Build vs Partner – Guide to Banking

If you are considering adding banking and payments to your offering- partnering is the smart choice.

 min. read
March 10, 2021

Embedding banking and payments to provide integrated and contextual financial solutions to your customers is a very compelling proposition. However, the question startups and mature companies alike are faced with is do we “Build” or “Partner”? Here is a set of 4 considerations as you evaluate the build vs partner question:

Domain expertise:
Banking and payment products are regulated by federal & state governments & are controlled by a myriad of network rules (e.g., Visa / MasterCard). De-novo setup of these services, even for the most tech-savvy teams, requires significant domain expertise from the very start, with selection and set up orchestration of banking and payment providers presenting crucial decisions that will define the success of the program. For example, a simple product offering of a virtual bank account may require you to select the appropriate sponsor bank, banking as a service provider, payments as a service provider, etc. A non-trivial task that requires undergoing bank due diligence, demonstrating the ability to have a bank-approved fraud & risk management framework, compliance management, etc. By the time you are approved by a sponsor bank, you will have been forced to hire and train risk and compliance management teams, establish multiple $10Ks of reserve accounts for fraud abatement, and jump through a multitude of resource-consuming hoops.

Core Focus:
The prevailing wisdom is that every company will become a FinTech. While we agree with that sentiment - you would need to assess what is the core focus for your business. On the fintech side, would you rather embed contextual finance within your offering and focus on delivering a “killer” end customer experience? Or go down the rabbit hole of providing the customer experience while also owning all the underlying technology stack - all the way up to the regulatory rails (ie. filing for a charter or buying a bank)? Savvy companies gravitate towards the former, delivering a differentiated and compelling contextual banking and payment experience - built on top of purpose-built BaaS infrastructure.

Evaluate your timelines for offering embedded banking & payments. Every day you are not offering embedded banking and payments to your customers - someone else is! In the past, a standalone bank provider was the norm, however, in today’s FinTech landscape, other contextual & embedded financial offerings could very well steal your customer away from your core product offering. Pursuing a build strategy would require significant resourcing of skilled engineers & a lengthy time to market. Factor in multiple bank & payment provider’s due diligence, compliance reviews, contracting, and program reviews and it could be 12-18 months before your FinTech offering sees daylight. On the flip side, a customizable -low tech “calories” integration with a purpose-built BaaS platform would obviate the multi-step and multi-stage development to launch cycle, gaining your business-critical speed to market.

Total Cost of Ownership:
A common misconception is that building out a full-stack FinTech offering within your business would yield a lower total cost of ownership and a higher net revenue yield. The urban legend of “Build-it” on your own and gain a much higher interchange (cards) or higher depository revenues is a myth. Revenue, and more importantly margin in FinTech, comes from scale. A more pragmatic approach would be to partner with a BaaS provider to gain the economies of scale via a negotiated partnership, while also avoiding the contracting process and costly monthly minimums from each of the requisite “constituent” elements required to deliver banking and payments. Keep your margins high by obviating the need to either build out the entire stack or stitch together each of the “constituent” elements of a FinTech offering.

Bottom line:
If you are considering adding banking and payments to your offering- partnering is the smart choice. Partnering does not preclude building it on your own when you attain a level of FinTech scale, organizational skill, and portfolio maturity in the future, but helps ensure that your first foray into FinTech is a success.