In our guide to banking infrastructure, we explore three different ways to build financial features into your product. In this guide, we’ll go a step further and dive deep into the bank-partner relationships that underlie those features. We’ll address questions like:
What is a bank partner?
How does a bank-partner relationship work?
What should I look for in a bank partner?
In the past, some companies seeking to embed financial features may have thought the choice of a bank partner was unimportant. The belief was that all of the banks were more or less equivalent; some platforms may even have encouraged this line of thinking.
In the past, some companies seeking to embed financial features may have thought the choice of a bank partner was unimportant. The reality is quite different.
The reality is quite different. Your choice of a bank partner will greatly affect the kinds of financial features you can offer to your customers, your time-to-market, the resources you’ll need to invest, the resilience of your integration, and your ability to switch to new banking infrastructure in the future.
It starts with a charter
To provide bank accounts in the United States, you need a bank charter.
A bank charter entitles financial institutions to conduct banking activities—primarily holding customer deposits and insuring them with the FDIC, making loans, and providing access to the payment system (ACH, wires). In addition, requiring financial institutions to obtain charters provides regulators with an opportunity to ensure that the institution has sufficient resources to justify these special powers, including, for example:
To prevent money laundering and the financing of terrorism
To protect banking customers from predatory behavior and other abuses
To operate safely and soundly
Applying for a bank charter can take years and millions of dollars—a prospect that is unattractive to many companies, due to the time-to-market and the significant resources it requires.
Fortunately, obtaining your own bank charter is not the only option. You can also work with a bank partner to bring your desired product to market.
Bank partners explained
A bank partner is a bank that works with a company to make the bank's financial products available to the company's customers.
For example, Chime is a company that offers its customers access to banking services. But Chime is not a bank, nor does it possess a bank charter. Rather, it offers access to cards, accounts, and payments through its bank partners, Stride and Bancorp. The same model applies to companies like Uber and Shopify.
You can choose to partner directly with a bank with the help of an embedded finance platform (e.g., Unit). Or, you could work with a bank partner without a platform’s help. Your choice will, in turn, affect the range of banks available to you, the kinds of products you can offer, your time-to-market, the resources you need to invest, and the long-term resilience of your financial features. (article continues below)
How do bank partnerships work?
When you partner with a bank, you work together with the bank to market the bank’s financial products and services.
A bank partnership (also known as a bank fintech partnership) may allow you to make available to your customers one more of the following:
Accounts. The bank opens and maintains deposit accounts that will hold your joint customers’ deposits. These deposits typically will be insured (up to $250K per account) in the event the bank fails.
Cards. Through its relationships with payment networks such as Visa and Mastercard, the bank enables you to market debit and/or credit cards (including virtual cards) to your customers.
Payments. In addition to credit and debit cards, the bank offers other ways for customers to transfer funds, such as wires, ACH, and book payments.
Lending. The bank may make available certain lending options for your customers, such as revolving lines of credit, term loans, and cash advance. (article continues below)
Bank-partner relationships: what you must contribute
As with most business relationships, a bank-partner relationship involves both inputs (things you must contribute) and outputs (things generated by the partnership).
That said, it’s important to note that both inputs and outputs vary widely based on which approach you take to finding and integrating with a bank partner. Put another way: partnering with a bank requires a lot of work. What varies is who does the work.
Partnering with a bank requires a lot of work. What varies is who does the work.
For companies that choose to work directly with a bank without the help of a platform, the answer is simple: your team. You’ll have to hire or otherwise acquire the banking and compliance expertise necessary to accomplish everything on the list of tasks below. Expect to spend years and millions.
By contrast, embedded finance platforms may assist on some or all of these items, expediting the process and freeing you up to focus finite resources on other priorities. When considering how to go to market, it’s crucial to understand which of the following your embedded finance platform can help with and which will be incumbent on you.
List of responsibilities:
Onboard banking and compliance expertise. The amount of banking and compliance expertise you’ll need in-house varies widely based on your approach. If you’re planning to work without a platform, you’ll need to hire a Chief Compliance Officer and quickly build a full-time team of 10–50. And be forewarned: these roles are not cheap.
Sign a contract with a bank partner. You’ll likely need to talk to at least 10 banks before you identify one or two good candidates, and it may take months to nail down terms. If you’re planning to work directly with a bank, many will require a multi-year contract, making it difficult to change course if the relationship doesn’t turn out as you had hoped.
