What does the BaaS crackdown mean for the tradeoff between innovation and compliance?

One of the definitions of “technical debt” is the price that must eventually be paid when a company has sacrificed quality in producing computer code fast and expeditiously, only later to have to cope with the results of inferior software workmanship. Alan Carlisle says there’s an equivalent weak point in financial product development that he has dubbed “compliance debt.”

This issue affects banks and fintechs alike. After the boom in new product development over the last decade, some of the compliance debt has been coming due, says Carlisle, one case in point being the various consent orders filed against institutions in the banking as a service business.

Fintechs have experience with both types of debt, says Carlisle, who is now chief compliance officer of Marqeta, and who previously spent about six years as regulatory advisor and enterprise chief compliance officer at SoFi. In that time he helped the former fintech qualify to become a bank, via acquisition. He’s a veteran of nearly every kind of financial company compliance, from bank lending issues to securities matters.

The startups, especially those funded by venture capital, face a looming clock from conception. They tend to seek to produce a “minimum viable product” (MVP) that can be put before the public to build audience and buzz as soon as possible. Often this means taking shortcuts not only on tech but also on compliance, all in the name of rapidity and competitive pressures.

 

continue reading »