Advisory on selecting, negotiating and diversifying sponsor bank relationships: bank sponsorship advisory.
Definition
What Banking-as-a-Service is.
Banking-as-a-Service is the delivery of regulated banking functions, deposit accounts, payments, card issuing and lending, to a non-bank company through an API, under the charter of a licensed bank. The bank holds the charter and the regulatory obligation; the non-bank builds the product, owns the customer relationship, and pays the bank for access to a regulated capability it cannot hold itself.
Embedded finance is the delivery of a financial product inside a non-financial company’s own product, at the moment the customer needs it, so the customer never leaves to go to a bank. A checkout that offers installments, a payroll platform that advances wages, a marketplace that pays sellers into an account it opened for them. B2B embedded finance is the same idea aimed at business customers, and it is the faster-growing half, because vertical software already holds the workflow, the payment obligation and the data underwriting requires.
BaaS Versus Embedded Finance
Banking-as-a-Service versus embedded finance.
The two terms are used interchangeably in the market and they do not mean the same thing. They describe two ends of the same transaction.
Banking-as-a-Service is the supply side. Embedded finance is the demand side. BaaS is what a bank and its technology partners sell. Embedded finance is what a brand or software company buys and puts in front of its customers. One is infrastructure, the other is distribution. A single arrangement is correctly called both, depending on which party you are standing next to: the bank is running a BaaS business, the software company is running an embedded finance product, and there is one set of accounts underneath.
The distinction is not pedantry, because the two sides are valued on opposite characteristics. Infrastructure is valued on the durability of the regulated position and the switching cost of the integration. Distribution is valued on ownership of the customer and the cost of acquiring the next one. Sell infrastructure and your defensibility question is whether a customer could re-platform in a quarter. Sell distribution and it is whether your provider could go direct and cut you out.
BaaS is what the bank sells. Embedded finance is what the brand ships. Same accounts, same rails, same regulator, opposite ends of the value chain. Confusing the two is how founders end up benchmarking themselves against companies that have nothing in common with them.
Who Does This Work
Bruce Goldstein is a Senior Advisor to Windsor Drake on Banking-as-a-Service and embedded finance. A FINRA-registered investment banking professional with more than thirty years in financial services, he was a managing director at Keefe, Bruyette & Woods, an initial member of Sandler O’Neill & Partners, a partner at Milestone Advisors and a founding partner of Middlemarch Partners. His work runs through sponsor-bank relationships and card programs, and he has negotiated bank sponsorship on his own behalf and for clients. His involvement is not limited to a valuation opinion. He works mandates end to end, from positioning and buyer construction through negotiation and close.
Read the full profile: Bruce Goldstein, Senior Advisor.
The Stack
Five layers, and where the margin actually sits.
Banking-as-a-Service architecture is drawn as five roles, and a company may occupy one, three or all five. Read them as functions that have to be performed, not companies that have to exist.
The sponsor bank, which holds the charter
Holds the deposits, is issuer or lender of record, and is the party examiners supervise. Contributes the charter, the settlement position, network membership and the balance sheet. Earns a program fee, a share of interchange and the spread on deposits. The most durable economics in the stack, because they sit behind a licensing barrier.
The middleware or platform layer
The API, the ledger, onboarding and KYC orchestration, compliance tooling, developer experience. Contributes translation: it turns a bank core into something a product team can build against in weeks. Earns platform fees, per-account and per-transaction pricing, sometimes a slice of interchange. The widest margin range in the stack, because it carries real cost and holds no license.
The processor
Authorization and clearing messaging, card production, tokenization, the network connection. Contributes the rails. Earns per-transaction and per-card fees, high volume at thin unit economics. Usually the largest switching cost in the stack, which is why its margin is more durable than its pricing suggests.
The program manager
Product, servicing, disputes, fraud operations, support, compliance execution against the bank’s policies, and the reporting the bank owes its examiners. Contributes operations. Earns a share of program economics and holds most of the losses, because it indemnifies the bank. Margin here is a function of loss performance, not pricing.
The brand or distributor
Owns the customer, the context and the acquisition cost. Contributes demand, the scarcest input in the arrangement. Earns what is left after every layer beneath has taken its share, which sounds like the worst seat and is often the best, because the customer was acquired for a reason unrelated to financial services.
Margin follows scarcity. The charter is scarce and cannot be built. Distribution is scarce and cannot be bought cheaply. Everything between them is software and operations, which can be built, bought or replaced, and is under constant compression. Providers in the middle respond by moving outward, acquiring a charter or going direct to end customers. Both moves change what the company is worth.
Provider Models
Five archetypes of Banking-as-a-Service provider.
