#1: The California DFPI Makes a Visit to BaaS Island
What happened?
Hatch Bank entered into a consent order with the California Department of Financial Protection and Innovation (DFPI). Among other things, the consent order requires the bank to:
- Redo its written enterprise money laundering and terrorist financing risk assessment to accurately reflect the bank’s fintech partners, customer types, volumes, and geographies. This must be done within 60 days.
- Write or overhaul policies for: internal controls, alert review & SAR process, customer due diligence, transaction-monitoring model validations, and staffing adequacy reviews. This must be done within 90 days.
- Periodically review every vendor or fintech partner that supplies BSA functions (KYC, monitoring, case management, etc.) and review internal staffing head count and skills to ensure that they are sufficient to meet the compliance and risk management needs of the bank based on projected partner and transaction growth.
- Obtain written approval from the California DFPI before engaging in any new lines of business or establishing any new branches or other offices.
So what?
Hatch Bank is a California-chartered BaaS sponsor bank with $118 million in assets. It was founded in 1982 in San Diego as Rancho Santa Fe Thrift and Loan. However, in 2018, the board made the decision to pivot into BaaS, and the bank rebranded as Hatch in 2019.
Hatch’s most notable fintech partners are Wisetack (which it still works with today) and HMBradley (which it worked with between 2020 and 2022).
You may recall that HMBradley was forced to stop taking on new accounts in 2021 because Hatch was unable to accommodate the neobank’s rapid growth. HMBradley eventually moved from Hatch to New York Community Bank.
The California DFPI consent order resulted from a March 4, 2024, exam (FDIC + DFPI), which found unsafe/unsound practices and BSA-AML violations tied to Hatch’s third-party-fintech business model.
For the most part, the Hatch Bank consent order is consistent with the orders other BaaS sponsor banks have entered into with regulators over the last couple of years (correct BSA/AML deficiencies, increase board oversight, etc).
From what I can tell, the big differences with this one are A.) the timelines (60 days for the risk assessment and 90 days for the full BSA/AML program is fast, relative to other orders), and B.) the California DFPI taking the lead.
That last point is worth emphasizing. Consent orders for state-chartered BaaS banks are usually issued jointly by federal regulators (either the Fed or the FDIC) and state regulators. This is the first one I’ve seen issued solely by a state. Perhaps a parallel order is forthcoming from the FDIC (which has been both busy and understaffed recently, as you may have heard), but if not, it may indicate that the states (particularly California and New York) are preparing to take on more of a leading role in supervision and enforcement over the next four years.
As for Hatch Bank, I’m guessing 2025 will be a year of remediation and strategic reevaluation. It’s worth noting that the executive who led the transformation of Hatch into BaaS sponsor bank (Jer Wood) left in January of 2024 and is now the head of lending strategy, partnerships, and operations at Cash App.
#2: The Stock Market Is Still Dumb
What happened?
LendingClub’s stock took a hit after it reported its Q1 2025 earnings:
LendingClub shares gapped down 14% in Wednesday afternoon trading on the back of slightly worse-than-expected Q1 2025 earnings, driven in part by a modest decrease in pre-provision net revenue during the quarter.
So what?
Look, nothing in Fintech Takes is ever financial advice, but this selloff reinforces my opinion that the stock market, while smart in a long-term macro sense, is often very dumb when you zoom in on specific companies over short time periods.
LendingClub reported $2.0B in origination volume in Q1 2025, up 21% year-over-year (YoY). Revenue was up 20% YoY. Net-interest income was up 22% YoY due to lower deposit costs.
The only downside was net income, which was down 38% YoY, but that decrease was due almost entirely to the company deciding to build up its loss reserves and mark down the value of the loans it is holding for sale.
That … seems like precisely what you’d want a well-run bank doing, right? Being cautious in the face of extreme uncertainty.
It’s not like LendingClub’s loan portfolio is performing poorly. In fact, consumer net charge‑offs fell to 4.7% (from 8.1% a year ago), and LendingClub reported that they are continuing to keep their credit box tight.
All they’re really saying is that they are preparing for the economy to take a significant hit at some point this year (the qualitative macro overlay they used for their projections assumes unemployment could rise to 5.3 %). This is probably scary to public market investors (it scares me, too), but let’s not shoot the messenger.
Indeed, when I set aside the numbers and look strategically at what LendingClub is doing to improve its product and its value proposition to customers, I like what I see.
One example is the revamped mobile experience it has built for customers, which creates more engagement and opportunities for cross-sell and up-sell, which in turn increases the efficiency of LendingClub’s top-of-funnel marketing spend. This experience is being built, in part, on some savvy acquisitions of B2C fintech products and talent that I like. From LendingClub’s earnings call:
Our Debt IQ offering, still early in its evolution, is already driving nearly 60% higher logins for those enrolled. What’s more, enrolled members are driving a 30% increase in loan issuance. We’re currently working on new Debt IQ features to drive wider adoption, deeper engagement, and even more issuance. That includes incorporating the card tracking and payments technology we acquired with Tally at the end of last year.
Next up will be to incorporate the AI-powered spending intelligence functionality we gained through the acquisition of the intellectual property behind Cushion, an app that help members track bills, payments and subscriptions.
#3: Fiserv’s Embedded Finance Puzzle
What happened?
Speaking of public fintech companies with sliding stock prices, let’s end today by talking about Fiserv!
Fiserv has quietly begun to assemble a very interesting set of embedded finance puzzle pieces:
- Limited-Purpose Bank Charter. In 2024, it obtained a Merchant Acquirer Limited Purpose Bank charter in Georgia. It is the first processor to do so, and it started processing card-based payment transitions using its new charter just last month.
- Modern Core. Acquired Finxact, a cloud‑native, real‑time core, for $650M in February of 2022. This core system was already used by several fintech companies and non-finance brands.
- Open Banking. Partnered with Zūm Rails, which lets Fiserv merchants and fintechs tap open‑banking data + instant payments through Fiserv’s APIs.
- Vertical SaaS & Employer Fintech. Bought BentoBox (restaurant storefront + ordering) in 2021 and Payfare (instant‑pay + gig‑worker debit card app) in 2025, plugging both into the Clover/Carat POS systems.
So what?
Fiserv’s embedded finance strategy became clearer to me when I saw Jason Mikula share on LinkedIn this week that Thread Bank had chosen Fiserv’s Finxact cloud-based core platform to scale its embedded banking offerings. This was news that Fiserv went out of its way to share in its most recent earnings call.
If you add that partnership to the components above, Fiserv’s embedded finance strategy becomes (dare I say) mildly compelling.
By owning the ledger (Finxact), the charter (MALPB), and (some of) the use cases (BentoBox, Payfare), Fiserv can (if it wants) deliver end‑to‑end embedded banking without third‑party middleware.
That said, Fiserv has also given itself plenty of optionality from a distribution perspective. Large enterprises can integrate directly with Finxact and the Fiserv rails. Smaller fintechs and ISVs can launch through Thread Bank or future Finxact-powered sponsor banks, generating revenue for Fiserv, whether it is as the processor, core, bank of record, or all three.
And from an economic perspective, this combination potentially leads to lower costs (merchant acquiring costs will be lower with a MALPB) and new, diversified revenue streams (BentoBox and Payfare can both drive subscription and payment volume revenue).
Who knows if Fiserv can execute on its embedded finance strategy (its most recent earnings did not thrill stock market analysts, for whatever that’s worth), but I’m finally starting to see how the pieces theoretically fit together.
