In this episode, Anthony Sharett, President of Pathward, joins Glenbrook’s Bryan Derman to share insights on the evolving partner banking space, the importance of risk and compliance frameworks, and Pathward’s mission of financial inclusion. Tune in as they also discuss potential policy and regulatory changes due to implications of major discrepancies in the banking-as-a-service arrangement between fintech platform Synapse and its banking partners.

Bryan Derman: Hi, everyone. I’m Bryan Derman, a partner at Glenbrook and your host for this episode of Payments on Fire.

Before we get started, I’d like to highlight our newest offering in the education arena. We’ve taken the extensive payments curriculum that we’ve presented in person and virtually for many years and reformatted it into a set of on demand video courses. This new approach allows payment professionals from all around the world to select a self-paced course of instruction that targets the areas of greatest importance to their careers.

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Greetings and best wishes for the new year to all our friends out in Payments Universe. Well, it’s a new year, but that doesn’t mean everything that happened during the momentous year of 2024 is necessarily behind us.

We’ll be living with a lot of the consequences of things that happened last year for some time, whether that’s the rapid growth of real-time payments, the proposed merger of Capital One and Discover, or the insidious growth of fraud that we’ve all been witnessing. Alongside those developments last year came the revelation of major discrepancies in a banking-as-a-service arrangement between fintech platform Synapse and its banking partners, principally Evolve Bank and Trust.

While the analysis is ongoing, current indications are that as much as 95 million in custodial funds may exist on the ledgers held by Synapse, but was not on deposit at its banking partners. Naturally, deposit insurance will only cover those funds that are held on deposit at an insured institution, so the possibility of actual losses to individual depositors looms as a realistic possibility.

That incident became the catalyst for a series of related actions by federal banking regulators in the US. In July, the Federal Reserve, FDIC, and OCC issued an unusual joint statement reiterating the obligations of regulated institutions to supervise the activities of their fintech partners, while also issuing a request for information on the nature of those relationships.

Then in September, the FDIC published a proposed rule to strengthen FI’s recordkeeping for custodial deposit accounts in order to clarify the pass through FDIC coverage that is sometimes afforded to sub account holders in various kinds of partner banking arrangements, where the ledger of individual sub account balances has typically been managed by a fintech provider, while the insured institution simply held a pooled balance in an omnibus account.

The clear intent of that proposal, which is not yet approved, is to force a daily reconciliation process between the pooled account balance and the sum of those sub ledger account balances. In fact, the rule as currently drafted would require the FI to maintain records of the sub account balances in a specific file format described by the rule.

If you take the long view of banking as a service, it really begins in the late 90s with the advent of network branded reloadable prepaid cards, or GPRs, as they were once known. Think of the likes of Green Dot, before it was a bank, Netspend, and other pioneers of BaaS as non-banks acting as issuers with the cooperation of regulated financial institutions who are members of Visa and MasterCard.

The basic architecture of those formative arrangements is still in place, not only for prepaid programs, but for staged wallets like Venmo and CashApp, neobanks like Chime, and a variety of other bank fintech arrangements. In virtually all such cases, the foundation of the program is a regulated financial institution that provides FDIC coverage and sponsorship into the required payment networks.

Well, with everything going on in the partner banking space, it seemed like the ideal time to speak with one of the most established players in sponsor banking. In many respects, the OG among those pioneering financial institutions was MetaBank of Sioux Falls, South Dakota, now known as Pathward NA.

Today, it’s our pleasure to welcome to the podcast, Anthony Sharett, President of Pathward. Anthony, welcome to Payments on Fire.

Anthony Sharett: Bryan, thanks for having me today.

Bryan Derman: It’s our pleasure. So glad to have you. We always like to start these conversations by asking guests how they found their way into the once obscure field of payments. So, Anthony, I know you trained originally as an attorney and practiced law for a time. Where did you catch the payments bug?

