BaaS is Back: What Does Strong Sponsor Banking Look Like in 2026?
By Matt Doffing, Senior Editor at The Financial Brand
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It’s no secret: Banking-as-a-service has had its ups and downs. In fact, “BaaS” is less used now due to a series of regulatory challenges faced by certain institutions. Still, the push to reach wider audiences through technology and partnerships is very much alive and well.
Need to Know:
- The total number of U.S. sponsor banks is up nearly 10% year over year.
- Community banks can play in embedded finance if they approach partners as they do commercial loans, and if they avoid building technology before they know what the right partner will need.
- The best partner candidates are those who will tell why a banking partnership might not work.
The number of institutions participating in what’s now more commonly called “embedded finance” is still growing, according to data from FedFis. The total number of U.S. sponsor banks stood at 156 as of the third quarter of 2025 – up from 142 year over year and even up quarter over quarter from 152.
It’s clear why. Embedded finance offers opportunities for growth in lending, fee income, and deposits. Institutions today have to define how to achieve that growth amid greater oversight of programs in terms of safety, soundness, and compliance.
Here’s how Academy Bank, a $4 billion institution based in Kansas City, Mo., achieved compliant growth, tripling its partners’ user base in just a year.
1. Set Guardrails
One of the main challenges when community institutions partner with fintechs is a mismatch in how they scale to reach their objectives.
Fintechs often raise capital, sometimes in large amounts, and their investors want the kind of user growth that drives high valuations for technology companies. Banks want growth as well, but safe, sound, and compliant growth comes with a higher bar for vetting users. That high bar can allow scale, but not the degree of scale that tech investors desire when they fund a fintech to capture Silicon Valley multiples.
That kind of scaling may also not align with the institution’s mission-aligned goals for its embedded finance division.
For Academy Bank, the objective was not to let embedded finance be the tail that wags the dog. “We’re a community bank through and through,” says David Robinson, director of embedded banking at Academy Bank. “We want banking as a service to be meaningful, but we do not want to leave behind our role in the community.”
Bottom line: Mission becomes a guardrail that mandates key strategic questions: Do we want to remain primarily a community financial institution? How do we define that? And which partnerships align with our answers to those questions?
2. Define Sound Growth
One of the earliest decisions Academy Bank made was to formalize governance before scaling partnerships.
Robinson chairs a cross-functional fintech committee that includes representatives from technology, risk, compliance, operations, and commercial teams. That committee established a formal bank policy governing the embedded banking business, including explicit concentration limits.
Under that policy, sponsor banking is “not likely to ever surpass 20% in total deposits” or “more than 35% of revenue.”
Those caps serve two purposes. First, they prevent over-reliance on a single growth channel. Second, they force discipline in partner selection.
With these guidelines in place, Academy Bank wastes far less time and effort in searching for partners. It also avoided investment in technology before it knew what a partner would need.
“We did not hurry up and build a spec home and then figure out how to fill it up,” Robinson says. “We’re crawling first, then we’ll walk and run.”
Incremental investment is often wise when an institution pioneers a new division. But it also requires a well-oiled process that selects likely-to-succeed partners when the bank does move forward with a company. Why? Because initial conversations are frequent, partnerships are rare.
Bottom line: Academy Bank maintains a defined target partner profile that considers leadership experience, recurring revenue, financial maturity, and compliance readiness. “We are super selective,” Robinson says. “We know we can have a successful fintech practice, but we can’t sign up everybody.”
That selectivity became sharper as the industry environment changed in late 2023 and early 2024 as regulatory actions reshaped the sponsor banking landscape. Onboarding a startup also requires nearly the same internal effort as onboarding a more mature fintech.
“If the work effort is the same,” he says, “we might as well focus on a business that we truly believe in.”
Key Question: Which Partners Can a Bank Believe In?
Academy’s first fintech partnership with Atlas Financial in 2024 had all the right metrics. Credit cards are among the most common financial products in the United States, yet a large portion of the population struggles to access them. Of the approximately 150 million people who apply for credit cards each year, about 60% (roughly 90 million people) are declined, according to the bank’s website.
Atlas addressed this lending opportunity by approving borrowers with limited or poor credit histories for small, initial credit lines. The line increases up to $500 in unsecured credit over time based on usage and behavior. The product also allows users to deposit funds into a secured deposit account to access a higher, partially secured limit.
After partnering with Academy Bank, Atlas nearly tripled its subscriber base in the year leading up to May 2025, enabling it to serve rising consumer demand and bring new users into the product effectively at scale.
These are compelling results in hindsight, but how did Academy Bank know they could believe in Atlas at the outset?
Atlas establishes creditworthiness using a subscription-based model. That structure immediately raised a compliance question: How does a product marketed as “0% interest” square with a monthly subscription fee? It’s this type of issue that regulators are quick to scrutinize, and that can derail embedded programs.
Academy’s leadership addressed it directly in early conversations. The response from Atlas CEO Zain Salim stood out. “He didn’t have a great answer,” Robinson recalled. “He had a truthful answer.”
Salim acknowledged the issue, explained how the company was thinking about value delivery, and showed a willingness to engage transparently around regulatory risk. For Academy Bank, that mattered more than a polished explanation; it sought partners who would transparently address challenges honestly and early.
Seek Out Partners, Not Vendors
One of the other clear lines Academy draws concerns fintech revenue models.
Robinson is blunt: fintechs whose only source of revenue is scraping yield from deposits or relying solely on interchange are difficult partners. The reason is structural. Yield-based models are rate-dependent, and when rates fall, the economics collapse.
“If and when rates go down,” Robinson says, “there’s no yield to be scraped. What’s the likelihood of that fintech business enduring?”
Academy also resists competing on price for deposits. Paying up for deposits may produce short-term growth, but it rarely produces durable partnerships. “As our COO likes to say, if you lead on price, you’re going to lose on price,” Robinson observes.
Bottom line: Sustainable sponsor banking requires fintechs to create real value for customers willing to pay for it, rather than shifting all the economics onto the bank.
How to Navigate Turbulent Times in BaaS
Despite the pullback by some institutions, Academy has not retreated from sponsor banking. If anything, recent industry disruptions have reinforced its approach.
The lesson, Robinson says, is not to stop engaging, but to engage with more discipline: incremental growth, engaged leadership, strong governance, and partners whose economics and culture can withstand scrutiny.
What is Academy Bank looking for now?
Robinson says potential partners should be prepared to explain their model clearly, especially in the details that concern safety and soundness. Candid conversation and feedback have proven fruitful ground for safe, sound, and compliant growth.
