Banking-as-a-Service, usually shortened to BaaS, is the arrangement that lets a company that is not a bank offer bank accounts, debit cards and payments to its customers. A licensed bank holds the money and carries the regulatory duties. The company in front, often a fintech app, owns the customer and the product. Software connects the two, either built by the bank or rented from a middleware provider.

How Banking-as-a-Service works

A typical setup has three layers. At the bottom is a chartered bank, sometimes called the sponsor or partner bank, which holds the deposits, issues the cards under its own name and is responsible to regulators for anti-money laundering checks and consumer protection rules. In the middle is the technology: APIs that let another company open accounts, move money and issue cards on the bank’s licence. At the top is the brand the customer sees, which might be a neobank, a payroll app, an accounting tool or a retailer.

In the US, customer money in these programmes usually sits in pooled accounts held “for the benefit of” the fintech’s customers. The bank sees one large account. The record of how much belongs to each person is kept by the fintech or its middleware provider, and that split is where the trouble at Synapse began.

BaaS is the plumbing behind much of what gets called embedded finance. Embedded finance is the customer-facing result, such as a business account inside accounting software. BaaS is the bank licence and the systems that make it possible.

Fintechbits analysis

Why banks and fintechs use it

Getting a banking licence is slow and expensive, so most fintechs rent one instead. The bank gets deposits it did not have to gather through branches, plus a share of the fees and of the interchange earned when customers spend on their cards. In the US, banks with less than $10 billion in assets are exempt from the Durbin cap on debit interchange, which is why so many sponsor banks are small community banks.

Some companies that grew on rented licences now want their own. TabaPay agreed in September 2026 to buy Transact Bank, a Denver bank with about $6.4 million in assets, mainly for its charter (our report). Banks are also trying to take back the middle layer. FIS launched a platform in September 2026 that lets banks offer accounts and cards inside business software while keeping the accounts on their own books (our report).

What went wrong at Synapse

Synapse Financial Technologies was a middleware provider connecting fintech apps such as Yotta and Juno to partner banks including Evolve Bank & Trust. When Synapse filed for bankruptcy in April 2024, its records no longer matched what the banks held, and thousands of customers were locked out of their money for months. The shortfall was estimated at between $60 million and $95 million. Customers were owed about $265 million, while the banks held about $219 million.

Deposit insurance did not help, because FDIC cover applies when an insured bank fails, and none of the banks had failed. The middleman had. In November 2025 the Consumer Financial Protection Bureau set aside $46.2 million from its Civil Penalty Fund for affected customers, about half of the estimated loss, Bloomberg Law reported. That came two weeks after a court dismissed the Synapse bankruptcy case.

How BaaS is regulated

United States

There is no separate licence for BaaS in the US. Regulators supervise the bank and hold it responsible for its fintech partners. Since 2022 they have issued a string of enforcement orders against sponsor banks. In June 2024 the Federal Reserve ordered Evolve to fix what it called an ineffective risk management framework for its fintech partnerships, along with gaps in its anti-money laundering and consumer compliance programmes.

In September 2024 the FDIC proposed a recordkeeping rule for custodial accounts, which would make banks keep their own daily record of who owns the money in pooled fintech accounts. As of 5 October 2026 no final rule had been published. Some companies are restructuring instead. Green Dot agreed in November 2025 to split its bank from its fintech business, although the bank will stay on as the fintech’s card issuer (our report).

United Kingdom and Europe

In the UK and the EU, many fintechs do not need a partner bank to hold customer money. They hold an electronic money or payment institution licence and safeguard customer funds themselves, usually in segregated accounts at a bank. The FCA’s tighter safeguarding rules took effect on 7 May 2026 and require daily reconciliation, monthly reporting and annual audits. The FCA said customers of payment firms that failed between 2018 and 2023 were left with an average shortfall of 65%.

Full BaaS banks exist in Europe too, and they face the same supervisory pressure. In 2023 Germany’s BaFin required Solaris to get approval before taking on any new business clients, after finding failings in how the bank was organised. Solaris has since been rebuilding its payments systems (our report).

Questions about Banking-as-a-Service

Is money in a fintech app covered by deposit insurance?

Only if it sits at an insured bank and the records show whose it is, and even then the cover only applies if the bank fails. It does not protect against the failure of the fintech or a middleware provider, which is what happened at Synapse.

What is a sponsor bank?

The licensed bank behind a fintech product. It holds the deposits, issues the cards and is answerable to regulators for the programme, even though customers deal with the fintech.

How is BaaS different from open banking?

Open banking lets authorised companies read account data or start payments from a customer’s existing bank account, with the customer’s consent. BaaS lets a company offer its own account, with a bank’s licence underneath.

How is BaaS different from embedded finance?

Embedded finance is what the customer sees: a financial product inside a non-financial service. BaaS is one of the ways it is delivered, using a bank’s licence and systems.

Why do some fintechs buy banks?

Owning a charter removes the dependence on a partner bank’s risk appetite and gives direct access to card networks and payment systems. It also brings capital requirements and direct supervision, which is why most fintechs still rent.