Revenue split in embedded finance and lending-as-a-service arrangements

In lending-as-a-service arrangements, the fintech that builds the origination technology and customer experience often does not fund or hold the loan itself, so its revenue is a service fee from the funding bank (or a share of interest/fee economics under a revenue-share formula) rather than interest income on a financial asset, and identifying the distinct performance obligations (platform access, origination, servicing) determines the pattern of revenue recognition; misapplying an on-balance-sheet lending mindset to what is really a fee-for-service arrangement distorts both revenue timing and the entity's apparent credit risk profile.

Does the fintech bear any credit risk on the underlying loans, or does that risk sit entirely with the funding bank partner, supporting a service-fee (not interest income) characterization? Are platform access, loan origination, and ongoing servicing distinct performance obligations recognized at different points/over different periods, or bundled inappropriately? Is any portion of the fee contingent on future loan performance, requiring the variable consideration constraint to be applied?

1) Confirm who bears credit risk on the underlying loans, if entirely the funding bank partner, this supports a service-fee (not interest income) characterization for the fintech. 2) Identify the distinct performance obligations in the arrangement: platform/technology access, loan origination, and ongoing loan servicing are commonly separate. 3) Recognize platform/technology access fees over the period the bank partner has access to the platform (over time). 4) Recognize origination service fees at the point the loan is successfully originated (point in time, when control of the origination service transfers). 5) Recognize servicing fees over the servicing period as those services are performed (over time). 6) Apply the variable consideration constraint to any contingent or performance-based fee component tied to future loan performance, including only the amount highly probable not to reverse significantly.

Apply the variable consideration constraint to any performance-based or risk-sharing fee component that depends on the future performance of the underlying loan book, recognizing such variable fees only to the extent it is highly probable a significant reversal will not occur; allocate the total transaction price across the distinct performance obligations based on relative standalone selling prices where the contract bundles platform, origination and servicing fees.

Disclose: the nature of the embedded finance arrangement and the fintech's role; confirmation of whether credit risk resides with the funding partner; disaggregation of platform, origination, and servicing fee revenue; and the basis and constraint applied to any variable/performance-based fee component.

• Recognizing the fintech'
• s entire fee as revenue at loan origination even though a servicing obligation continues over the loan'
• s life
• recognizing revenue-share or performance fees without properly constraining variable consideration for future loan performance uncertainty
• failing to distinguish a true off-balance-sheet service fee model from an arrangement where the fintech actually retains credit risk (which would instead point to on-balance-sheet lending accounting, see FINT-022 on derecognition)
• treating the entire arrangement as a single performance obligation when platform, origination and servicing are genuinely distinct and have different recognition patterns.