Anthony Sharett: Well, it’s interesting. And once again, thanks for having me. And I think the title of the podcast “Payments on Fire” is really appropriate given what we’re seeing in the industry these days. I’ve been in the banking and financial services industry for a little over 20 years and, ironically enough, I actually started out early in my career as a bank regulator, really helping banks and credit unions and lenders figure out how they can both provide the valuable services that are needed in our marketplace today, but also make sure that customers’ dollars and assets and money is protected. And that’s really where I cut my teeth in this industry, Bryan. And then really ended up representing a lot of banks and fintechs, both from a litigation and regulatory perspective.

And I was fortunate enough to be doing this at a time where the landscape was changing. You go back to what was the old savings and loans crisis, that was followed up by the economic downturn, the recession and all the things that we were seeing in the mortgage industry space.

And then fast forward to years later, we have the proliferation of the CFPB and other regulatory entities that are really looking to evolve with the industry. And so after representing a lot of these entities from a legal and risk perspective, migrated in house to a bank and bank leadership roles and ultimately, fortunately found my way here to Pathward almost six years ago.

Bryan Derman: Interesting. Well, welcome over to the dark side here. Good to have you on board. Before we get too deep into the issues of partner banking, where so much is going on, let’s talk for a second about Pathward and how it found its way to the position it occupies in the industry. Maybe give us a quick description of the bank’s main lines of business, how it got to where it is after, as I read, being formed as a community bank in Sioux Falls back in 1954.

Anthony Sharett: That’s right, Bryan. Pathward and its predecessor names, we’ve been around since 1954, certainly rooted in the Midwest and with community bank ties. And that was the strategy of the bank for some time. Fast forward to a little over 20 years ago, I think those that were here at Pathward at that time, which was formerly known as Meta Bank, realized that there was a gap in the market.

And what was that gap? We know that there are millions of Americans that are unbanked, underbanked and underserved. Maybe not a lot of people know that there are millions of Americans that can’t simply walk into a branch of a large established bank and open up a checking or a savings account or maybe get a CD.

There are those that for whatever reason, typically associated with creditworthiness, just aren’t able to do that. So there was a gap in the market. Everyone needs to be able to have access to dollars and to cash to do the fundamental things that we all want to be able to do. That’s take care of ourselves, take care of our family and loved ones, and pay bills and address perhaps medical payments that need to happen.

And so because of that gap in the market, Pathward, and formerly MetaBank, was a pioneer in really bringing forth a product with the general purpose reloadable card, which many people know as a prepaid card, which allows people to be banked. And we are glad that we continue to be today a leader in that space. Now, where we are today, and I’m sure we’ll get into this a bit later, that has, in the payments industry more broadly, has absolutely evolved into what some people call today, embedded finance. But that’s how we got started. We’re very proud of the fact that we believe that we are “both and” company. We both provide the access to dollars to those that need it, and we protect those dollars to make sure that we are operating in a safe and sound manner.

Bryan Derman: That’s fantastic. I’m so glad you brought up financial inclusion because, it’s a topic that Glenbrook works in a lot, but mainly overseas in emerging economies, Africa, Southeast Asia, a little bit in Latin America. But it’s a topic that needs to be talked about in the US. when you compare the whole world.

The US has a significant unbanked population, much higher proportion than you would find in Scandinavia, other parts of northern Europe. Compared to developed economies, we still have an issue in access to banking products, and it’s great to have FIs like yours working on that. In terms of the role that partner banking plays within the institution, do you think of it as a separate line of business, or does it contribute in other ways to the bank’s overall portfolio?

Anthony Sharett: When I first arrived here almost six years ago, Pathward was really operated, in our operating model, it was essentially a holding company with separate and distinct business lines. So that would have been the payments business, which we’ve touched upon a bit, our consumer or credit solutions business where we sponsor with fintech partners the provision of unsecured consumer loans and smaller dollar amounts to those that need it. We had and still continue to have our tax business, which we’re very proud of where we are the sponsor bank for, I think a well known company that people probably heard of, H&R Block, but we also do it for thousands of independent tax preparers across the country.

