In 2020 Angela Strange wrote that Every Company Will Be a Fintech Company. The thesis set the stage for the rapid growth of financial infrastructure as a service. While much of this prediction still holds, the fintech landscape is evolving in two significant ways—through stablecoins and self-custodial wallets, which are redefining financial infrastructure.
We have seen the meteoric rise of neobanks like Revolut, Monzo, Nubank, and others reaching profitability with over 1 billion combined customers. Many of the leading neobanks leveraged Banking-as-a-Service (BaaS) as a launch pad and then later moved on to either partner with banks directly or become banks themselves.
The state of neobanking by Simon-Kutcher
Neobanking-style apps are here to stay, both for individual and business banking. However, in its current form, it is unclear if BaaS providers will stand the test of time over the next decade. Not only are many venture-backed BaaS providers facing troubles or closing down shop, but many are losing key banking partners along the way.
Meanwhile, a superior infrastructure alternative is gaining massive traction: stablecoins.
Stablecoins are becoming increasingly mainstream, with several major players already making significant moves:
Revolut announced plans for launching their stablecoin.
Circle’s USDC is now available via the banking system for businesses in Brazil and Mexico
PayPal’s PUSD is among the fastest-growing stablecoins.
Citi Bank announced the creation and piloting of Citi Token Services for cash management and trade finance.
PayPal USD is featured prominently on PayPal’s website.
As a fintech founder, I can’t help but ask: why build your fintech on BaaS when stablecoins provide a better alternative? I believe stablecoins offer the infrastructure BaaS couldn’t—but only if done in a non-custodial way. This emerging model, referred to as non-custodial neobanking, is being driven by early innovators like Kontigo, Decaf and Vibrant leading the way. It combines the user-friendly experience of neobanks with the added benefits of self-custody on the blockchain.
In the rest of the article, I’ll compare the limitations of BaaS, the advantages of stablecoins, and how this shift is reshaping the future of fintech infrastructure, enabling faster, more secure, and more transparent financial services.
My Background
In 2016, I co-founded Rehive with the vision of creating the “Shopify for fintech”—our goal was to make building a fintech app with your branding on Rehive as simple as launching an e-commerce store on Shopify. Essentially, it was banking-as-a-service, but with a white-label app solution.
Our initial journey into the financial system began by developing Bitcoin-enabled applications. It was easy to envision a wide range of innovative use cases interoperable with the Bitcoin blockchain—everything from paying hourly wages to managing escrow for marketplaces and facilitating gig worker payouts. In those early days, it seemed possible to spin up demos in a matter of days.
What we didn’t anticipate, however, was how challenging it would be to translate the ease of building on the Bitcoin blockchain into traditional financial infrastructure. Over the past eight years, we’ve encouraged our clients to adopt stablecoins, but the market wasn’t ready. As a result, we turned to BaaS providers to support some of our use cases as the underlying infrastructure.
We have worked with over 100 fintech startups and are deeply invested in seeing a robust fintech infrastructure layer succeed. It is key to realizing our vision of making innovation in the space easier, faster, and more efficient.
What’s exciting now is how rapidly the industry is shifting toward a more efficient system. We recently announced our self-custody white-label wallets for stablecoins.
What We Learned From BaaS
BaaS played a crucial role in the early stages of fintech innovation, helping the industry validate several key assumptions about both the market and the underlying infrastructure. One of the clearest takeaways was the increasing dissatisfaction with traditional banks. As highlighted in Angela Strange's 2020 piece, "Every Company Will Be a Fintech Company," only 28% of consumers trust banks to be fair and honest. Moreover, the reality that "it's expensive to be poor" underscores the need for more affordable, user-centric financial services. The same drivers apply today.
Traditional banks continue to struggle with consumer trust.
BaaS has proven many of the underlying assumptions for this growing market segment:
Consumers crave modern financial experiences: The success of fintech apps made it evident that consumers are no longer satisfied with traditional banking. They want convenient, user-friendly, and intuitive digital experiences.
Fintechs can outpace traditional banks: Fintech companies, unburdened by legacy infrastructure and regulatory constraints, demonstrated that they could innovate at a much faster pace than traditional banks.
