In 2019, before we started Unit, Doron and I published a blog post titled Request for Bankers. Back then, we thought the best way to help innovators build financial features into their products was to obtain a bank charter.
After listening carefully to hundreds of builders, we realized that the best way to serve our customers was to focus on building an access layer on top of multiple banks, making it easier for our customers to launch and succeed with financial products (accounts, cards, payments and lending).
We realized that the optimal access layer is made of three components, which today are at the core of Unit:
This approach has helped us become a market leader in banking-as-a-service. Today, Unit handles more than 7.5 million API calls per day and is trusted by leading brands including AngelList, Homebase, Invoice2Go, and Roofstock. We work with five bank partners, which gives us the ability to onboard new customers quickly and reliably. We plan to continue adding bank partners to support our growth over the next few quarters.
If you’re thinking about the best way to find and integrate with a bank partner, this post is for you. In it, I’ll explain why you should care about how your bank partnerships are set up when building on any banking-as-a-service platform, as well as our decision to work with multiple bank partners.
In the US, tech companies that wish to take a financial product to market typically work with a bank partner. As we explain in our guide to banking infrastructure, the bank provides the financial products, while the tech company is approved by the bank to market these products on behalf of the bank.
All banks—small or big, branch-based or digital—are subject to similar kinds of regulations. Banks must devote significant resources towards regulatory relationships, regulatory examinations, independent audits, and staffing/tooling to comply with relevant rules and regulations. These include:
Approximately 50 banks in the US have established themselves as reliable partners to tech companies. Most are community banks with fewer than 500 employees and less than $10B in assets.
Like any bank, partner banks must perform the regulatory work listed above. Moreover, they must manage the issues that come with supporting tech companies as distribution channels. These include the risk of fraud, money laundering, and potential harm to end-customers—made more challenging by the fact that tech companies typically do not have the same experience as banks at marketing financial services, enforcing product compliance, and overseeing dispute resolution.
These risks are not new. As many banks have shown, it’s possible to manage them safely and profitably. For example, banks that issue airline credit cards have been effectively overseeing such programs for decades. That said, they do require intelligent oversight, which requires an openness to responsible innovation, appropriate staffing and tooling, and relevant expertise.
Finally, there are several different ways to find and integrate with a bank partner. You can work directly with a bank, work with a banking-as-a-service platform that supports a single bank relationship, or work with a banking-as-a-service platform that supports multiple bank partners. In the following section, we’ll explain why we chose the third model.
When you’re preparing to launch financial features, it’s critical to work with multiple bank partners. Here’s why:
With reliability as one of our 5 core values, it’s important to ensure that we can give each new customer a fast and predictable go-live date.
That said, all banks have a natural rhythm, during which their ability to focus on new partnerships ebbs and flows. This rhythm can be impacted by in-house technology projects, regulatory examinations or audits, personnel changes, customer demands, and many other factors. At certain times, banks can be slower in accepting and onboarding new clients, for the simple reason that these activities and initiatives demand a lot of resources.
The above considerations are even more applicable banks that are new to partnering with tech companies. The internal investments necessary to build out the cross-functional organizational capabilities for partner banking are significant and require meaningful management time and attention, both at the outset and as the bank’s partner banking business grows and matures.
If you’re considering working directly with a bank, or with a platform that supports only one bank partner, you should be aware of these potential constraints. In particular, single-bank partnerships are prone to unpredictability and last-minute changes that can arise from seasonality issues.
By working closely with our bank partners, Unit is able to provide a fast and predictable go-live date—often a matter of weeks. This also benefits the banks, as they know we support their current capacity and appetite for onboarding new partners.
When selecting a bank partner, you should consider their capacity to scale with your business as it grows.
In the past, some banks that support tech companies have asked them to limit their growth, citing (among other reasons) their inability to keep up with the oversight demands as programs have grown substantially. For this reason, tech companies that scale beyond a certain size may ultimately need to find and integrate with multiple bank partners.
You can mitigate this risk and streamline your search by partnering with a platform that already supports multiple bank partners. For example, Unit has helped our customers expand from one to multiple bank partnerships and even start with two banks at launch.
Another risk in working with a single bank partner is a change in business strategy that leads the bank to fold some or all of their tech partnerships.
This isn’t a risk we’ve had to manage directly at Unit, but there are several notable examples in the ecosystem. BBVA, for example, was a pioneer in banking-as-a-service with the launch of its Open Platform in 2019, but it decided to cease fintech operations in 2021.
Migrating to a new bank partner isn’t always a simple process. In fact, depending on your infrastructure, it can be extremely disruptive to your business. In the worst case, it involves forging an entirely new relationship with a different bank, rebuilding your tech from scratch, and a re-issuing of all routing numbers, account numbers, and customer cards. Under these circumstances, migrations can take months and cost millions.
By contrast, with platforms like Unit that work with multiple bank partners, you can migrate your financial features to a new bank with minimal impact on your business.
As you evaluate infrastructure options, you likely have in mind a certain set of products and features that your bank partner would need to support.
Our experience teaches us that, over time, companies tend to expand their offering into additional financial products and payment types, with the result that they usually need more than one bank partner.
Say you’re the CEO of Lando, a platform that helps 15,000 independent landlords manage their rental properties. You’re planning an expansion into financial services, and you’ve identified your first product: a checking account for every rental unit. Each account comes with a debit card and ACH payments.
After a successful launch and a series of product focus groups, you identify a series of new products and features that will lead to increased rates of adoption and engagement:
If you’d previously chosen to work directly with a bank, or with a platform that supports only one bank partner, you’d be faced with a difficult decision. In all likelihood, your current bank partner wouldn’t support all the products and features on your updated roadmap. You’d either have to strike the unsupported products from your roadmap or go back out on the market and look for a second bank partner and undertake a whole new integration.
By contrast, Unit works with multiple bank partners to deliver a complete set of financial products, payment types, and terms—all through one platform. Our customers take advantage of multiple bank relationships to offer, for example, checking accounts from one bank and credit cards from another. For your customers, the experience is seamless: your desired set of financial products, available through your own application, in collaboration with your bank partners.
Given the variety of stakeholders that banks must interface with, as well as their many regulatory responsibilities, it’s no surprise that they sometimes experience issues with capacity and product completeness.
That’s why, at Unit, we decided to work with multiple bank partners: it is, hands-down, the best way to help companies go to market quickly, access a complete set of high-quality financial products, avoid latency issues, and succeed.
July 22, 2022