And then back in 2018 and 2019, we acquired a company that allowed us to deploy these deposits in a way where we are providing loans, business loans, to small and mid-sized businesses. Again, formally, these were all separate and distinct companies that really did not have integration. But we recognized in order for us to really be that one stop shop for our fintech partners and provide what we call today multi-threaded opportunities where we wanted to create a stickiness with both consumers and small and mid-sized businesses, we began down our journey of transformation, Bryan, where we really started to integrate and connect all of these businesses together. And that’s the business model that we have today.

The reason that’s important is really for three reasons. One is it allows us to optimize our business, and that’s pretty important. We have to make sure that we are doing that for our shareholders. Number two, we believe that it’s better for customer service for those that are receiving the products and services and capabilities that we offer through our fintech partners. And third, we believe that it really helps for innovation and co-creation, as opposed to offering products that may be a one off or two off. How can we bring these products together in an integrated way, as a sponsor bank, through our fintech partners, that provide a multitude of services for customers? And it’s really worked out well for us.

Bryan Derman: That’s quite a range of activities, both deposits and loan origination, so both sides of your balance sheet going to work in partnership with the fintechs. I think I first became aware of Meta, as you said, as a sponsor of prepaid GPR programs, as we called them back in the day. Is that still the biggest piece of you’re doing on the sponsorship side?

Anthony Sharett: What I’d say, Bryan, is it’s still a large part of our bank sponsorship model, certainly. It helps create the deposits that we have that we can deploy through our lending to small and mid-sized businesses. But frankly, we’ve become a much more diversified company than we were even three or four years ago.

When you take a look at that part of our business, which we call Partner Solutions, some people call it sponsor banking, some people call it Banking as a Service, we’ve branded our part of that business to be called Partner Solutions. It encompasses not only the traditional payments and card business that we talked about, but we also now have a fairly robust and mature merchant acquiring and money movement capability, which we’re very proud of.

And we also have an offering that’s called Solutions for Financial Institutions. We know that there are small banks that are usually under a billion dollars in deposit assets and credit unions that would like to offer some of these services to those that need it most, where there’s a gap in the market, but they may not have the risk and compliance framework, they may not have the technology platform to be able to offer those services. So we do that through our own platform. We’re very proud of that. We partner with a lot of smaller FIs so that they can provide similar solutions to customers that may need it most.

And that’s also a big part of our Partner Solutions capability. So as you can see, and I haven’t even mentioned our ATM business as well, which is a small but important part of what we do. So when we think about our Partner Solutions capability, it is payments, but it’s also money movement. And it’s also the solutions for financial institutions capability that I just mentioned.

Bryan Derman: That FI component is one I did not know about that. That’s interesting. And, in some ways, common in the US, we’ve always had a lot of correspondent banking because we’re a large country, but boy, we have a lot of banks in our large country, and they need to help each other out from time to time.

So this seems like a really novel application of the correspondent banking, agent banking sort of models that have been out there, but taking it into some much more modern, products.

Anthony Sharett: That’s right. And not only are we doing that, the Partner Solutions for financial institutions, capability that we have, not only are we doing that in the payment space, but now we are also offering those services on our lending side to small and mid sized businesses as well. When you think about that portfolio that we have, we’re providing working capital to businesses that need to grow in scale.

We’ve got a factoring business, leasing equipment, financing. And again, there are smaller FIs that, whether they be a rural bank or a bank that’s just smaller, that would like to provide these capabilities to those businesses that may not have the infrastructure to do so and we’re glad to partner with them to do that.

Bryan Derman: Really interesting. Back on your prepaid card business, and I said, you don’t even hear that term as much as you used to a few years ago. So somewhere along the way, I think a lot of it morphed into some other names, like I hear neo banking a lot these days and illustrated by maybe players like Chime and Dave and various others that have sprung up, who seem like banks, but technically are not in most cases. In essence, they’ve got a sponsor bank that is leveraging some of its superpowers, it’s access to FDIC insurance, it’s primary membership in the card networks, Visa and Mastercard, and that really enables fintechs to provide a set of services that look very much like what a licensed bank would be able to provide. So in some respects, you’re enabling competition in your own space. So, how do you think about that? Is that a good idea for a bank to do?