Lower barriers to entry for fintech startups: A decade ago, starting a fintech was a daunting and resource-heavy endeavor. BaaS dramatically reduced the time and cost required to build a fintech company, allowing more entrepreneurs to enter the space.
Niches are a viable strategy: BaaS enabled fintechs to carve out successful niches by catering to specific segments of the market. Companies like SoFi (student loan refinancing), Greenlight (debit cards for kids), Biltrewards (rewards on paying rent), and Petal (credit solutions for the underbanked) proved that targeted fintech solutions could win over customers. Niche-focused fintechs could create tailored experiences that traditional banks overlooked.
Embedding finance into ecosystems is possible: One of the most transformative shifts we’ve seen is the ability of large platforms to integrate financial products seamlessly into their ecosystems. Shopify Balance, Uber Cash, and DasherDirect showed how non-financial companies could use BaaS to embed financial services directly into their business models, creating new revenue streams and adding value for users.
While these learnings demonstrate the immense value BaaS brought to the fintech industry, they also reveal the limitations of the model itself. As fintech companies and neobanks scaled, cracks in the BaaS infrastructure model started to show.
Why BaaS Is Faltering
Despite the innovations and momentum BaaS created, it has become increasingly clear that the model is struggling to hold. Compliance challenges, reliance on legacy systems, misaligned incentives between banks and fintechs, and a fragmented ecosystem have all contributed to the growing instability in the sector.
Synapse, one of the oldest BaaS providers, recently collapsed, freezing nearly $160M in funds from fintech end users. This is just the latest in a series of setbacks for the BaaS industry. Last year, major providers like Wyre, PrimeTrust, and Railsr shut down operations, while Bond and Wize were forced to sell. Treasury Prime and Synctera cut staff earlier this year. Solid faced legal challenges from investors, ultimately settling its dispute in April.
The diagram below is a simplification of the typical neobanking stack leveraging BaaS and points out the pitfalls of the model.
Typical neobanking stack leveraging BaaS.
At the core of these failures is a common theme: compliance mismanagement. Whether it's inconsistent ledger reconciliation, inadequate customer identification (KYC), or major data breaches, compliance issues have plagued BaaS providers and each stakeholder involved. Digging deeper, the reasons for these compliance breakdowns become clearer when you consider the following factors:
Systems: Modern fintech infrastructure cannot be sustainably built on outdated, legacy systems. Legacy systems are riddled with inefficiencies, and merely placing a modern layer on top doesn't solve the underlying issues. Without proper controls, both human and technological, the same problems persist—and sometimes worsen.
Culture: There’s a fundamental mismatch between the culture of traditional banks and that of fintech startups. Even when the technical aspects align, the trust needed for long-term partnerships is often lacking. Banking institutions prioritize stability and risk management, while fintechs focus on innovation and speed. One personnel change—a new relationship manager, for instance—can derail the collaboration, leaving the needs of end users neglected.
Incentives: The incentives between banks and fintechs simply don’t align in the long run. Banks want to maintain control, while fintechs focus on creating superior user experiences that can quickly outgrow their banking partners.
Business model: The value proposition of BaaS is thin at best, especially when it’s merely wrapping traditional banking products with a modern interface. Most BaaS providers end up with a small number of successful clients, while many others fail to gain traction. This lack of scalability makes it difficult for BaaS companies to charge the fees they need to justify their business model to investors. As a result, many BaaS providers end up in a precarious position, struggling to deliver on expectations.
The BaaS model is simply too complex and fragmented, with too many layers and a lack of clear regulatory guidelines to function effectively. While regulators are finally paying attention, their responses may be too late to save many players, leading to a further thinning out of the BaaS herd.
That being said, working with banks isn’t entirely impossible. Some fintech infrastructure providers have successfully navigated these challenges. For example, Stripe maintained a long-standing and seemingly unshakeable partnership with Wells Fargo (although they are also facing challenges). Column took an even bolder approach by purchasing a bank to build a BaaS product from the ground up. Unit raised over $100M and has led the way with an impressive showcase of fintech customers ranging from targeting real estate, gig workers and employee benefits, but not without its problems of losing bank partners.
