FinTech Fees Let Sponsor Banks Look Beyond Deposit Growth

§ 01 Executive Snapshot

• What: First Internet Bancorp reports a 172% increase in banking-as-a-service fee revenue.
• Who: First Internet Bancorp and The Bancorp.
• Why it matters: Indicates a shift in sponsor banking where deposits may become a managed resource rather than a balance-sheet asset.

§ 02 Key Developments

• First Internet Bancorp's banking-as-a-service fee revenue increased 172% year-over-year.
• Approximately $2.4 billion of FinTech deposits were moved off First Internet's balance sheet through a deposit network.
• FinTech fee income represented nearly 30% of total revenue for The Bancorp, with average FinTech loans rising to 18% of average loans.

§ 03 Strategic Context

• The traditional model of banking-as-a-service required banks to own deposits to benefit from FinTech relationships.
• Recent earnings suggest a transition to a model where deposits can be managed independently, allowing banks to focus on higher-margin FinTech activities.

§ 04 Strategic Implications

• Immediate implications include a potential increase in profitability for sponsor banks as they diversify their revenue streams beyond deposit growth.
• Long-term implications suggest a transformation in how banks manage their balance sheets and relationships with FinTechs, enhancing scalability for both parties.

§ 05 Risks & Constraints

• Potential risks include regulatory scrutiny over deposit distribution models and the operational complexity of managing distributed deposits.
• Competition from other financial institutions adopting similar deposit management strategies could impact market dynamics.

§ 06 Watchlist / Forward Signals

• Upcoming developments to watch include additional sponsored lending launches expected within six months by The Bancorp.
• Future earnings reports will signal the success or challenges of the new deposit management strategies employed by sponsor banks.