FinTech Platform’s Checklist for Bank Partners
Earlier in the month, we discussed top criteria in early evaluations of banking partners (“Launching a FinTech product?”). With so many choices (and new Banking-as-a-Service entrants added often), it’s easy to get overwhelmed with the landscape. As fintechs and non-fintechs become more informed of the structures and options in vendors and providers, they realize an “apples-to-apples” comparison is difficult. A similar outcome can be achieved, but the path, cost, and time to get there will vary.
Certain partners include integrations and agreements with specific banks, while others assign that responsibility back to the fintech platform. Some providers have existing Know-Your-Customer (KYC) and compliance programs, others require adding an outside vendor. Understanding what’s out there was the first step — the next one identifying the best partner that aligns to your company’s purpose and its product vision.
As your company directly engages with a small group of potential BaaS firms, it’s helpful to go in with clearly defined parameters (based on your firm’s goals and due diligence). In an industry saturated with apps, a unique product vision, purpose, and user experience quickly sets new platforms apart from others. Establishing clear alignment with a banking provider leads to quality discussions and improved outcomes for a strong partnership.
before the first meeting
At this point, you’ve completed pre-work in learning about the partnership models (and respective companies) to choose from. You removed certain types of bank partners because of the timing to get started or amount of resources needed to execute their program. You’re ready to have a deeper discussion on product solution, cost, and integration process.
Before scheduling product demos and tech calls, it’s critical to have a self-assessment of your company’s involvement and responsibilities in the new program. For companies committed to making the leap in embedding banking services, there are three critical questions they should ask themselves:
How much of the banking side do I want to manage? Providers may offer a full package OR a-la-carte services.
If your company has the capacity (and funding) to run most of the functions, then plugging into a bank directly (or a middleware tech provider + bank) may be all that you need.
Most companies (especially startups) don’t have bandwidth and need a partner to the heavy lifting with program management.
Do I want to own the customer experience (CX) on the banking side? If not, you may be looking for a referral model (not a banking partnership) in which you send your users to an existing bank.
The majority of partners are built only as an infrastructure layer between end-user and platform, with no option of running both front-end user experience and back-end back-office banking.
Companies can outsource creation of an app, but managing the customer experience and support will still be their responsibility once their platform is live.
For existing platforms with users and internal support teams, customer service will need to work in tandem with an outside support partner OR be trained (and audited) to handle support requests with regulatory implications.
How will I mitigate fraud and losses on my platform? Firms need to be proactive in managing risk from the start.
Fraud in financial services is certain, but platforms can do their part in minimizing the negative impact.
Some bank partners may provide limited controls in avoiding fraud, but outside vendors should be considered in transaction monitoring and fraud alerts.
Common scenarios to be mindful of: stolen IDs and profiles to impersonate a user, ACH returns in funding accounts (and then closing them), frivolous dispute claims in card transactions, and bounced check deposits.
At a high-level, most firms would rather not be a bank and outsource as much of the program to a partner or multiple vendors. There are certain companies that have a strong fintech background in APIs and program management, and can pick and choose services they need from a BaaS provider.
As an industry, most fintech platforms understand they need to own the customer experience and provide a seamless onboarding process. Non-banking firms without a strong digital presence may try to outsource this component, but in reality bank partners represent a white-labeled infrastructure layer — not the whole package (of front-end + back-end) for a fintech.
A whole series can be posted on managing risk, fraud prevention, transaction monitoring, and associated customer support costs. This is an area that all companies launching financial services need to own, since banking partners have limited resources in mitigating fraud. There are reputable vendors with robust ID verification, fraud controls, and chargeback management. It’s the responsibility of the platform to add this compliance layer from the start and minimize financial losses.
key points IN A FINTECH (buyer) CHECKLIST
The following covers critical areas of concern in initial discussions with specific banking partners or vendors. At this point, platforms should have a strong sense of what product(s) they would like to launch, when their platform would be live with these products, and resources (funding, staffing, time) to commit to implementation and launch.
Product fit: does the banking partner have the capabilities needed for my use case?
Bank partners provide features or services through a product they built internally OR a 3rd party. For these external relationships, it’s important to know if the partner or platform is responsible for managing the additional relationship;
Some required capabilities may not be live (e.g. closed beta OR “coming soon”) or need further work before being considered stable. New providers have a higher risk in executing to industry standards since they lack a track record;
Cost of ownership: what is the monthly/annual cost for their program?
Avoid looking at the sticker price only (i.e. what’s included in their package). If something is missing (such as KYC or payments), add it in separately towards calculating total cost;
The top, long-term cost savings are in platforms NOT building out their own banking infrastructure or managing an entire banking program. Middleware providers can be obscure with services they deliver and those that a platform is responsible for;
Revenue share: what revenue share opportunities exist?
Partners may offer deposit interest or interchange revenue, but with limits / tiers in how earnings. Probe further on their structure, limitations, and bank partners Durbin-exempt debit interchange rates;
For lending programs, there’s loan interest revenue share based on balance sheet risk (i.e. loans funded either by a bank or platform);
Some platforms may be able to upcharge payment processing fees (based on their use case and target customers);
Timing: how long does their implementation take?
In asking this, platforms should also be familiar with the entire integration process (e.g. stages, approvals, reqs);
Based on the type of launch and partner model, a program can take as little as 2-3 months or over a year. Payment processing models through a vendor are the fastest (within weeks) but have a limited scope of capabilities;
Platform requirements: what should a platform provide at signing?
Requirements can involve a minimum amount of funding on hand, an existing user base, or legal review letters (from outside counsel based on the use case);
Due diligence includes registration docs for the platform, and background checks on beneficial owners of the company;
Sandbox / demo: how can developers test APIs or demo product features?
For back-end infrastructure providers, there should be a sandbox test environment that comes with API reference docs. This allows tech teams to explore in detail the partner’s recommended product flows in onboarding users and running transactions;
Once a platform has narrowed down their list of partner options, developer teams should spend time familiarizing themselves with API architecture and asking detailed questions;
Platform support: what level of platform support from a partner is included?
Banking providers (especially payment vendors) may have no dedicated support channel for platforms, only FAQs and an email inbox to submit requests;
BaaS partners typically have assigned account managers for each platform, but for real-time access and responses charge additional service fees;
Fraud monitoring and support: what fraud protection is available?
All platforms experience fraud, especially in the first months of launch but not all banking service providers have support tools. Ask how fraud is mitigated and estimates of frequency;
If minimal resources are available, explore 3rd party fraud prevention firms to mitigate financial risk.
Future product roadmap: what new features is the provider launching soon?
This gives insight into the bank partner’s strategic growth plan, which can align with Phase 2 goals for a platform.
Banking providers can be adding new financial products, improving user onboarding, or expanding to other countries as ways to help fintechs with growth.
Navigating through discussions with bank partners and gathering the necessary details towards making the best decision is challenging for fintech platforms. Unfortunately, many companies sign up with a provider only to learn months later that they were misinformed on what they’re getting — there’s a missing compliance or program component which a bank now requires. The right questions weren’t asked from the start and therefore important partnership pieces were missed. Having a clear understanding of available partners AND a gameplan of what needs to be covered helps avoid poor choices in providers.
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