Showcase of Unit’s customers and diverse use case.
In conclusion, although we have seen some success stories, we believe the BaaS model has fallen short of its ultimate promise to enable every company to become a fintech. This is especially true outside of the US. The complexities of compliance, outdated systems, and misaligned incentives have prevented BaaS from fulfilling its potential. While it offered a glimpse of what was possible, it ultimately couldn't deliver the seamless, scalable infrastructure the fintech revolution needs.
How Stablecoins Are The New BaaS
Stablecoins are not a new concept. The early versions of stablecoins go back to colored coins on the Bitcoin blockchain. In 2019, we saw Meta announce Libra, a multi-currency-backed stablecoin that immediately sparked global regulatory scrutiny, raising concerns about financial stability and control over monetary systems. Although Libra, later renamed Diem, winded down in February 2022, it marked a turning point in the conversation around stablecoins and their potential impact on global finance.
Perhaps the recent growth is a surprise for many because the regulatory response against Libra seemed like an impossible mountain for anyone trying to disrupt the space. Stablecoins have rapidly expanded, with over $160 billion in circulation and over 20 million addresses transacting monthly. By mid-2024, stablecoins had settled more than $2.6 trillion in value, rivaling traditional payment systems in terms of transaction volumes. Fast forward less than 5 years we are seeing significant momentum among the leading stablecoins as evident in the screenshot of a live chart by Visa below.
Average supply of stablecoins in circulation (https://visaonchainanalytics.com/)
A study by Custle Island found that in countries such as Brazil, India, Indonesia, Nigeria, and Turkey, stablecoins are being widely adopted for non-speculative use cases like remittances, payroll, trade settlement, and as a hedge against volatile local currencies. The survey data showed that 57% of users had increased their stablecoin usage in the past year, and 72% anticipated using them even more in the future. They found that users in emerging markets prefer stablecoins over traditional USD banking due to their yield opportunities, efficiency, and reduced risk of government interference. Stablecoins have also emerged as an alternative to cross-border payment systems, offering faster, cheaper, and more transparent transactions compared to traditional methods.
The diagram below is a simplified version of the stack for a non-custodial neobanking application. It points out the advantages of leveraging stablecoins.
Non-custodial neobanking stack leveraging stablecoins.
To understand why stablecoins are a better alternative to BaaS, let’s compare stablecoins to the fundamental flaws of the BaaS model, as outlined earlier:
Compliance: While stablecoin compliance isn't fully resolved, progress is being driven by industry leaders like Circle, who are pushing for clearer regulatory guidance. Even in its current form, stablecoin compliance is easier for stakeholders to comprehend. A key reason is that the circulation of stablecoins is recorded on-chain, providing transparency and making it simpler to track, audit, and report. Although the underlying funds are controlled by the stablecoin issuer, reconciliation between on-chain transactions and off-chain reserves is more straightforward. The open, decentralized nature of stablecoins also encourages independent organizations like Stablecoin Standard to collaborate on best practices and standards.
Systems: Once a stablecoin is issued, the underlying infrastructure becomes the blockchain—an open, decentralized network that isn’t controlled by any single entity. This removes the need for a middle layer, which often becomes a point of failure in traditional systems. In the case of non-custodial wallets, as seen in the diagram above, users maintain control over their assets, eliminating the need for complex reconciliation processes. The blockchain itself is maintained by a global network of contributors, making it more resilient and reliable than legacy systems.
Culture: Stablecoin ecosystems are a natural extension of the broader blockchain development community, which is known for attracting top talent, fostering innovation, and promoting open-source collaboration. This freedom and creativity stand in stark contrast to the rigid culture of traditional banking. A strong example of this ecosystem momentum is the thriving developer activity around Base, Coinbase’s Layer 2 network.