Anthony Sharett: It is for us. It is for Pathward. And here’s why. Our purpose is enabling, empowering financial inclusion for all. so, as we think about, what types of partners we, we partner with and services that these fintech partners are providing, we see this as a win win. When you take a look at the proliferation of neobanks that have cropped up over the last 5 to 10 years, we’re proud to partner with companies like Moneyline that provides demand deposit accounts for consumers that kind of need that given the go to market strategy that they have.

When we think about partners like H&R Block where we are the sponsor bank for their Spruce card, which is a banking relationship that folks can have that they may not think about having with a company like H&R Block, despite the fact that they can provide those services. When we think about our partners like Claire that are providing earned wage access dollars immediately to a certain segment of our working population.

I’m sure there are some peer banks out there that may see this, these types of partnerships as increasing competition or maybe taking market share. We don’t see it that way here at Pathward. We’re trying to provide financial access to those that need it, address gaps in the market and making sure that those that want to have some sort of semblance of a banking relationship or be able to pay for these life services that are out there. We absolutely want to be a catalyst for that.

Bryan Derman: That’s really interesting. In doing that, you do take on a certain amount of risk because the bank certainly shares in the accountability for how those businesses are run, how they treat and communicate to their customers. You are, I think, held accountable by your regulators to some degree for the actions of your partners.

And so it, it isn’t easy, I wouldn’t say, to run these things. Do you feel like it provides an adequate rate of return relative to the risk you may be assuming through these third parties?

Anthony Sharett: It does. it’s a great question, Bryan. I’m really glad that you raised it. We believe one of the things that differentiates Pathward from not only some of our peers, but what differentiates sponsor banking from other types of banking relationships and other types of the ways that other banks may go to market, for us, we believe that our risk and compliance framework is what allows us to do what we do.

And so if you have a neobank that’s out there that does not have a bank charter and knows that they need a bank like Pathward to go to market because we are helping monitor things like fraud and making sure that deposit accounts are protected, making sure that, the money goes where the consumer wants it to go, and the person who’s receiving it is the right person. All of these things require a sponsor bank that has a mature and robust risk and compliance framework where there’s constant and active monitoring and validation that goes on behind the scenes. We have spent years building up this capability that we have.

And I don’t think it’s any surprise to anyone that has been following what’s happening in the regulatory environment that we’re in today, this is something that prudential regulators and quasi-governmental entities are paying very close attention to. We’ve all seen where, a while ago there was a run on deposits for a few banks that are no longer in business. We know that by using technology intermediaries that some banks were using to provide this risk and compliance capability, there are some challenges with that business model that force banks to think differently about the oversight that they have in this space. Fortunately for us, because we never outsourced that capability, we built a team of experts, internally to manage that process, we believe that we are well positioned to continue to be a sponsor bank, despite the fact we are in a regulatory environment that in some ways has actually leveled the playing field.

Bryan Derman: Yeah, indeed. Just to provide a little background for those of our listeners who haven’t been deeply into the partner space. To me, one of the things that differentiates these arrangements and I think makes them a lot more efficient to be able to serve underbanked customers and low balance customers and so forth is the fact that the program is usually structured to hold customer funds in some form of pooled trust account at the bank rather than establishing thousands and thousands of individually owned bank accounts for each customer.

And in general, in those situations, your fintech partner will hire an independent processing company to bring in the ledgering technology and some of the payment connectivity required to make the prepaid debit cards work, normal debit cards, and actually track the individual balances and the individual customer ownership of the balances that comprise the pooled account. We’re talking about processors here like FIS, Fiserv, I2C, Marqeta, Galileo. What kind of challenges do you run into in that situation as the custodian of that pooled trust account?

