discussion on who owns the customers and their data, and AI, because, well, Gen AI

Here is what you can expect from Gen AI in 2025: 

i) Change management initiatives: Along with initiatives to augment employees’  workflows with Gen AI, firms will also have to ensure that their workforce has a clear understanding of the tech they are interacting with and that they can do so safely. This change in process and the newness of the tech may spur the launch of data literacy and change management campaigns.

ii) Better investment in infrastructure: For FIs to fully lean into Gen AI, they will have to invest into doing away with legacy technology. 

Here is what is in store for Open Banking in 2025: 

Slim pickings: “With the final passage of the 1033 rule and revised timelines, industry participants now know they need to prioritize this broad implementation and there may well be excessive demand on the few vendors who are active in Open Banking,” said Ulrike Guigui, Managing Director at Deloitte

Operational efficiency: Banks might be able to utilize the increased availability of data to improve anti-fraud measures. There will be opportunities for banks to leverage data to improve fraud and related back-office activities.

How FIs can partner with parents to build better financial literacy programs

Social media fueled misinformation and evolving consumer expectations are driving financial brands to focus on financial literacy of younger consumers.

When financial firms decide to build an impactful financial literacy strategy, its better for everyone involved. But doing this isn’t as easy as it looks. For consumer education to be effective, FIs need to identify how to engage younger audiences and what areas to focus on the most.

So far, many different financial literacy strategies have been employed: podcasts, coloring books, games, college campus-focused campaigns, and social media-based influencer marketing.

Bringing parents into the picture

How to engage: However, one resource that financial brands may need to leverage more are parents. An American parent offers an average of 114 unique pieces of financial advice to their children in a year, according to data.

What needs to be addressed and why: And while parents are fairly confident in guiding their children about matters like budgeting, savings, credit cards, and debt, only 4% of parents feel equipped to guide their children about international finance like moving money across borders, according to the research.

Parents’ lack of confidence in their ability to teach children about international finance may impact how younger consumers access global opportunities in the future and their ease with functioning or operating businesses that surpass geographies. “This disconnect is particularly significant because we see younger generations growing up in an inherently more global world. Whether studying abroad, working remotely for international companies, or maintaining relationships across borders, their financial needs will likely be more globally oriented than their parents,” said Ankita D’Mello, Principal Product Manager (North America), at Wise.

Why international finance is hard to explain

International finance may be tricky for parents to get into because it requires a significant amount of scaffolding in a child’s understanding of the financial world. For example, when explaining an international money transfer between bank accounts, parents have to now explain multiple related concepts, says D’Mello, including:

  • Exchange rate margins and why the amount received might differ from what was sent
  • Why processing times can vary between countries
  • How different countries have different banking systems and requirements
  • The role of intermediate banks and why they matter

It’s these concepts that financial brands need to target when thinking of how to empower parents to teach their children about international finance more effectively.

How to empower parents

Financial brands can play two distinct roles here: one as the accessible tool and the other as the facilitator. These are some strategies FIs could adopt to help parents be more confident in their abilities to educate their children about finances:

1. Be a part of the solution: For example, one way Wise makes cross border transactions easier is by describing their fee structure upfront. This helps parents if they choose to demonstrate how a transaction works in practice and also helps alleviate parents’ personal anxieties about the process and any associated confusion.

But the firm is also increasingly focusing on the educational aspect of its tools and digital presence by doubling down on providing related support in its app to make sure consumers can do their transactions and learn in the same place. “A particularly telling statistic from our research is that 48% of parents find it challenging to identify trustworthy financial information online. This insight has strengthened our commitment to transparency in financial services and accuracy in our blog’s communication and educational content for the general public. We use this channel as a way to break down complex topics into digestible information for our customers and general consumers,” said D’Mello.

2. Design for two: Another strategy that D’Mello recommends firms should consider is taking a “dual audience approach” when developing products and communication strategies. This insight comes from data which shows that 40% of parents are worried about how relevant their financial advice will be as their children mature and that 70% of parents are willing to improve their own knowledge by trying out new tools and resources.

Some specific strategies that could enhance this type of product development are:

  • Developing tools that facilitate in-app collaborative learning between parents and children.
  • Creating content that helps parents explain complex financial concepts.
  • Ensuring transparency in how products work, as this helps parents more accurately explain concepts.
  • Providing resources that grow with families as financial needs become more sophisticated.

3. Build parent’s confidence and encourage conversations: For FIs that don’t have an extensive financial literacy strategy for younger consumers, one relatively easy place to start is focusing on providing talking points on what parents need to address when it comes to difficult topics like international finance.

“Having a standalone web page that’s dedicated to helping parents talk to teens about money would be greatly appreciated by parents and caretakers. Having information categorized for specific age ranges would also be helpful,” said Annie Cole, financial coach, book author, and founder of Money Essentials for Women.

Moreover, financial brands can also leverage different types of content like podcasts to engage both parents and children about money-related topics. Although not focused on international finance, one great example of this is the Million Bazillion podcast, sponsored by Greenlight, which tackles kids’ financial queries in a story-telling format while also including discussion questions and tips for parents on a supplementary website.

The bond of trust between parent and child can be an important driver of financial literacy, but it’s underused by FIs who primarily focus on casting the parent in the supervisor’s role. This is a missed opportunity. Especially because financial firms already occupy a position of trust in communities, combining it with a parent’s role in the home can create a powerful complement. This will h

elp FIs create more informed consumers for the future, and also invest in themselves becoming a trusted household name and brand.

Sidebar: The power of the dad-esque influencer

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