Incentives: Stablecoin ecosystems prioritize those who build the best products, rather than those who control user funds. In a non-custodial wallet setup, the end user has the power to choose which stablecoin to use. If a stablecoin issuer isn’t meeting expectations, users can easily switch to another. Ultimately, the user can choose the application, the stablecoin issuer, and the underlying network. This shifts control from centralized entities to the users, fostering competition and innovation in the market.
Business Model: Stablecoins open up new avenues for monetization beyond traditional interchange fees. Revenue streams such as in-app token swaps and cross-chain bridging become viable, offering new ways to generate value. Most importantly, the business model isn't burdened by multiple layers of intermediaries, allowing businesses to operate more efficiently and profitably.
Beyond these fundamentals, stablecoins offer further advantages that position them as superior infrastructure:
Network effect: As more users, merchants, and platforms adopt stablecoins, the network effect grows stronger. This creates a feedback loop where stablecoins become increasingly accepted and used for everyday transactions, driving even broader adoption.
Global, instant and 24/7: Stablecoins operate on blockchain networks, which means transactions can be completed globally and instantly, regardless of geographic location. This is a huge improvement over the slow and often expensive cross-border payments systems traditionally used by banks.
Self-custody: A built-in feature of stablecoins is giving users the option to self-custody. Also known as non-custodial wallets, users have full control over their funds, reducing the need to trust third-party institutions. This model aligns with the principles of decentralization and financial sovereignty, giving individuals more control over their assets.
Protection from high inflation: In regions suffering from high inflation, stablecoins pegged to more stable currencies like the U.S. dollar offer a lifeline. Users can store their wealth in stablecoins as a hedge against the volatility of local currencies, providing a new level of financial stability in uncertain economic environments.
Less compliance overhead: Currently there is less regulatory overhead for non-custodial wallets where users are in control of their own funds.
Low cost cross border transactions: Layer 2 (L2) blockchains have revolutionized the potential for low-cost, cross-border payments by significantly reducing transaction fees and increasing throughput. Solutions like Base, Coinbase’s L2 network, demonstrate how scaling technologies can facilitate near-instant international payments at a fraction of the cost of traditional methods.
Regularly clarity: Major players like Circle are pushing for clearer regulatory frameworks around stablecoins, simplifying compliance while leveraging the transparency of blockchain to reduce risk and improve auditability.
It's worth noting that nearly all the features and services traditionally offered by banks—such as savings, lending, and even issuing cards—are now feasible onchain.
If you put yourself in the shoes of a fintech startup looking to solve a specific problem, the decision is no longer limited to choosing a BaaS provider. Today, there’s a compelling case to be made that stablecoins can provide all the essential features you need, while offering the additional benefits as laid out above.
From Battle Of The BaaS To Stablecoin Infrastructure Wars
If we agree that stablecoins are, in fact, a superior solution to traditional BaaS, a whole new set of questions arise: which stablecoin is the best fit for your needs? Should you launch your own stablecoin? And just how many stablecoins will the market be able to support?
We’re still in the early stages, but a face-off similar to what we’ve seen in BaaS is likely to emerge among stablecoin issuers. A new trend is emerging where leading fintech companies are launching their own stablecoins. PayPal launched PUSD in August last year, and just this month, Revolut announced its own stablecoin. Stripe has also made headlines by accepting USDC on Solana.
Platforms like Brale are simplifying the process of issuing custom stablecoins, which are particularly useful for specific ecosystems like schools, malls, or events. These stablecoins function similarly to modern gift cards, boosting branding, encouraging spending, and creating opportunities for partnerships. A great example is Glo Dollar, where a portion of every transaction supports charitable causes.
Many regions now boast their own local stablecoins, such as AUDD in Australia and ZARP in South Africa. The Stablecoin Standard is a global industry body that provides a comprehensive list of leading stablecoins worldwide.
It's not far-fetched to imagine that companies like Stripe, Shopify or even Airbnb, might consider launching their own stablecoins in the near future.
Not only is there rising competition among stablecoin issuers, but also blockchain infrastructure providers. BitGo and Fireblocks are leading as enterprise-grade providers for the next generation of fintechs to build on top of. Taking Fireblocks as an example, on a high-level, the typical product suite enables companies to do internal crypto treasury management and build custom products via the wallet-as-a-service product. What stand out about the wallet-as-a-service offering is the dual model of either direct-custody (similar to FBO accounts in BaaS) or Embedded Wallets that allow for end-users to control their own keys.
