Open the website for Stride Bank and you’re greeted by an image of a high-tech combine harvester cutting wheat grown on a large, picturesque farm.
Yet Enid, Oklahoma-based Stride, which opened its doors in 1913, is more than an agricultural lender. It is also a driving force behind a number of high-profile FinTech partnerships.
In 2019 Stride famously signed a partnership with ride-sharing-service Lyft. The relationship is a shining example of how the new BaaS, or banking as a service, relationships can work. To learn more about the basics of BaaS, check out our whitepaper.
Through this BaaS relationship, Lyft drivers have access to debit cards and can receive money they’ve earned after each ride by linking their Lyft driver’s accounts to their Lyft Direct accounts (through a Lyft Direct app). As a company that operates the modern equivalent of a taxi fleet, Lyft had neither the banking charter nor the compliance expertise to offer debit cards on its own.
The Lyft Direct debit card offers instant payouts and cashback rewards at select gas stations and restaurants. The card is provided by Mastercard, which notes that around one-third of the U.S. workforce earns at least part of their income through the gig economy.
In this arrangement, Payfare, a Toronto-based company listed on Canada’s TSX, is the FinTech partner linking Stride Bank to Lyft.
Understanding BaaS
The successful Lyft/Stride partnership illustrates some important aspects of
banking fintechs:
Lesson One: BaaS offers smaller and mid-sized financial institutions access to cutting-edge tech offerings.
“BaaS helps banks implement compelling digital initiatives” is one of the main takeaways from Forrester’s The 2023 Nimble Bank Playbook. In Forrester’s survey of banks and credit unions with under $10 billion in assets, 67 percent of respondents’ organizations are using BaaS providers to embed their services in other companies’ product offerings.”
Lesson Two: Compliance must be top of mind - always.
“We only want to work with FinTechs that understand that we operate in a regulatory environment, that we’re regulated by (the Office of the Comptroller of the Currency), and we take that responsibility very seriously,” Stride’s Marketing Director Lindsey Ogan told the Oklahoma Journal Record in a March 30, 2023, article. “And we don’t want to be fighting our FinTech partners on that.”
Lesson Three: Community banks of all sizes participate in BaaS.
Stride is hardly a community-banking giant with $1.17 billion in assets. Ditto for Iowa-based Lincoln Savings Bank, which has around $1 billion in assets. Lincoln has partnered with Acorns, a popular micro-investing app that lets consumers get their feet wet in the stock market.
Most banks with BaaS relationships have total assets under $10 billion, according to the Office of the Comptroller of the Currency, or OCC. And in fact, a smaller size might even serve as an advantage. According to Forrester’s report, 86 percent of banks and credit unions believe “that the smaller size of their organizations allows for more agility in the face of digital transformation.”
Lesson Four: One FinTech partnership often leads to others.
Lyft/Payfare is hardly the only BaaS relationship that Stride has. Through Payfare, Stride also is the banking powerhouse behind the DoorDash debit card, which was designed for individuals delivering meals through the popular app.
In addition, Stride is working with Chime Financial, a FinTech that boasts fewer fees by offering basic banking services via a mobile app.
Lesson Five: The BaaS space is still relatively underpopulated.
In a 2021 survey, Cornerstone Advisors found that 11 percent of banks have a BaaS strategy, while eight percent are in the process of developing one. For another 20 percent, a BaaS strategy is currently being considered.
Want to rake a deeper dive in FinTech and BaaS? Check out our hands-on workshop to help you guide your program.
