Models for Banks & Credit Unions to consider
SO YOU WANT TO BANK FINTECHS?
If you’re looking to bank a FinTech you likely have some of the following questions:
Q: How do I attract FinTechs?
Q: How do I vet FinTechs? How do I know who’s legitimate and who won’t pass muster?
Q: What are typical revenue share relationships like with FinTechs? How can I make it worthwhile for both parties?
Q: What technology do I need in order to partner with FinTechs? Can I connect them directly to my Core?
Q: Who’s banking FinTechs well, and what can I learn from them?
Q: What does the relationship look like between me and my FinTech partners? Who bears the liability when it comes to fraud? What kind of programs do regulators want me to put in place? Do I need to require FinTechs to be SOC compliant? If not, how can I tell they’re handling data securely?
We’re here to help answer these questions. Feel free to contact us if you’d like to learn how we help banks build great FinTech partnership programs.
models
While there are tons of different models in financial services, with more being generated regularly, there are many basic go-to models with FinTechs. Here are a few that we see regularly:
FBO - For the benefit of accounts. This is an account that is often opened for the FinTech that consists of a sub-ledger system. These FBO accounts are typically close looped, meaning the account the money comes in from is the account the money has to go out to when it leaves. FBO’s are probably the most common way for FinTechs to get off the ground with a depository type account. Revenue share on interest income with FinTechs is common once the number of deposits passes a certain amount. If you’d like to learn more about FBO accounts, feel free to reach out to us.
Checking and Savings - In recent years many FinTechs began offering checking and savings accounts. The money sitting in these depository accounts can be valuable for interest income, but many FinTechs also seek to monetize the payment opportunity to get interchange revenue through debit card utilization. Banks and Credit Unions below the Durbin limit typically benefit from higher yield interchange opportunities on credit cards. Most financial institutions that partner with FinTechs on a debit card for a checking account have to be bin sponsors with a card network, and require integration with a provider like Visa DPS in order to work properly.
Credit Card - Credit Cards offer issuers the ability to participate in interchange - and it’s significantly higher on a business credit card than a consumer credit card - but there’s also the tremendous opportunity to make money off the lending side of the credit card if the consumer carries a balance. Partnering on this front typically requires bin sponsorship, similar to the debit card.
Lending - FinTechs are getting into all kinds of lending opportunities from Affirm to Lending Club, and many more. Most FinTechs partner with a bank to access their lending charter so they can begin to issue loans to their customers.
Payment - Different types of payment opportunities require differing levels of integration with financial institutions. For example, Mastercard’s RPPS product requires a bank sponsor in order to access the network. Other payment networks like Jack Henry’s iPay network do not.
Investment - Coming soon.