Anthony Sharett: The partnerships that we have with processors here at Pathward are very important to us. And, frankly, we only partner with processors that have a proven track record and the maturity necessary to provide the oversight over these accounts that you just described. Having said that, sponsor banks are really not in the position to outsource the protection of those accounts and the oversight and the reconciliation of those accounts. Rather, we have to work very closely with those processors and ensure that we’ve got the right policies and procedures in place that connotes the joint accountability that both the processor and the sponsor bank has. And so you’re absolutely right. There are many sponsor banks in this space, including Pathward that work with these processors to make sure that we have the proper oversight over these accounts that you’ve just described. But we’re working in concert with one another to make sure that we’ve got the risk and compliance and validation framework, frankly, in place that satisfies the regulators. And again, there we’ve seen a little bit of activity in this space among sponsor banks that the regulators just want to make sure with the proliferation of multi-threaded products that are in the market, with the sheer volume that we’re seeing, particularly in the peer to peer money movement, that both the processor and the sponsor bank have the framework that’s in place to make sure that these deposit accounts are protected.

Bryan Derman: So that means, tell me if this is right, that means there needs to be, if I show up at your door as a fintech with a great idea for a prepaid program or a neobank, I think you’re going to ask that I work with one of the processors that you are already integrated with in order to make my program.

Anthony Sharett: I would say it depends, right? If you are a fintech or a neobank that, while has shown the ability to grow in scale your product or solution, if you have a risk and compliance framework that’s not necessarily mature enough to meet the regulatory rigors that are in our market today, then yes, we likely would have a processor in place to ensure that we have an adequate risk and compliance framework that works in conjunction with the sponsor bank.

If, however, you are a large player, a large fintech that has a proven track record of being able to reconcile accounts, provide the adequate protections over these accounts to ensure that consumer monies are adequately protected, we have seen sponsor banks in this space that can and do work directly with these fintechs because we too have a mature risk and compliance framework.

So it really depends on the partner. But as you can imagine, Bryan, one of the things that we are going to be evaluating early and often is the maturity of that framework to make sure that if they would like to work directly with us, that they have a mature compliance team, mature policies and procedures, and frankly, a track record of protection over consumer dollars.

Bryan Derman: It sort of leads us into one of the issues of the day. And you can’t read the payments press these days without stumbling on one more article about what happened today involving a large fintech called Synapse, which is now in chapter 11, I believe, and its relationship to I guess really a handful of pretty well known sponsor banks in the space who were holding funds behalf of Synapse and its customers and obviously got somewhere, got a little out of whack in the reconciliation between individual customer accounts and the balance in pooled accounts.

And now there’s great concern that people who believe they had money at Synapse and some of its partners may or may not ever get that money back and obviously cause the regulators to spring into action. Are you seeing big changes in the policy landscape that you face as a sponsor bank in light of what came about at Synapse?

Anthony Sharett: Yes, the policy landscape is absolutely evolving based upon the Synapse situation that you just described. Taking a step back, as to perhaps how we got here. Number one, we saw several what I would call some of the smaller FIs, smaller community banks and credit unions that were attempting to get into the sponsor bank space.

What happened was once they recognized the sure investment that it would take to build a risk and compliance framework and a go to market strategy that would actually enable this business model to grow in scale, I think there was a quick recognition that that level of investment was likely a bridge too far for some of these smaller institutions.

So what did they do? They went and worked with what we would call an intermediary, which I believe Synapse would fall into that category, to help them go to market by outsourcing this risk and compliance oversight over these accounts, so that they could go to market. And it was appealing and I understand why it was. The challenge is, is despite some of the innovative platforms that were out there that were the intermediaries in this space, think we found some of these smaller FIs, they just were not close enough to the reconciliation that would need to be necessary to provide the proper oversight and due diligence for these types of pooled accounts. And now we’re seeing a bit of a regulatory reckoning by the regulators to make sure that these accounts are adequately protected.

