Sponsor bank deposit network gives First Internet more balance-sheet flexibility

First Internet Bancorp said its sponsor bank deposit network arrangement moved about $2.4 billion of fintech deposits off its balance sheet in the second quarter, while fee revenue from its banking-as-a-service business rose 172% from a year earlier. The company said the transfer gave it greater flexibility in managing balance-sheet size, as total deposits fell 3% from the prior quarter and its interest-bearing deposit costs declined.

In its July 30 results release for the quarter ended June 30, First Internet reported total deposits of $4.8 billion, down $150.3 million from the first quarter. It said its cost of interest-bearing deposits was 3.38%, 54 basis points below the level a year earlier, while higher-cost certificates of deposit and brokered deposits matured amid continued fintech-deposit growth.

The lender reported $2.4 million in net income and $41.1 million in revenue, up 23% year on year. Noninterest income increased 56% to $8.7 million, supported by its BaaS platform, according to the company’s earnings release.

How does a sponsor bank deposit network work?

A sponsor bank supplies regulated banking services to fintech programmes, which can include deposit accounts, cards, lending and payments. First Internet did not set out the operating details of its deposit network in the release, but said deposits had been moved off balance sheet through it.

The reported figures show that deposits can be distributed while a bank’s BaaS fee business expands. They do not establish that First Internet retained every service or revenue stream connected to the deposits after the move, nor do they show that other sponsor banks use the same model.

Fee growth alongside a smaller deposit base

First Internet said it had selectively added fintech partners and expanded existing relationships, lifting BaaS fee revenue by 172% from the prior-year period. The company also said its total loan balances were $3.8 billion at quarter end, up 1% from the first quarter, and its loans-to-deposits ratio was 79%.

PYMNTS characterised the results as an example of deposits being managed separately from the wider fintech relationship. Its analysis says programme management, payment processing, card sponsorship, settlement, compliance and lending can generate fees when deposits are distributed elsewhere. That is an industry interpretation, rather than a conclusion made by First Internet in its release.

PYMNTS also said deposits remain important sources of funding and liquidity. First Internet’s disclosure supports the narrower point that a deposit network can be a balance-sheet-management option alongside fee-based fintech services; it does not show that deposits have become less important across sponsor banking.

Oversight remains central

Shifting deposit operations between parties does not remove a sponsor bank’s accountability for programme outcomes. FinWise Bank, in a May editorial, said arrangements involving deposits, cards, lending and payments require clear processing, account structures, funds flows, compliance controls and operational support.

The sponsor bank also said banks need continuing visibility into subaccounts and transactions, along with reconciliation and controls. Those requirements matter where third-party roles can fragment responsibility for deposit operations or systems of record.

This story draws on original reporting from PYMNTS.