Behind any successful fintech company is one or multiple partner banks. Partner banks enable fintech companies to deliver their financial services to their customers, mainly by holding their accounts and giving them access to payment schemes and networks such as SEPA, Bacs, Faster Payments, Swift, Visa, or Mastercard.
A fintech company’s product is only as good as its partner bank’s products, systems, and operations, as a fintech company is both enabled and limited by the services its partner bank can and cannot offer. This is why the most successful fintech companies go multi-bank.
In this article, we highlight six key criteria to look at when evaluating partner banks. Not all six criteria might matter equally, so we recommend adopting a weighted approach to each criterion.
Different banks have different commercial strategies and priorities. Commercial strategies are very often based on the bank’s history as well as the overall market dynamic.
Some banks are known for being long-time partners to fintech companies. Others have joined the bandwagon much more recently, appealed by success stories of fintech companies such as Revolut, Klarna, or Qonto.
Different banks have different appetites for fintech companies, depending on fintech companies’ size, activity, country of regulation, countries of operations, risk, and potential.
Tier 1 banks are notoriously wary of companies in certain industries, with certain customer bases (e.g., gambling, travel, money remittance, cryptos…), or regulated in specific countries (e.g., Malta, Cyprus, Gibraltar…), while challenger banks might have a higher risk appetite.
Some banks might be new to serving other financial institutions and fintech companies in particular. They might be eager to work with them but might only have limited experience onboarding quickly and supporting them at scale.
Commercial priorities can be linked to the achievement of the bank’s commercial strategy as well as short-term needs and opportunities.
Very few banks are truly global. All banks were born local, and some were more successful than others at expanding outside of their home country.
When they do, it is often through a combination of local banks, resulting in a disparate product offering and commercial coverage. Very few banks deliver the exact same services to their customers in all the countries where they operate, serve them with the same systems, and have a single commercial coverage.
As a result, expanding internationally as a fintech company often means assembling multiple partner banks to build on the strengths of a given partner bank in a given country.
Depending on your own activity and product, you need different financial services from your partner banks.
Such services can range from accounts to lending through payments and cards:
Accounts: settlement, safeguarding, collateral, operations…
Payments: SEPA credit transfer, direct debit, or instant credit transfer, Bacs credit or debit, Faster Payments, Swift…
Other cash management capabilities: FX, cash pooling…
Cards: acquiring or issuing, Visa or Mastercard, consumer or corporate cards, debit, credit, or prepaid cards…
Lending: commercial or consumer, short-term or long-term…
With payments at the core of the product or the operations of many fintech companies, banks offer different types of access to payment schemes and networks, including agency banking, SEPA sponsorship, and corporate access.
Depending on their own infrastructures and balance sheets, banks will have strengths across some product areas and weaknesses across others.
In addition to financial services, banks offer value-added services that can be used by fintech companies to build their products and run their operations.
Account reporting services, such as intra-day account statements or debit and credit notifications, that enable a fine-grained monitoring of transactions booked on the accounts as well as payments rejected or returned.
Virtual account numbers (also sometimes called virtual IBANs or vBANs) enable fintechs to allocate individual account numbers to their customers to facilitate the attribution of incoming payments, without the need to be a SEPA indirect participant and issuing their own IBANs.
Account verification solutions such as SEPAmail Diamond enable the verification of accounts by matching them with their holders.
SEPA direct debit management solutions enable to manage direct debit mandates (including information capture and signature), plans, payments, and retries.
Transaction monitoring solutions enable the verification of payments sent and received through a combination of sanction lists, adverse media information, and proprietary data.
Fintech companies with large volumes of payments rely on bank cash management channels to send payment instructions and retrieve payment and account information.
Cash management channels range from standard file servers (SFTP, EBICS, ETEBAC…) or message brokers to proprietary APIs or vendor-owned networks such as SWIFTNet.
Cash management channels are only as good as their documentation. Our experience shows that getting hold of up-to-date, accurate, and comprehensive documentation can be a challenging task.
It is not uncommon for a bank integration to be paused for days or weeks due to back-and-forth communications on bank connectivity, payment file signature protocols, or file formats.