That’s essentially, I think, what happened. And we see this a lot, in banking. We at Pathward are absolutely supporters of both innovation and what we call co-creation in an ever changing environment. Now we’re hearing and seeing where embedded finance is really the sort of the soup du jour, in providing multi-threaded opportunities.

It’s now more important than ever that the bank is close to these accounts and that some things just may or may not should be outsourced, but in fact, there should be a very close partnership between the fintech, perhaps a processor as we talked about, in the bank to make sure that the proper oversight is there.

So yeah, absolutely there’s been a regulatory reckoning around this. The Synapse situation is likely going to go on for some time. But, working very closely with our regulators and also with our fintech partners and processors, I believe that they’ve given a framework and a blueprint for what they want to see.

And that is making sure that the sponsor bank has adequate third-party risk oversight over not only the fintech partner, but at any processor that they may be partnering with to help the fintech and the sponsor bank go to market.

Bryan Derman: You do get into what seem like some very long value chains between the sponsor bank as the kind of foundation on one side and maybe multiple layers of fintechs before you get down to an individual customer who believes they’ve got a bank deposit somewhere.

Anthony Sharett: You do. And the term that many sponsor banks and some regulators will use is what’s called nested third parties. That is, the processor or program manager of the fintech that you’re working with, they themselves may have a third party that they’re working with to, either from a risk or compliance perspective or from a go to market strategy, the sponsor bank’s got to have insight and it has to have line of sight into all of these third parties. And some of them, which we would call are nested. I think with some of the regulatory actions that we’ve seen that have taken place over the last 12 to 18 months, having oversight over all of these third parties by a sponsor bank is becoming increasingly more important.

Bryan Derman: That’s great. I’m taking some notes on some new vocabulary you’re giving me here. I’ve got nested third parties. I like that. And co creation is one I’m going to think about too. Those are good terms. So all in all, are you expecting your bank examinations to look a little bit different? Maybe they already do or as we come into the new year here in 2025?

Anthony Sharett: I think that when you take a look at it from a policy perspective, the regulators have done a nice job of signaling to those that they regulate into the market, what’s important to them? What are going to be areas of focus for the regulators? Where are they going to be perhaps spending a little more time and attention with the banks that they oversee? And I think they’ve been pretty clear about that.

At the heart of it, our regulators want to make sure that customers’ accounts are adequately protected. Given the landscape, also understanding the innovation that’s out there, they want to make sure that both sponsor banks and fintechs are adequately protecting the dollars of consumers.

And given the business model that many banks are leaning into with fintech partners, these regulators want to make sure that there’s adequate third-party risk oversight, number one. That parties are looking to prevent fraud, number two. And number three, that the products and services and capabilities that are in market today and that will be in market tomorrow are not taking advantage in any way of customers.

And so, for us, I don’t know if that necessarily means our examinations are changing, but I do think the regulators have absolutely signaled what’s important to them.

Bryan Derman: Interesting. And do you think that will extend to the full range of your partnership activities? For example, at Glenbrook, we do a lot of work in merchant services with merchants themselves, PSPs, etc. And there’s gotten to be some concern on the part of merchant services providers about their banking relationships, because just like with deposit programs, merchant process-

Anthony Sharett: I do. I think the scrutiny and the areas of focus by the regulators will be broad, right? So if you think about traditional payments, I think we’ve seen already that there’s going to be an emphasis and a focus on risk and compliance in the frameworks that sponsor banks and fintechs have.

I think if we’re talking about acquiring and merchant services and money movement, I think the same would apply. I think the same would also apply to credit and lending solutions that sponsor banks are sponsoring through fintechs on the lending side for consumers. And I think even for banks that also continue and lend to small and midsize and large businesses, once again, I think having a adequate and robust and comprehensive risk and compliance framework that does not stifle innovation is going to become more and more important as new products and capabilities enter the marketplace.

