The $1.79 billion-asset Amesbury-based BankProv is finding opportunity with “banking as a service,” a type of financial service a growing number of lenders are looking to offer the fintech industry.

Three years after BankProv started offering banking and lending products to companies involved with cryptocurrencies, the $1.79 billion-asset Amesbury-based lender is finding opportunity with a type of financial service a growing number of banks are looking to offer. 

BankProv announced at a crypto-related conference in June that it will offer banking as a service to Etana Custody, a Colorado-based trust company that provides custodial services for the investment industry.  

A key for BankProv’s growth in providing services to crypto companies has been its “agnostic approach” to financial technology companies’ needs instead of having one established solution, said Joseph Mancini, BankProv’s chief operating officer. 

“When BaaS first came up years ago, there was a specific set of needs for clients, and particularly fintechs in that space, but I think you’re definitely seeing more advanced expectations from fintech partners in terms of technology,” Mancini said. 

As expectations and competition grows for these services, the banking industry has created opportunities to learn through collaboration. 

 Payments, FDIC Insurance Offered 

Banking as a service – known as BaaS – lets companies integrate their products and services using a chartered financial institution’s systems. 

BankProv – the brand name for The Provident Bank – offers BaaS to different types of technology companies but has been most impactful working with companies involved with digital assets, including cryptocurrencies, said Carie Kelly, BankProv’s senior vice president of virtual banking.

“When fintechs come to us, they have an idea for an optimal customer experience in mind. Then they kick it to us and ask how we can support it.”
— Carrie Kelly, senior vice president, BankProv 

Cryptocurrency-related firms look to BankProv for services such as payments platforms, virtual ledgers and treasury management services, as well as its FDIC insurance, Kelly said. BankProv’s offerings focus on the U.S. dollar side of cryptocurrency, including providing on- and offramps into digital assets.  

As the bank has worked with more companies involved with digital assets, it has had to expand its offerings, Kelly said.  

“Most of the time when the fintechs come to us, they have an idea in mind and they say, ‘Here’s what we have is our ideal optimal customer experience,’” Kelly said. “And then they kind of kick it to us to say, ‘How can you support that in the best way.’” 

Mancini added that some of the products developed to meet one company’s needs, such as debit cards, have become part of its suite of offerings, noting that companies involved with digital assets would have had limited resources just a few years ago. 

 BaaS Provider Market Fluid 

A recent study by the technology and consulting firm Levvel found that fintech firms often encounter challenges with BaaS providers, including issues with integrating into a platform, the ability to scale and responsiveness of the BaaS partner. Some fintechs have considered switching partners, the study found, with more than 60 percent of respondents saying they were at least somewhat likely to switch partners because of the challenges with BaaS. 

Kelly and Mancini, along with some other BankProv employees, got introduced to BaaS at the former Radius Bank, a Boston-based digital bank that was acquired by LendingClub in 2021. While the number of banks involved with digital assets remains small, more banks have gotten involved with other types of BaaS.  

“One shift we’ve seen a lot of in the past couple of years in particular is a lot more banks working together to try to really redefine what banking as a service is, particularly with the regulatory space being so limited in some of these areas,” Mancini said. “I think the banks can get together and really share some of their experiences, and it’s been very collaborative over the last couple of years in particular.” 

BankProv recently joined Alloy Labs Alliance, a consortium of more than 50 community and midsized banks that work together on technology solutions. Alloy Labs has different working groups focused on a variety of issues – like the group that launched the peer-to-peer payments solution Chuck. BankProv is involved with groups that focus on BaaS and digital assets.  

Since BaaS is still fairly new to the industry, Kelly said, being part of the lab provides different departments within the bank access to resources at like-minded institutions. 

Another trade group also recently started an association focused on BaaS. The Bankers Helping Bankers platform, which launched last year to provide community banks with information around bank technology and financial technology companies, founded the BHB Banking-as-a-Service Association to address the unique needs of BaaS sponsor banks. 

Connecticut-based Webster Bank is one of the association’s founding members. The group’s goals include coordinating legislative and regulatory advocacy to encourage the responsible delivery of BaaS, Webster Bank said in a statement in May announcing the group’s founding. 

“Bankers delivering BaaS are leaders in profitability and innovation,” Tanner Mayo, a co-founder of Bankers Helping Bankers, said in the statement. “It is essential that banks getting into this space do so in a safe, sound, and regulatory compliant way. This association is intended to help them embrace the opportunities of BaaS, while proactively identifying and mitigating risks.” 

 Regulators Could Foster Growth

Diane McLaughlin

Compared to several years ago, regulators have a better framework when approaching BaaS, Mancini said, but he described regulations involving BaaS and cryptocurrency as a “work in progress.” He added that President Joe Biden’s executive order on digital assets could help create a framework around cryptocurrencies for financial institutions to work safely and securely in this space. 

BankProv continues to evolve the types of services it provides related to digital assets. With Etana Custody, the bank is working for the first time with a company that provides custodial services for digital assets. Etana will also be the first company that will use the application programming interface – APIs – that BankProv has built. The APIs provide access to BankProv’s services, including its virtual ledger and network for exchanging currency into digital assets. 

“We’re very excited to have them on board directly through our APIs,” Kelly said. “Because we really feel like controlling our own roadmap is a critical piece of being able to expand this offering for our clients.”