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Fintech's banking-as-a-service sector struggles

Jun 15, 2023
Illustration of a nervous piggy bank with a sweat drop on its face.

Illustration: Lindsey Bailey/Axios

Banking-as-a-service startups are slimming down or seeking suitors, just a few years after the sector saw a glut in fundraising.

Why it matters: Startups building turnkey banking infrastructure to help other fintechs launch and scale up are finding new venture funding harder to come by.

Driving the news: Early BaaS pioneer Synapse announced Wednesday that it was laying off 18% of its workforce, citing current macroeconomic conditions that “have begun to impact our clients and platforms.”

  • Last week, publicly traded fintech giant Fidelity National Information Services (NYSE: FIS) confirmed it had acquired BaaS startup Bond.
  • That follows Fifth Third Bancorp’s (NASDAQ: FITB) acquisition of embedded payments platform Rize Money last month.
  • U.K.-based embedded finance player Railsr (formerly Railsbank) entered into bankruptcy protection and was recapitalized after failing to secure a buyer.

Of note: This isn’t the first time Synapse has had significant layoffs; in June 2020, it reduced headcount by 63 employees, or about 50% of its staff.

Flashback: It wasn’t long ago that banking-as-a-service was an ultra-hot sector in the fintech ecosystem.

  • Synapse raised $32.6 million in Series B venture funding in a deal led by Andreessen Horowitz in 2019.
  • In July 2020, Bond raised $32 million in Series A funding led by Coatue, with backing from Mastercard, Canaan and Goldman Sachs.
  • Rize raised $11.4 million in Series A funding led by Alpha Edison and Morpheus Ventures in September 2021.
  • And Railsr raised a total of $185 million in funding over multiple rounds prior to bankruptcy, according to Pitchbook.

Yes, but: It’s not all doom and gloom for the BaaS ecosystem. Just this spring, Treasury Prime raised $40 million in Series C funding, and Synctera raised $15 million in strategic funding.

💭 Our thought bubble: The BaaS players that seem to be winning — or at least those that have continued to raise funding — are the ones that operate as marketplaces and have relationships with multiple potential banking partners.

  • Treasury Prime, for instance, says it works with 16 banks, while Synctera has 10 bank partners.
  • Meanwhile, the startups that have struggled seemingly are the BaaS providers who tout turnkey banking infrastructure but work with a limited number of partner banks.
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