Bryan Derman: Interesting. One of the really specific outcomes of the Synapse problems that we’ve seen so far is a proposed rule that came out of the FDIC in September regarding, broadly speaking, the bank’s responsibility and access to record keeping for its custodial relationships, these kind of partner relationships that we’re talking about and that rule is still pending. What’s your perspective on that?

Anthony Sharett: Yeah, the rule is still pending. And of course, through our public policy team, we actively are monitoring not only that rule, but frankly, any of the proposed rules that are, have been outlined that may impact our business and that of our partners. At the end of the day, that rule and rules like that, they’re aimed at really doing one thing and that’s making sure that the confidence that customers and consumers have in banks remain steadfast.

The last thing that I think anyone wants is for customers and consumers to not have confidence that their dollars are adequately protected, that they can have access to those dollars immediately. And so rules like this, they are aimed at restoring and making sure that the confidence in our system remains steadfast.

And I think this rule is no different. Again, we’re actively monitoring that and if that means we have to evolve and modify our policies and procedures in a way that complies with that rule, we’ll absolutely do that. And frankly, I think one of the things that many banks that are in the sponsor bank business like Pathward are already taking a look at those things to maybe get ahead of that anyway.

And so again, for us, we believe that our risk and compliance framework already adequately protects customer accounts, but if there’s anything that we can do that would be in accordance with the proposed rule that provides a heightened level of protection, we’re certainly going to be compliant with that.

Bryan Derman: That’s good. As I say to folks in the space in my consulting work, if you do nothing else, please reconcile.

Anthony Sharett: Yeah. That would be, along with nested third parties, reconciliation, that’s certainly something that is top of mind for all sponsor banks. And it’s no different for Pathward. And again, when you take a look at the use case that is out there that involved Synapse and Evolve, no doubt that risk and compliance frameworks will have to pay even more closer attention to things like reconciliation.

Bryan Derman: You know, Problems are going to crop up. But if you reconcile and do so frequently, I feel like you can deal with them while the problems are small. If you wait to reconcile,

Anthony Sharett: I would agree with that.

Bryan Derman: -next thing you know, you’re talking about tens of millions and it’s not going to be easy to work that out. As long as we’re talking about pending regulations and rules, a little bit off the topic of what we’ve been talking about, but obviously in a part of your business. You benefit from being a smaller, Durbin-exempt institution, allows you and your partners to earn a higher rate of interchange on the debit cards that you offer. And there’s a rule out there that affects the regulated institutions, the larger institutions, 10 billion in assets and up, that would further restrict their earnings, in other words, further reduce the interchange cap that applies to the debit cards of those institutions.

We calculated that maybe on the average transaction, it could be another 28 percent lower, on the income. And I realize you’re exempt from it, but I wonder if you have any thoughts on whether that will come into place, whether it’s appropriate, or how you think about that one.

Anthony Sharett: Well, look, I’m certainly not in the prognostication of business, Bryan, particularly when it comes to the chances that a rule will come to pass that’s been proposed, particularly as we enter into a new presidential administration. We are fortunate that we have both an internal public policy team and have some folks that we work with in Washington to monitor these things for us.

Look, one of the one of the reasons Durbin was put in place in the first place was to provide an adequate playing field for both banks that are large and small. But I think more importantly, what has happened is, customers have unique needs and we need to make sure that those that are the most vulnerable and those that need products and services that provide access to dollars the most, we’ve got to find a way to get it to them.

If that means that the Durbin Amendment is a catalyst and enablement for that, that act, in fact, embodies Pathward’s purpose of powering financial inclusion for all, I don’t think that that can be a bad thing. And frankly, as you said, at the outset of our discussion today, there are thousands of banks in the United States.

There’s over 5,000 banks that are chartered here in the United States, and some may argue that that’s too many. Some could argue that that’s too few. One of the unique things about Pathward and banks like us is we’re providing a unique service. We are meeting a unique service.