Providers like Alchemy and Thirdweb are also innovating in this space, offering developer-friendly tools and frameworks that simplify the integration of stablecoins and decentralized finance (DeFi) into new applications.
It is worth mentioning Circle's Compliance Engine that supports integrated, programmatic compliance management, automating checks and reducing risk, making it easier for fintechs to meet regulatory requirements while consolidating wallet management and compliance processes. A new term emerging in the crypto space is Know Your Transaction (KYT), an extension of KYC and KYB that has become common knowledge in the industry.
A long-standing challenge for non-custodial wallets has been the ability to add a card for spending. Given that the user is in control of their funds it does not fit into the traditional card model to ‘pull funds’ from a user’s accounts. Mastercard announced a web3 card in partnership with MetaMask solving this problem.
Why Non-Custodial Wallets?
Kontigo, Decaf and Vibrant are examples of self-custody neobanking apps that combine peer-to-peer payments, yield and a card with a user friendly interface. As an indication of user adoption in this product category, Vibrant has over 1 million downloads on the Play Store. It is still early.
Decaf's positioning as an onchain bank using stablecoins.
In a recent discussion with Rick Martin from Decaf, he pointed out that many platforms using stablecoins aren’t truly decentralized, but instead use stablecoins to skirt banking regulations, which exposes users to risks. He warned,
“If a company is using stablecoins but as a custodial walelt, the users don't have control of their money—they’re just shadow banking, which we see a lot in Latam." This poses a systemic risk, where eventual failures could unfairly blame stablecoins, while the real issue is that they are custodians of user funds without transparency or accountability (because no banking regulations apply in these regions).
Not only is it important to protect end users, but it is now actually possible to do so in a user-friendly and secure way. Take, for example, the backup process shown in the screenshot below. Users can back up their wallets directly to Google Drive, iCloud, or locally—removing the need for traditional seed phrases. This modern approach enables one-step wallet recovery through social login, making it convenient for users to recover their wallets securely. Additional security layers, like biometrics, passcodes, or 2FA, can be added to safeguard backups. If a user loses access to their device or if the system detects suspicious activity, emergency features allow users to freeze their wallets for extra protection.
Non-custodial backup using Fireblock Embedded Wallets
Stablecoin issuers are also pushing for non-custodial adoption, aligning with global best practices in the stablecoin industry. As Michaela Juric from AUDD explains:
"At AUDD, we firmly believe in empowering our distributors by ensuring they maintain full custody of their stablecoins. By adopting a non-custodial issuance model, newly minted AUDD is delivered directly to the distributor’s wallet, ensuring 100% ownership and control. This practice aligns with global best standards in the stablecoin industry, providing a safeguard against potential platform risks, such as those seen in cases like Celsius, where users lost access to their digital assets."
Conclusion
Stablecoins are quickly becoming the go-to foundation for financial innovation. They simplify compliance, cut out outdated systems, and take full advantage of blockchain’s transparency. This means fintechs can build creative, modern solutions on a solid, scalable foundation without the usual headaches. Non-custodial wallets further empower users by giving them full control over their assets, reducing dependency on third parties, and improving both security and transparency.
BaaS isn’t necessarily going away, but its future might depend on adapting to this shift. We might see more players adopt stablecoins or follow the path of companies like Column, who’ve taken control by owning the bank itself. Either way, stablecoins offer a clear path to solving the core problems that have held BaaS back, making it easier for fintechs to innovate without the baggage of legacy systems.
For users, this is great news: lower fees, instant global payments, and more control over their assets—especially with the option for self-custody. Stablecoins give people the power to manage their money in a decentralized, transparent way, improving their overall experience.
As the fintech world continues to evolve, stablecoins aren’t just the future—they’re becoming the foundation for the next generation of financial products, bringing better value to both businesses and everyday users.
Circle says it best with its website headline: “Money is now open”.
