The market just confirmed my quietest assumption, which is a nicer feeling than finding a bug in production at 5 PM on a Friday. For the last year, I’ve operated with a healthy dose of paranoia about counterparty risk. The bar for banking partners is getting higher, and the newsletters from Q4 2024 make it clear: that’s good news for builders who did their homework.
The “move fast and break things” era of BaaS is officially over. A flight to quality is underway, and for those of us in the pre-seed trenches, it’s a welcome validation. It means that the slow, painstaking work of partner diligence—the work that doesn’t show up in a pitch deck—is becoming a real, defensible asset.
The Cautionary Tale is Written
We don’t have to look far for the bogeyman. The collapse of Synapse in April 2024 became Exhibit A for the risks of intermediary-led finance, leaving millions of customers in the lurch. It was a brutal, public lesson in the importance of ledgering, compliance, and picking your partners as if your company’s life depends on it (because it does).
As a founder, watching that unfold was like watching a horror movie you know is secretly a documentary. 🍿
Regulators Turn Up the Heat
The market isn’t just reacting to failures; it’s responding to signals from the top. Throughout 2024, the Office of the Comptroller of the Currency (OCC) has been turning up the heat on third-party risk management.
They didn’t need to issue a single, dramatic new rule. Instead, they used existing frameworks and publications, like the 2024 Bank Supervision Operating Plan, to emphasize that banks are responsible for their fintech partners’ actions. The message is clear: you can’t outsource risk.
This regulatory tightening is exactly why starting with a data-first platform like Dentplicity makes sense. We can build trust and gather insights while the BaaS landscape matures, making the future launch of CLIN (my neobank for dentists) much more secure. We’re building the plane while flying it, but we’re starting with a glider, not a 747.
The Smart Money Follows
It’s no surprise that investor behavior is mirroring this shift. The "growth at all costs" checks of 2021 are gone. According to a report from KPMG, 2024 was defined by a disciplined, cautious investment approach. Investors are making larger, more concentrated bets on companies with proven business models and clear paths to profitability.
This is the "flight to quality."
The data shows a renewed interest in several key areas:
- B2B Payments: Clear revenue models.
- Compliance Tech (Regtech): A direct response to the regulatory pressure.
- Embedded Finance: But with a focus on sustainable, compliant partnerships.
For a pre-seed founder, this is liberating. It means I don’t have to compete with hype. I just have to compete on the quality of my thinking and the resilience of my model.
This market shift directly validates the framework I laid out in my earlier post, Building vs. Partnering: Mapping the Decision. The core thesis there was that choosing a partner is a mission-critical decision that requires deep diligence on compliance, stability, and technology. The market is now punishing those who skimped on that homework.
My quiet assumption has been that the long, unglamorous work of vetting partners and building a compliance-first culture would eventually become a competitive moat 🏰. It seems that "eventually" is now.
Data sources: Cross River Bank Q4 2024 Newsletters, OCC.gov, American Banker, KPMG Pulse of Fintech H2'23.