“Price is what you pay. Value is what you get.” This applies to partner banks and financial services. We have deliberately put pricing as criterion #6, as it should only be looked at with respect to criteria #1-5.
Depending on their strategy, priorities, offerings, and capabilities, different banks have different pricing strategies. They might also have different pricing models that might be more suited for certain types of customers, activities, and business models.
Banks in the EU are mandated to publish their pricing grids. You will often find them in the footer of their websites. Such prices can and should be negotiated. We often see fintech companies pay a tenth of public prices for payment fees or get offered cash management channels for free.
Pricing is probably the last criterion to optimize for, though. At the very least, attractive pricing should not compensate for inadequate commercial fit, limited geographical footprint, sub-par financial services, value-added services, cash management capabilities, or a weak relationship.
We invited payment companies' product and business leaders to a webinar about building resilient payment operations. Our panellists – namely Nirav Patel, CEO of Andaria Financial Services, Dimitri Rodrigues, Chief Product Officer at iBanFirst, and Dan Wong, Senior PM Core Banking at TrueLayer – shared their learnings from their extensive experience.
The kind of partner bank you are looking for will highly depend on the stage of your company. Early stage companies will look for banks that are used to working with young fintech companies and might offer financing facilities alongside their payment and safeguarding products.
Later stage companies will look for partner banks bridging gaps in their current coverage and allowing fine cost optimisation.
As our panel discussed when covering the recent bank failures, risk assessment is a major element when choosing a partner bank. But also a hard balance to strike. Indeed, the banks the most willing to work with fintech companies might be the least risk averse. Whatever your stage, it might be worse to go the extra mile to show potential robust partner banks your low-risk profile to secure at least one bank of this kind in your coverage.
Obviously, costs will be a critical factor when deciding which banks to work with. But first, we need to understand why reasonable costs (and potentially interesting remuneration of customer deposits) are critical for payment companies.
Payment companies aren’t simple distributors of banks’ products, in our case, payment services and deposit holding. They add value on top of them by building complex products with advanced customer experience, abstracting the complexity of payments, providing exceptional customer service, and offering extensive payment coverage from one single product.
Building and running such products have a cost, so payment companies do have to add their margins on what banks bill. And they have to do so while remaining competitive against other solutions on the market. It is not a question of driving prices down at all costs. It is a matter of building robust businesses that offer great customer experiences.
If the prospective partner bank doesn’t understand this, this is a red flag. It shows that working with payment companies isn’t part of their DNA and doesn’t look good for the future of the relationship.
As a payment company grows, its payment volumes and deposits will grow, driving more negotiating power and economies of scale. Through an aggregation effect, partner banks should understand that they will also benefit from this growth and offer better terms for larger volumes. But some don’t. That is why payment companies need to constantly keep an ear on the ground for potential better terms with new partner banks.
One reason payment companies go multi-bank is to increase their geographic, currency and payment method coverage. But working with banks that have strong coverage can reduce the number of banks required to offer a complete solution to customer needs. And working with fewer banks reduces the complexity of a multi-banking infrastructure.
Payment companies also need to balance the long tail with the core of the activity. From our panellists' experience, irrespective of which markets your address, the majority of payments will take place in USD, GBP or EUR, and from or to a few geographies.
Once all these objective criteria have been assessed, and sometimes in place of some of these criteria, what matters when selecting a partner bank is their understanding of your business and its evolution.
Whether you process consumer or business payments, local or international payments, or purchase and selling of crypto assets or stocks, the partner bank needs to understand what such payments imply in terms of technical and compliance requirements, volumes, types of end users, KYC processes, and be entirely at ease with that.
At the end of the day, partner banks will be responsible for sending these payments on the interbank systems and shouldn’t discover that these payments don’t fit their risk appetite and block your payments or cut you off overnight.
Its network of partner banks is one of the most important assets a fintech company can build. Such partnerships take time and effort to build. Integrating with and managing payments with partner banks can be complex at scale. Get in touch if you would like to know how Numeral can help define and build your banking infrastructure.