How do fintech brands choose the right partners to grow their business?
- As an industry matures, suppliers begin looking similar. In fintech, how do brands pick the right ones from a sea of similarly capable suppliers?
- While getting in touch with a supplier is not difficult, the real effort is in finding synergy between two firms that sets both off on a path to success.
The nature of financial service providers has undergone an overhaul. Today, giant financial institutions face their biggest threats not from overseas competitors looking to expand, but from startups a fraction of their size, and increasingly, from companies whose core business has nothing to do with finance.
Behind the scenes, there’s an entire landscape of core technology providers that are empowering car retailers to sell insurance, and food-delivery platforms to offer loans — like the Grab super app in Asia. This begs the question: how do distributors, which in this case are front-end brands like Uber and Robinhood, choose the right supplier – firms like FIS and Stripe – to launch and grow their business?
First, let’s quickly review what the landscape of core technology providers looks like. Core technology providers are divided by the capabilities they provide their brand partners, like lending programs, launching and running a card, or risk and compliance. With each of these capabilities, there are multiple vendors in the US industry, which is among the most sophisticated in the world.
It is important to address the limitation of the chart below, as fintech partnerships go beyond technology infrastructure, like finding a bank to underwrite loans for a lending platform.
Source: Medha Agarwal
Brands have a simple mission: to identify a consumer-level problem and solve it. This might mean making it easier for someone buying a car to buy insurance with the same checkout, or solving problems for a traditionally underserved community — like simplifying access to loans for minorities. The subject of their work and innovation is the consumer, and they wish to waste as little time in developing technology as possible, looking for suppliers to fill in that gap.
Getting in touch with suppliers
With the pace at which fintechs are innovating and the obscure niches they’re choosing to serve, how easy is it for them to get in touch with a supplier? Say, could I just decide to start a bank from my couch, shoot an email, and get a meeting the following week?
Well, it's not that simple, but I don’t need much to get into a room with a supplier. Damian Brychcy, COO at Capital on Tap, advises I get a website running for my company, a company email address, and a Linkedin page, and I’m good to go. These add a lot of credibility without any real cost – maybe $20 per month.
The initial meeting, however, is where both parties do their screening to see if there’s compatibility.
“Most suppliers will let you know if you aren't their target demographic immediately after you reach out or at the latest after the first meeting. I encourage brands to reach out to as many suppliers as possible when they are making a buying decision because you will quickly find the 2-3 that are likely to be the best fit,” Brychcy told Tearsheet.
Rory Spurway, CEO at CarbonPay, also shared a similar experience — suppliers were open to meeting him. “In our experience, most of the suppliers that we contacted at the start of our journey were open to having a conversation with us. We think if you have a compelling and innovative product proposition and you have the passion to back it up, you spark intrigue with suppliers,” he told Tearsheet.
The thought behind choosing a partner
One thing about core banking technology is that all providers, in principle, aspire for the same things: a sound technology architecture, a cloud-based API network to supply their tech, and speedy deployment. This is especially true for suppliers as they grow big. As with most industries, their set of offerings becomes similar. In this environment, factors beyond suppliers’ core offerings begin playing a more critical role for brands in choosing the right ones.
“We acknowledge that suppliers in the same industry have to provide a standard set of offerings, but it is the teams behind the suppliers who go above and beyond in other areas that makes the difference and makes them stand out, including innovative software solutions and their ESG focus,” Spurway told us.
CarbonPay, which provides cards that automatically contribute to offsetting CO2 in the environment with each transaction, works with Stripe and Visa to power its offerings. For the firm, when picking a supplier, three things were critical: tech, team, and time. Best-in-class tech was essential to help support its mission to innovate in the market. Secondly, the firm sought to work with a team that was passionate about its product and aligned with their brand mission of making a positive environmental impact on the planet. And last but not least, they wanted to work with partners that could facilitate speed to market and were agile.
Fintech unicorn Happy Money, a platform for unsecured lending, also gave the alignment of vision paramount importance when choosing a partner. The firm sought to develop affordable and accessible products that ‘empower people to use money as a tool for their happiness’, for which they felt credit unions would make the best partners.
“For us, we chose to partner with Credit Unions, and it’s really a win-win. Credit Unions are long known for their focus on local communities, excellent member service, best-in-class rates, and unwavering trust. This makes them ideal partners for the fintech brands looking to positively impact the financial services industry,” Joseph Heck, the firm’s chief executive for product, partners, & development, told Tearsheet.