We’re meeting unique needs. And the Durbin Amendment, one of the things that it does for us is allow us to reach those that sometimes are unreached. I’m sure you can make arguments on both sides of the proposed rule that’s out there. But for us, we believe because we look at all opportunities through the lens of our purpose, we’re meeting those needs for those that are the most vulnerable. And the Durbin Amendment is a catalyst for that.

Bryan Derman: That’s well said. I’ve got nothing to add to that. That’s really well said. We could go on and on about partner banking, but I did want to ask you a couple of bonus questions specific to your company. So first of all, just enlighten us on why the institution changed its name from MetaBank to Pathward a couple of years ago.

I think I know why, but I just wanted to-

Anthony Sharett: Great question. When the bank changed its name to MetaBank, it really did signal, not only to our employees, but to the market, innovation. And that really was the catalyst for the Meta payments business, which as you said, it was one of the OG in the payment space, particularly with the general purpose, reloadable card. But one of the things that Meta also connoted was this sort of conglomeration of individual businesses that were essentially being run in a holding company type environment. We wanted to get away from that because again, as we began to integrate our company and become a connected enterprise, we just felt like a new name was probably more appropriate for how we were operating today. The new name of Pathward, that process was pretty interesting. One of the things we wanted to make sure that we did is get our employees involved.

And we had a bit of a contest with a new name, and we hired a consultant, which many companies do when they’re going through a rebranding and a renaming process. We’re very proud of the fact that we landed on Pathward. And for those of you that may not know, Pathward is the combination of path and forward.

We didn’t want to be a company that was looking through the rearview mirror, Bryan. We wanted to be a company that is constantly looking through the windshield. We believe with a name like Pathward, it’s a catalyst for us to be able to do that. We’re not finished. In many ways, we believe that we’re just getting started.

As you think about the opportunities that come to us through our fintech partners, very few of them are single product opportunities. The vast majority of these opportunities today are multi-threaded. Why is that? Because that’s what our customers want. Many customers would like to be able to have a depository banking relationship, a credit solutions relationship, want to be able to move money quickly, peer to peer, and not necessarily have to go to three or four different institutions to do that.

We want to be a catalyst for that, and it’s through our trusted platform that’s how we’re able to do that. That trust part is pretty important, and that means that one, we are sponsoring these fintechs in a safe and sound manner, and number two, we’re using a platform that is nimble and agile and enables our fintechs to be able to grow and scale their businesses and three, we can pivot and evolve as their new product solutions and capabilities hit the market.

We want to make sure that we’re ready for that, but also doing so in a way that has this overlay of a mature risk and compliance framework.

Bryan Derman: Interesting. And I know this because I’ve been corrected. You chose to call it simply Pathward, not Pathward Bank, which I sometimes say, and then I get corrected by somebody at the company. Interesting that you decided to leave off the bank part.

Anthony Sharett: Yeah, technically, we’re Pathward Financial, but we brand ourselves and most of the time go to market is Pathward. Again, I think that connotes the windshield versus the rear view. It’s pithy when you’re saying Pathward as opposed to Pathward and something else. We like that. And again, we’re trying to meet our fintech partners where they are.

And again, as we think about the evolving landscape, as we think about the solutions that are out there, when we think about embedded finance solutions, when you think about our platform, and we believe what will be leading technology, we just felt like Pathward really did illustrate not only who we are today, but who we’ll be tomorrow.

Bryan Derman: Wonderful. Really interesting, Anthony. It’s been such a pleasure meeting you, and thanks for taking the time to be with us today on Payments on Fire. Many of the things we discussed are going to remain hot topics throughout this year. And we may need to check back with you later in the year and see how some of these pending things are playing out for the industry.

So I hope we can talk about having you back.

Anthony Sharett: I really enjoyed today’s discussion, enjoy your podcast, and I’d be happy to talk to you down the road.

Bryan Derman: Really appreciate it. To all of you listening, thanks for joining us. And until next time, keep up the good work, keep the world safe for payments and bye for now. Thank you.