As favorite apps like Uber and DoorDash incorporate new financial services, the spotlight is being increasingly shone on the companies powering the trend towards finance everywhere. Banking as a Service firms are turning every company into a bank. Synapse is one of the companies leading this charge. The company has found a way to power open banking so that any developer can use a few lines of its code to offer deposit accounts, issue cards, or offer loans.
Synapse’s CEO Sankaet Pathak joins me on the podcast to discuss what he sees as fintech’s biggest challenges in launching new products. I ask about his prioritization of new products — what does he decide to build and when? Not many financial services firms publish their product roadmaps publicly. Synapse has and we discuss that decision, too.
Why build a platform instead of building a better bank
It happened fairly organically. When I came to America, I couldn’t get a bank account without a Social Security number. The only way I could get a bank account is by walking into a bank branch with an adviser letter from my university and providing other things. I remember thinking that maybe it’s because I’m new to this country. It will get better over time. It really didn’t.
When I was graduating from university, I had a Social Security number and signed up for Simple. I still couldn’t open a bank account because of some technicalities around my Social Security number and didn’t have credit history. They couldn’t onboard me. I thought that the problem is still real — let me start a consumer digital bank that works well with immigrants.
I did start building that bank. As I embarked on this journey, I realized that Simple wasn’t really the enemy — it was the bank Simple was sitting on top of that was. I realized that I didn’t want to compete with Simple — I wanted to make companies like Simple easier to exist. So I pivoted to build a platform that makes it easier for developers to build and scale financial products that work for everyone.
Challenges in building a platform
I think one of the biggest challenges was that I didn’t come from banking. I think it took a good two years for me to really understand how financial technology works and what the big problems are to stall. It took time to get our banking partners comfortable that I could execute on our vision.
Another challenge we had building an infrastructure company was around building a product that fills a larger need (not just small use cases). We had to build a modular KYC program so that we could help our customers onboard people in different ways while remaining compliant. This ended up being one of the most interesting things we had to pull off in our first two years as a company. Once we could do this, everything else fell into place.
What a company needs to build a banking product
It’s a lot. First, you need to figure out how to onboard your customers. So, you’ll need to get identity verification right. Then, you have to get your basic AML obligations right, which means once you’ve identified an individual, this person doesn’t belong on any blacklisted database. After that, you need to connect to various payment hooks because your customers will expect to be able to move money. As people put dollars in their deposit accounts, you’ll have to build out a ledger.
Then, any tertiary product that goes on top — checking, debit cards — you have to accommodate all that. Behind the scenes, you have to make sure the reporting happens really well. It ends up being a fairly monumental challenge. For us, it didn’t make sense that people had to reinvent the wheel again and again as they were building out new financial products for their customers. It made total sense to centralize it at a platform level.
Introducing new features and products
Sometimes we sit down and work with our customers, having a candid conversation about what pieces make sense at the infrastructure level and what don’t. The pieces that do make sense at the infrastructure level — we’re incentivized by commoditizing them more.
For example, we’re going to build and launch a credit card program, making it easier for consumers and businesses to secure credit. We’re only able to do that because some of our customers have come to us and asked for it. We sit with them and say, we have a debit product and a loan product — let’s get a credit BIN and figure out this just in time funding piece for you. This gives you the basic building blocks you need to build a credit product. We learn from each other.
Our challenge is to make different endpoints generic enough to serve a larger need. While it’s unlikely that our customers will want to do the very exact thing, it is likely that our customers would use the JIT mechanism for something else. People are going to want to use the credit BIN for something else. These are the generic pieces that we care about that our customers can combine them into their own recipes.