Heck, however, said that an alignment of vision is not always the main factor. Partnerships, for him, lie somewhere on a spectrum between completely transactional and completely strategic. The more transactional the need from a partnership, the more emphasis he puts on reliability, resilience, and simplicity when operating with the partner. The more strategic it is, the more he values the engagement model between the two companies.
“For example, we have a great partner that helps us with transaction data, though that relationship is very transactional in nature. We just need it to work and work well. On the other hand, Credit Unions are our point of differentiation. We treat them as strategic partners, leveraging our relationship to get feedback, test new concepts, and share insight. We are constantly looking for ways to improve each others’ businesses,” he detailed.
However, competencies of core offerings by suppliers are of no less importance. For Brychcy, quality of API documentation, speed and flexibility, and commercials are key factors. One of the first things Capital on Tap does when shortlisting suppliers is to have its own engineers review a supplier's API for quality. The engineers can usually tell within 5 minutes if the documentation is world-class and belongs to someone they really want to work with. Similarly, with speed, it is important that their supplier can work at the pace the brand does. “If we reach out for an initial chat or we ask for commercials as a follow-up, expect that information in hours rather than days or weeks,” Brychcy said.
To discuss the commercial element, it is first important to understand that there are two camps that suppliers generally fall into: the ‘old school’ guard — suppliers accustomed to working with big banks — of long-term deals and commitments, and the ‘new school’ software companies that can be more flexible. The old guard is used to doing annual deals with upfront fees, while the new school companies are willing to bet on themselves and their product experience that brands will stay and spend more.
“The old school way is a dying relic for most suppliers, and some are just hanging on because it's great for their business model. But it won't work in the long term,” Brychcy said.
Flexibility has also developed as a key factor in developing the right partnership. When smaller, younger brands are getting started with a supplier, they often want to pilot the product rather than commit to a 3-year, $500,000 commitment.
“The best suppliers can help us build out pilot programs as well as long-term deals at scale in the same agreement. Creating bespoke agreements doesn't have to take a long time and can be a win-win for both parties,” Brychcy said.
Supplier red flags brands should keep an eye out for
Not every supplier that looks right at the beginning will prove to be in the long run. It is very much possible that brands may have to look for another one after working with one and outgrowing it. Brands need to operate with a level of flexibility that allows them to switch if need be, and be able to integrate with a new partner.
According to Brychcy, suppliers that over-promise in the sales cycle – which he believes most do – need to be put on a short leash. A practice to keep an eye out for that is to document via email what was promised versus what the brand received, the timeframes that were agreed on, and other related items. Brands can then use this documentation to either get out of a contract, if it's bad enough, or negotiate discounts/rebates on invoices.
Secondly, if a supplier sells a brand some features on the grounds that it has the full capability to offer them, but once the partnership starts says they will be ready in the next quarter, that should raise an instant red flag.
“The next quarter is always just around the corner, but it usually means these features might be 3-12 months away — and sometimes fall away entirely,” he said.
Besides, being the first customer on a new feature often means a brand is accepting the growing pains and testing that comes along with this.
Maintaining a successful brand-supplier relationship
A true partnership is one that invests in radical candor and continued feedback — compatibility and communication are key. In addition, it is important that the two partners consistently complement each other with their operations and growth.
To streamline communications, firms understand the importance of having a single owner for each supplier. One person is copied on every message and serves as the central coordination point. This helps prevent any miscommunication, especially in the early days, when the two are seeking to build sustainable compatibility.
From an early stage, it is also important to ensure that enough resources – both technical and non-technical – have been dedicated to supporting the build or integration. Brychcy shared that Capital on Tap made the mistake of greatly under-resourcing a project, and it ended in abject failure and pain — his words.
Thirdly, it's important to maintain momentum. At the point a contract is signed, the momentum to dedicate resources is the highest. So, it becomes important to make sure things don't get pushed out for 3 months to 6 months. Otherwise, firms run the risk that the people involved get bored of the project and move on to the next shiny thing.
Happy Money invests in intentional and lasting relationships with its Credit Union partners, both virtually and in-person. Investing in opportunities where people from the supplier and the brand can meet allows both to build trust and collectively ideate to create better products and solutions.
“We recently hosted our partners for a two-day event in Palm Springs where we not only explained our Happy Money strategy, but also heard from experts across various disciplines, learned through product feedback opportunities, and hosted peer-to-peer networking experiences,” Heck said.
All in all, fintech products and services must deal with this brand-supplier dynamic. As one focuses on making a product, the other ensures it can be done. The path to a successful company starts with effective, efficient, and mutually beneficial partnerships.