This page does not publish a league table. Ranked vendor lists go stale within a year, and the useful question is not which provider is largest but which model fits what you are building. There are five, each with a different commercial structure, a different answer to who carries compliance responsibility, and a different trade-off.
Chartered banks running direct sponsorship
A bank sells sponsorship directly, no platform in between. Model: monthly program fee, a share of interchange, deposit spread, usually a minimum. Compliance sits with the bank by law and is pushed to you by contract, with the bank auditing you directly. Trade-off: the best economics and least intermediation, in exchange for building the ledger, onboarding and compliance tooling yourself and being underwritten as a bank vendor.
Bank plus platform pairings
You contract with a technology platform and, separately or through it, a partner bank. Model: platform fees to one party, program economics shared with the other, interchange split three ways. Compliance is legally the bank’s and operationally split, which is where it goes wrong: two vendors can each assume the other is monitoring something. Trade-off: fastest launch and broadest feature set against a dependency chain you do not control.
Independent middleware platforms
A technology company sitting between many programs and one or more banks, often sold as white label Banking-as-a-Service because the end customer sees only your brand. Model: per-account, per-transaction and platform fees plus a slice of interchange. Compliance is contractual rather than chartered: the platform runs the tooling, but the bank is still the supervised entity and increasingly wants to see you, not just the platform. Trade-off: product velocity and multi-bank optionality against concentration risk.
Full-stack providers that own bank and technology
One group owns the charter and the technology, so there is one contract and one counterparty. Model: bundled pricing, a program fee plus interchange share, deposit economics kept in-house. Compliance responsibility is unambiguous, which is the selling point, and diligence is heavier because you are underwritten by the party carrying the exam risk. Trade-off: the cleanest structure against total dependency, since you cannot change the bank without changing the technology or the reverse.
Card-issuing processors that moved up the stack
Processors that started at the rails and added program management, ledgers, onboarding and bank relationships. Model: transaction-weighted pricing, so cost scales with volume rather than accounts. Compliance is shared, the processor owning network and scheme obligations and the bank the regulatory ones. Trade-off: proven scale and volume pricing against a card-centric worldview. If your product is really about deposits or lending, you are paying for a strength you do not use.
One question separates these models better than any feature comparison: if your provider disappeared in ninety days, what would you still hold?
Regulatory Shift
What changed in bank-fintech partnerships.
Between 2023 and 2025 supervisory attention to bank-fintech partnerships increased and third-party risk management expectations were sharpened. Examiners moved from asking a sponsor bank whether it had a policy to asking whether it could evidence oversight of the end program. The principle never changed: a bank is responsible for activity conducted on its charter. The standard of proof did. Founders meet this as six practical differences.
Onboarding takes longer
What ran in weeks now runs months from first conversation to live accounts, because credit, compliance and the bank’s risk committee each clear the program before contracting starts.
Diligence is deeper
Banks examine the product itself: marketing copy, disclosures, complaint handling, fee design, dispute processes, vendor list, and the resumes of your compliance staff.
Oversight is direct, not delegated
Where a platform once stood between bank and program, banks now want visibility into the end program: direct reporting, direct data access, often a direct contract alongside the platform agreement.
Minimums went up
A higher fixed cost of oversight per program means banks need larger programs to justify one. Pilots that would have found a home a few years ago no longer clear a sponsor’s threshold.
Reconciliation is a gating item
Ledger integrity, daily reconciliation between the program ledger and the bank’s core, and the ability to identify the owner of every dollar are conditions of launch, not roadmap items.
Fewer banks, and they choose
Some institutions narrowed or exited partnership banking. Those that remain are more selective, more expensive and slower, and underwrite conduct risk as carefully as credit risk.
The net effect is a market that is harder to enter and better to be established in. A program that has run cleanly for years under a sponsor that has been through examinations with it holds a position that is now hard to replicate, and scarcity shows up in pricing.
Building on a BaaS stack and wondering what it is worth?
Windsor Drake does not represent acquirers against its own clients. Request a confidential, no-obligation read on where your company would price and which parts of your bank and platform arrangements a buyer would test first.
Economics
Where the revenue comes from, and who keeps it.
A BaaS arrangement generates money in four places. Every negotiation in the sector is an argument about how those four pools are divided.
Interchange
The fee paid on a card transaction, usually the largest pool in a card-led program. It is earned by the issuer of record, which is the bank, and shared down the stack by contract. Rate depends on card type, transaction type and the bank’s own regulatory status: debit interchange is capped for large issuers under US rules, one reason sponsor banks are so often smaller institutions.
