Vertical Banks Gain Amid Regulatory Gaps
Anthony Peculic, Head of Cards at Cross River Bank, on building a fintech one-stop shop
The main issue was not that rules were absent, it was that crypto and bank fintech partnerships were moving faster than the rulebook. In practice, a bank like Cross River still had to satisfy core bank obligations around compliance, vendor oversight, fair lending, and customer protection, but there was less settled guidance on newer crypto use cases, which made judgment, regulator dialogue, and tight internal controls part of the product itself.
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Cross River was built to bundle accounts, cards, payments, lending, and compliance under one API driven bank stack. That vertical model gives speed, but it also means the bank carries more of the regulatory burden directly instead of pushing it to middleware or partners.
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The economics of this market have long depended on sponsor banks handling the regulated layer while fintechs handle distribution. Smaller banks under the $10B asset threshold could earn richer debit interchange, which helped power BaaS growth, but also made the space a natural target for closer scrutiny.
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That scrutiny became much more concrete later. FDIC actions against Cross River stressed oversight of third party partners, and newer vertically integrated banks like Column and Lead gained share partly because fintechs wanted fewer handoffs and cleaner compliance accountability after the middleware shakeout.
The direction is toward tighter, more explicit supervision of bank fintech partnerships, with room for crypto activity only where banks can show strong controls and clear ownership. That favors chartered, vertically integrated providers with their own core, compliance stack, and direct regulator relationships, and makes generalist middleware models harder to sustain.