How to Choose Your Fintech Infrastructure Provider
Whether you are a brand new fintech looking to launch the latest neobank or an established non-financial company looking to embed banking capabilities, picking your fintech infrastructure provider is a critical decision. Choosing the right one can help you get to market faster and can give you a long-term competitive advantage by providing sustainable economics, compliance, and the product flexibility needed to wow your customers and out-innovate your competition. On the flip side, choosing a provider that isn’t well matched to your needs can be a mistake from which your business may never recover.
Distinguishing the salient differences among the various fintech infrastructure options can be difficult. Over the last year, we’ve spoken to over 100 fintech builders about their processes for choosing their infrastructure providers and nearly all of them found it to be a frustrating experience. Time and time again we heard, “We didn’t know where to start.” Even those who had the time and resources to run a full RFP process didn’t necessarily feel like it helped. Said the Head of Strategy at one successful fintech company that was looking to add a banking product for the first time, “We weren’t complete noobs, but no one on our team had deep experience in banking infrastructure and we didn’t know what we didn’t know. We ran the best RFP process that we could, and I still don’t know if we made the right decision! We’re 9 months in and it’s been frustrating at every step.”
The problem is that many providers can look similar on the outside and appear to offer the same capabilities, but the reality is that the actual experience of working with each one will differ wildly. To use an analogy, it’s like you’re looking at several new cars all of which have the same body design, but under the hood, one has a lawnmower engine, one has a V12, and one might even be electric.
We designed this guide to help you get under the hood of various fintech infrastructure platforms and maximize your chances of choosing the option best suited for your use-case and the needs of your customers.
Asking the Right Questions
The reality is that you will never really know what working with a specific infrastructure provider will be like until after you are already committed and begin building, but by asking the right questions as part of your assessment process, you can start to suss out the key differences among various options before you make that commitment.
Regardless of your specific use-case, your fintech infrastructure provider must meet your needs across four critical areas:
- Technical Integrations
- Product Flexibility
- Regulatory Compliance
Below we have outlined the key questions you should ask any provider you are considering to build a complete picture of their capabilities in each of those four areas. You should assess how well they map to your initial and ongoing needs in powering the right user experience for your customers and building a long-term, sustainable business.
1. TECHNICAL INTEGRATIONS
For founders, the simplicity of integration is of highest priority. With limited resources and a finite amount of time to get a product out the door, ease of launch can mean the difference between success and failure. When selecting your BaaS platform, here are some questions that you should ask about the integration:
- Are your API docs robust and publicly accessible?
- What does your technical integration process look like?
- Do you have documentation to guide me as I begin building?
- Is there an integration team I will work with?
- Do you have a full sandbox environment I can have access to?
- Do you have any tools to help our product team get up to speed quickly, such as an SDK, or set of boilerplate applications?
- How do I add in new product verticals when I’m ready to offer them to my clients such as brokerage, credit, or lending?
- How is customer creation and account opening handled through your API?
- Is KYC/AML + OFAC handled through your platform or elsewhere?
- If it is not provided, how do I supply verification information to you?
- What does the process look like?
Fintech builders are often on their own when they need to figure out how to integrate components outside of the core offerings of their BaaS provider. Rize helps get our clients to the feature parity of platforms like Chime and Acorns without having to raise all of the capital that comes with doing so effectively and provides the flexibility to add new features through a single integration. Learn more by exploring our Sandbox here.
2. PRODUCT FLEXIBILITY
Banking infrastructure doesn’t handle today’s use-cases well. The industry has historically started with the institution first and put the end client’s experience second when really it should be the other way around. When searching for your fintech infrastructure provider, it’s imperative they provide the flexibility needed to accomplish the goals of your product and provide the most customer-centric experience possible. As one fintech founder said, “Nobody cares how the engine is built, we just want the car to take us from point A to point B.” To ensure your BaaS provider can take you where you need to go, here are some questions you can ask to evaluate product flexibility:
- What products are live and available on the platform today?
- What kind of volume can your system handle?
- Do my customers receive a checking and savings account?
- How do I create use cases around helping my end customers grow savings and control spending?