Program and platform fees
Monthly minimums, per-account and per-card fees, per-transaction pricing, and charges for KYC checks, disputes and card production. To the provider this is recurring revenue a buyer values well. To the program it is fixed cost that does not fall when volume does.
Float and deposit economics
Customer balances sit at the bank and the bank earns net interest on them. At low rates this pool is an afterthought. At higher rates it can exceed interchange on a deposit-heavy program, which is why deposit sharing became the most contested clause in sponsorship contracts. Whether any of it flows back to you, and whether that flow survives a change of control, is worth knowing precisely.
Credit and lending spread
Where the program extends credit, the pool is net interest and fee income against loss. Who keeps it depends on who holds the asset: the bank if loans stay on its balance sheet, the program if it purchases receivables, a funding partner if the paper is sold. This is where a BaaS business becomes a specialty finance business, and it gets valued accordingly.
Which of these you capture comes down to one question: who owns the customer? That party sets the terms of every renegotiation, because it is the only one whose departure would end the revenue. A brand with three million users can move its program. A platform with a hundred programs can move banks. A bank with one large program cannot easily replace it. Value accrues to whoever is hardest to replace, which is rarely the party doing the most work.
At Exit
Why the structure matters when the company is sold.
A buyer underwrites the arrangement before it underwrites the earnings. Three questions decide the outcome. Does the bank relationship survive a change of control? Do the economics you report actually belong to you, or sit with a party that keeps them after closing? And could a buyer’s own bank take your program if it wanted to move it?
The clauses that govern consent, term, reserves and portability are covered on BIN sponsorship and sponsor banks. Where a program holds credit assets, the framework shifts toward specialty finance. If you are considering a transaction rather than researching the market, that conversation belongs on the embedded finance M&A advisory page.
Banking-as-a-Service FAQ
Frequently asked questions
What is Banking-as-a-Service?
Banking-as-a-Service is the delivery of regulated banking functions, including deposit accounts, payments, card issuing and lending, to a non-bank company through an API, under the charter of a licensed bank. The bank holds the charter and the regulatory obligation. The non-bank builds the product, owns the customer relationship and pays the bank for access to a regulated capability it cannot hold itself.
What is embedded finance?
Embedded finance is the delivery of a financial product inside a non-financial company’s own product, at the moment the customer needs it, so the customer never leaves to go to a bank. Examples include installment credit at checkout, wage advances inside a payroll platform, seller accounts in a marketplace, and cards issued by vertical software to the businesses that use it.
What is the difference between Banking-as-a-Service and embedded finance?
Banking-as-a-Service is the supply side and embedded finance is the demand side of the same arrangement. BaaS is the regulated infrastructure a bank and its technology partners sell; embedded finance is the distribution a brand or software company buys and puts in front of its customers. One arrangement can correctly be called both, depending on which party you are describing. The terms are used interchangeably in the market but they describe different positions in the stack.
Who are the Banking-as-a-Service providers?
They fall into five models rather than a single list: chartered banks selling sponsorship directly, bank and platform pairings, independent middleware platforms, full-stack providers that own both a bank and the technology, and card-issuing processors that added program management on top of the rails. The useful question is which model fits what you are building, not which company is largest.
What does Banking-as-a-Service architecture look like?
Five layers. The sponsor bank holds the charter, the deposits and the regulatory obligation. The middleware or platform layer provides the API, ledger, onboarding and compliance tooling. The processor handles authorization, clearing, card production and the network connection. The program manager runs product, servicing, disputes and fraud operations. The brand or distributor owns the customer. One company may occupy several layers at once.
What is white label Banking-as-a-Service?
White label Banking-as-a-Service means the bank and the technology provider stay invisible: accounts, cards and payments carry the distributing company’s brand, while the charter, the compliance obligation and often the customer funds sit with parties the end customer never sees. It changes who the customer thinks they are dealing with. It does not change who the regulator holds responsible.
How did regulation change bank-fintech partnerships?
Between 2023 and 2025 supervisory attention to bank-fintech partnerships increased and third-party risk management expectations were sharpened, so sponsor banks now have to evidence oversight of the end program rather than simply hold a policy. Founders encounter longer onboarding, deeper product-level diligence, direct bank oversight instead of oversight delegated to a platform, daily reconciliation as a condition of launch, higher program minimums, and a smaller and more selective set of banks.
Where does the money come from in a BaaS arrangement?
Four pools: interchange on card transactions, program and platform fees, float and net interest on customer deposits held at the bank, and credit spread where the program lends. Who captures each pool is decided by who owns the customer, because the party whose departure would end the revenue sets the terms of every renegotiation.
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Related: BIN sponsorship explained, lending and merchant portfolio valuation, who buys fintech companies, fintech valuation multiples.