Should you Integrate Directly with a Bank or Go Through a BaaS Provider?
Setting up the right banking infrastructure can mean the difference between the success or failure of your embedded finance venture. While chartered banks make it possible for fintech firms to open FDIC-insured accounts that customers can trust, building an integration with a bank is extremely time-consuming.
Most banks have legacy systems that are not technologically equipped to integrate directly with your app. Even with the few that are more prepared, getting to market on their platforms can be incredibly complex from an engineering and project management standpoint.
If you want a quicker and more reliable way to partner with a bank, working through a banking as a service (BaaS) provider like Treasury Prime can be the answer. Treasury Prime has deep banking expertise and specializes in building API software integrated directly on bank cores, allowing fintechs and enterprise companies to plug in on the other end seamlessly and launch in a matter of weeks depending on your readiness.
The benefits of integrating with banks through a BaaS provider include:
- Faster integration
- More flexibility
- Risk reduction
- More compliance and KYC options
Strength in numbers is a key factor to consider. Going direct to one bank can limit your product and vendor options as you scale, and heighten long-term risk. Working through a BaaS provider that is partnered with multiple banks addresses those issues. Treasury Prime has the largest bank network in the industry (more than 12 partners and growing), enabling you to work with multiple banks to get the best pricing and optimize your product offerings. And since all of our network banks are using the same API, you can change partners with minimal disruption if that’s what it takes to meet your needs as you grow. On top of that, your dedicated Treasury Prime customer success manager and solutions engineer provides the extra support you need to get your product launched quickly.
Here’s a chart that compares the difference between working with Treasury Prime versus going direct to bank:
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Let’s take a deeper dive into the advantages of integrating with banks through Treasury Prime:
1. Faster integration
Speed to market is everything. When you integrate with a bank without the aid of a BaaS provider, the process can take up to a year — compared to as little as weeks with a provider like Treasury Prime. That’s because banks generally don’t operate under the same technical parameters as fintechs and BaaS providers. Your company will be spending precious time just getting up and running, time that could be spent acquiring supporting customers and growing your business.
“It’s capital and resource-intensive to work directly with the bank. Using a BaaS provider really eliminates that concern and it allows you to also scale your product over time.” Remy Carole, chief operating officer at Treasury Prime explained. “If you're working with a BaaS provider, and with Treasury Prime specifically, you're comparing weeks of an engineer or a team of engineers’ time versus what traditionally takes six months to 18 months by going and doing a direct bank integration.”
Our client Azibo, a financial platform for independent landlords, can attest first hand. Azibo spent a year working directly with a bank. But when they tried to launch, they realized what they had built wasn’t workable.
“When it came time to go live, we had a lot of friction and frankly figured out that they couldn't deliver on a lot of the core functionality,” Hsu says.
Azibo went looking for alternatives and found Treasury Prime. We matched Azibo with a bank in our network. Because Treasury Prime had already fully integrated its API with the bank’s core system, it was easy for Azibo to plug in and start to offer banking products quickly.
“Within a month of us first meeting, we had a commercial agreement in place to build Azibo on top of [Treasury Prime's] system,” Hsu said. He said the app was “in market with an FDIC insured financial platform built on banking” so fast,“It's unheard of.”
If you integrate with a single bank directly without a BaaS provider, you are limited to the capabilities of that bank only. Being able to access a broader network of bank partners through your BaaS provider gives you more choices and helps you to find the right bank that is experienced in working with your industry that can meet your unique needs.
You can also take advantage of the best pricing and features across multiple banks. You can keep one bank partner for one feature while adding another partner to support something new. Maybe you launch with a bank partner that offers great interest rates on deposits. You want to keep that partner, but they don’t support a new consumer lending feature you want to add on. Treasury Prime will enable you to add on a second bank that supports that, without forcing you to leave your original partner that still meets another critical need.
In addition, Treasury Prime is pre-integrated with best-in-class vendors for card programs and compliance providers, like Marqeta, Unit21 and Alloy, which allows faster integration with multiple vendors on the same platform rather than having to build out separate workflows for each one, or being constrained by what a single bank offers.
3. Ability to scale
Working with a BaaS provider allows you to better scale technically, operationally, and economically. As your company grows, you may want new products or pivot your business strategy. If you are working with just one bank, you are bound to their systems and offerings. If you want to add new features that bank cannot provide, you will have to build out a completely separate integration from scratch with a new partner.
If you work with Treasury Prime, you can integrate with an additional bank partner in our network without having to change your API environment. This minimizes the changes you have to make while still letting your company grow to accommodate new users and deposits.
4. Risk mitigation
When you integrate with just one bank, you are putting all your eggs in one basket. If something happens to that bank such as regulatory actions, or if you run into differences, you may have to pull up stakes and start over. With Treasury Prime, you never outgrow your bank’s deposit capacity and you can easily switch banks.
For example, our client Tuvoli, a B2B platform for the private air charter industry, launched their product with BBVA, but after the bank was acquired by PNC, BBVA shut down its Open Platform, and clients such as Tuvoli had to scramble to find other BaaS providers.
Sandeep Dalmia, co-founder and COO of Tuvoli, said they had to go back to the drawing board. “We talked to a bunch of banks who were interested in partnering with us. They said all the great things that we wanted to hear, but when it came to technology, they didn't have what we needed. And when they quoted us, the rates they quoted us were in some instances 10 times what we were paying.”
Having learned from the experience with BBVA, Tuvoli no longer wanted to be tied to a single bank. With a BaaS provider like Treasury Prime, the fintech can connect with multiple banks.
“It gave us flexibility. If we want to leverage another partnership for certain products, we can look at other banks in the Treasury Prime portfolio and integrate them without having to do a migration because it’s the same API system,” Dalmia says.
5. More compliance options
When approving bank accounts, the key for fintechs is balancing the need to limit risk with the need to be accessible to prospective customers. This comes down to asking for the right things, in the right way. Working with the right BaaS partner will give you options to tailor your Know Your Customer (KYC) process to your customer base.
Traditional banks tend to have slower, more nuanced KYC compliance processes. They often have multiple departments that need to review and approve KYC information received. Bank processes may also require applicants to fill out paper documents, or bring paper documents to a physical bank branch. It is not uncommon for an application to be pending for over two weeks before bank approval.
You have fewer ways to personalize your compliance program to your user base if you work with a single bank, because the compliance requirements are set by the banking partner. By working with Treasury Prime, you can set up a customized compliance program with the right KYC protocol that’s suited to your company’s risk profile for account openings, either with vendors that are pre-integrated with our platform, or other vendors of your choosing. In addition, Treasury Prime facilitates open communication between you and the bank so you can address issues quickly.
Treasury Prime’s API has a “person” resource that lets you select from a wide range of fields to ask customers for any combination of appropriate identifying information. It’s important to work with a BaaS provider that is knowledgeable about KYC and related regulations. You need to make sure you have a process that works for your target audience that is appropriate for the risk your customers and products may pose. And as your company grows and attracts more regulatory scrutiny, you will want to understand all parts of your KYC process in case you need to alter it to adapt to new risks.
As your business grows, weighing the benefits of integrating with a bank directly or through BaaS is crucial and key factors such as flexibility, scalability, and risk mitigation in the long-term must be considered carefully.
If you want to be the next unicorn, you need a direct bank relationship and the best Baas company with the widest bank network. To discuss how we can help your fintech or embedded finance company scale, contact us here. Want to learn more about our process? View our API reference or play around with our Developer Sandbox.