- If we want to tweak something on the platform we’ve built, what is the process for pushing that change live?
At Rize, we accomplish this flexibility by mapping customer needs down to the building blocks of individual customer needs and allowing interoperability between those different verticals via our Synthetic Core. This proprietary technology future-proofs our clients’ businesses in a way other BaaS providers can’t. You can learn more about our Synthetic Core and Synthetic Accounts by reading our white paper.
The role of the best BaaS provider will be to let their clients focus on building their products and not spring any surprise charges on them as they start to scale. The last thing a builder wants to worry about is economics. Whether it’s increasing reserve amounts, scaling platform fees, or an unfair hike in fees at the time of contract renewal, economics and profitability expectations should be clear up front.
- What are going to be my year one fixed costs?
- What, if any, are my variable costs?
- What does your interchange split look like? What are my revenue incentives?
- How many customers do I need to reach to hit my breakeven?
- How well capitalized does my business need to be in order to get to market?
- With other platforms you need to have $1m+ with the bank to go live, how much does it cost with your service?
- Do I need to maintain a reserve balance with the platform in order to facilitate negative customer balances, wind-down expenses, or overall risk mitigation?
- If so, what is that reserve requirement, and how is it calculated?
- Will it scale appropriately with my business or is it one-size-fits-all?
- If we move off of your infrastructure at the end of our contract, what kinds of costs can I expect?
When evaluating a core banking infrastructure provider, you should minimize the chance of potential surprises down the road. At Rize, we make our contract commitments clear to our clients up front and help remove the risk of additional surprise fees that other providers may tack on with short notice. We have one set of economics to work under, and that’s it. No additional external vendor agreements at the bank, processor or compliance vendors to work through for your banking program. With Rize, your program is covered by one set of economics — and most importantly, contracting with Rize provides the greatest ability to earn upside without sacrificing large commitments or fixed fees across a smattering of vendors.
4. REGULATORY COMPLIANCE
Compliance can often be the biggest knowledge gap for founders when they begin building their products. While regulatory compliance can feel like the biggest restriction or threat to innovation, it’s absolutely vital to stay on good terms with regulators and have a comprehensive program in place to keep your customers safe. Investing in an infrastructure platform that provides the guidance and tools needed to stay compliant will ensure longevity and stability in your business.
Here are some questions you should ask your prospective BaaS provider around compliance before making a decision:
- How long is it going to take for me to go through the compliance process?
- When do I meet the bank?
- What happens if the bank says ‘no’?
- Where does your compliance team come from?
- What are my regulatory responsibilities when working with your bank and your platform?
- Do you handle the relationship with the Bank, or do I interact with them directly?
- Do I handle KYC/AML+OFAC verification and ongoing BSA monitoring or do I need to do that?
- If I need to handle that, do you have specific, preferred partners I should work with, and a clear process for integrating them with your platform?
- Who in this relationship handles UDAAP and Training Oversight? How about Vender Management?
- How are customer complaints and transaction disputes handled?
At Rize, we make our compliance program concise from the outset and guide our clients through each step of the process. At the end of the day, we’re only successful if our clients are successful, and we put our clients in the best position to succeed by doing so compliantly. You can get a peek at our compliance program by downloading our Compliance Marketing Guide.
When it comes to Banking-as-a-Service and embedding financial products, there’s a lot being thrown at decision makers going through the process. It’s essential that those stakeholders understand exactly what is required and what is being provided by a prospective technology partner from the start. The last thing you want to do is spend several months integrating with a BaaS provider, only to realize that their card issuance functionality isn’t built, or that they can’t properly process a transaction with their processor or do something as simple as open a bank account for a customer.
At Rize, we saw some of these shortcomings when we started out as a direct-to-consumer platform, and we know how long it can take to recover after a setback like that. That’s why we built Rize — to be a platform for builders, by builders. We take the guesswork out of integrating industry-leading bank products for our clients to take to market at scale. We help our clients avoid the pitfalls of standing up banking solutions for their customers, while maximizing their chances of success. If you’re interested in learning more, you can get in touch with our business team at email@example.com.