When Building a Fintech Company, Take No Shortcuts

Banking is complicated. Anyone who says you can cut corners to launch your product is selling snake oil.
Headshot of Chris Dean
Chris Dean
Co-founder & CEO
January 4, 2022
PacMan style graphic showing two different paths to the end of a maze

Tech-forward financial tools are more accessible than ever. Fintech startups and non-financial companies can embed banking services right into their platforms to deepen relationships with customers and bring in additional revenue. These exciting tools can be utilized by partnering with established banks rather than going through the years-long challenge of seeking out a charter. Banks, meanwhile, can leverage fintech partners to tap new customers. Thanks to banking as a service (BaaS) and API banking, getting a fintech app to market is largely just a matter of finding the right partners. 

But that doesn’t mean creating a winning fintech solution is easy — because it’s not. Banks and fintechs need to perform due diligence on each other before committing to working together. Each needs to make sure the other will support their business goals and growth. Once they start working together, they need to give each other visibility into their own activities and negotiate solutions when challenges arise. 

That’s why it’s such a huge problem when a BaaS company positions itself as the only point of contact between a fintech company and its bank partner for all inquiries. Early on, the setup might appear to save time and headaches. But as soon as there’s an important question or a regulatory challenge — and there will be — fintechs and banks find themselves learning hard lessons about the need to deal with each other directly. 

Banking is complicated. Financial regulations are intricate. Innovation is hard. Anyone who says there is a shortcut is selling snake oil. What may seem convenient today can mean more troubleshooting later. Fintechs and banks need to be able to tell the difference between tools that bring efficiency, and products that cut corners. 

Say yes to transparency

One quality is universal to great BaaS providers: Transparency. A transparent BaaS company will tell you who its partners are, how it works with them, and what the process entails. To test a potential provider’s transparency, ask them:

Ask them:

  • What banks and fintechs partner with the BaaS provider? A transparent provider will name names. 
  • Request references. A transparent BaaS company will provide them. 
  • What tools does the provider’s platform offer? A transparent provider will list their technical capabilities. 

A trustworthy BaaS provider won’t misrepresent their authority. They won’t behave as if they have the power to make decisions on behalf of their bank or fintech partners. They will understand their place as a technology provider, and will readily share their industry expertise.

Want to discuss how to embed more banking tools on your platform? Contact us.

Say no to games of telephone

Picture this situation: You’re a fintech. You partner with a bank. Your customer uses your app to open an account on the bank’s core. They run into a problem. They ask you a question. You know the bank will have the answer. So who do you call? 

If the answer is that you have to route all your communication with the bank through your BaaS provider, you’re in trouble. That customer issue that should take minutes to solve could now take weeks. This is one example of why it’s important for banks and fintechs to be in direct contact. 

Before you contract with a BaaS provider, ask them: 

  • How does my organization contact a bank or fintech partner directly? If the answer makes you doubt your ability to communicate freely with a partner, that’s a big red flag.

Say no to “We’ll do it for you”

When a BaaS provider says “we’ll do it for you,” that can also mean, “we’ll keep you out of it.” That’s a problem when it interferes with a bank’s visibility into a third-party partner’s activities and can throw a wrench in things for both the bank and the fintech. 

When a regulator monitors a bank, they aren’t just reviewing the bank’s accounting processes and corporate policies. They’re also checking into the general soundness of the bank’s operations. If bank leadership can’t confidently explain a particular program, the regulator may question whether the bank is overseeing it properly. 

Even if nothing has gone wrong with the program in question, if the regulator questions whether the bank has the ability to catch a problem, that’s considered a major finding. The bank has to remedy the situation and may have to suspend working with the fintech and BaaS provider, possibly permanently. It’s a huge and costly disruption.

Say yes to innovation

Building a relationship with your bank or fintech partner takes time and attention, but it’s well worth it. Seek out BaaS providers who innovate, adding tools and capabilities to their platform as requested. Look for platforms that are sleek, easy to use, and that incorporate leading technology.

How do you know if a potential BaaS provider is technologically innovative? Ask to see their product. Ask to play around with it. Try before you buy. The answer basically circles back to transparency, which is really the bottom line for all business relationships. All BaaS providers will promise to save you time and resources — as they should. But not while cutting you off from controlling your business. Bottom line: do your BaaS partnership the right way from the start, and you'll win out in the end. 

This article first appeared in Forbes.

To learn more about how Treasury Prime can help your fintech grow through collaboration with banks, get in touch with our team. Developers interested in using Treasury Prime’s tools can familiarize themselves with our offerings by visiting our Sandbox.

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