Design your financial features and the workflows to support them. Which financial features do you plan to offer? How will you structure your KYC flows so as to onboard your target customer? What kinds of applications will be approved or denied automatically? Which will require additional documentation? How will you monitor for fraud and manage disputes? Will you need to achieve and maintain PCI-DSS compliance? These are just a few of the questions you’ll have to answer when designing your financial features and the workflows to support them.
You’ll likely need to talk to at least 10 banks before you identify one or two good candidates, and it may take months to nail down terms.
Identify and integrate with compliance vendors. Most companies partner with vendors (as many as 12 of them) to meet compliance requirements. For example, Socure can help you verify identity information, while Vouched can help you authenticate documents. Budget a few months for this, and be aware that your bank partner will likely want to weigh in; many have a preferred vendor list. (Learn more in our KYC guide.)
Write policies and procedures. Your bank partner will require you to document how you intend to comply with relevant regulations and align yourself with industry best practices. Building these from scratch usually takes a few months.
Develop terms and conditions. Whereas policies and procedures are internal, terms and conditions are customer-facing. They stipulate things like loan terms, interest rates, and account limits. Like policies and procedures, they must comply with relevant laws; you’ll need to work together with your bank partner to develop them.
Get your proposed financial features approved by your bank partner. Although they may be allowing you to market their financial services, your bank partner is ultimately responsible for the outcomes. As a result, they’ll need to review and approve your product and how it works before launch.
Build a backend to support your financial features. Now that you’ve designed your financial features and gotten them approved, you’ve got to build them. Depending on your approach, this could involve building a full banking stack (ledgers, KYC, etc.) on top of your bank partner. This can take 18 months to get right, and mistakes can be very costly. Alternatively, many embedded finance provide this technology.
Build a banking frontend that your customers will interact with. In order for your customers to take advantage of your new financial features, they’ll need a user interface to interact with. Common use cases include onboarding, sign-in, account screens, transaction lists, money movement, card management, statements, and disputes.
Ensure applicable security. As a part of getting approved by your bank partner, you’ll need to conduct one or more “penetration tests”: simulated cyber-attacks designed to ensure that your systems are reasonably safe from data breaches.
Manage manual account reviews, fraud, and disputes (ongoing). Not all account applications will be automatically approved or declined by your KYC protocols. In these cases, someone with an understanding of regulatory requirements (from either your team or a vendor) will have to manually review them and make a decision. You’ll also have to contend with fraud and disputes—both of which are a reality of making financial services available to your customers.
Manage periodic audits and re-certifications (ongoing). Your financial features will be subject to periodic reviews by both your bank partner and government regulators. Your compliance resources (either in-house or from a consultant) will be responsible for assisting with this process.
What to look for when you partner with a bank
There are more than 4,500 banks in the US, of whom only a small subset have a track record of partnering with technology companies to offer financial features. They tend to be smaller institutions with fewer than 500 employees and less than $10b in deposits.
If you opt to source and select a bank partner on your own, you’ll likely need to talk to at least 10 banks before you identify one or two good candidates. (At Unit, we met with no fewer than 50 banks before choosing the first of our partner banks). When evaluating potential bank partners, consider these six important criteria. (article continues below)
Willingness to partner + relevant experience. Is the bank willing and able to work with you? Many banks are not willing to partner at all. Among those that do, some prefer to work with the help of an embedded finance platform. But willingness, though necessary, is not sufficient; you’ll also want to verify that the bank has partnered with at least five other tech companies that look like yours.
Product coverage. Does the bank support the products you want to build? We advise that you be specific and comprehensive in your discussions. For example, many banks won’t support business accounts; others won’t enable lending or SWIFT.
Economics. Pay attention to pricing, both fixed and at-scale. What will the bank charge you to open and maintain each new checking account? What does each type of money movement cost? What kind of interest will you earn, if any?
Compliance requirements. What personal data and identification documents does the bank require to open a new bank account? Bank approaches to compliance can vary widely, and you need to ensure you and the bank are aligned on this important topic.
Committed leadership. You should seek at least 10 years of deep, relevant experience in the bank’s compliance lead, their tech lead, and their fintech business lead. Do they understand your target audience? Do they understand what you’re trying to build? Are they asking good questions? Are they aligned with your goals? Will they help you work through challenges as a true partner? Especially if you’re building a product that has never existed before, it’s important to ask these questions.
Ability to execute. Of all the criteria on this list, this one varies most widely. Has the bank worked with companies to offer its financial products through companies like yours in the past? Were they able to bring those products to market in a reasonable amount of time? If you choose the wrong bank, you could end up delaying your launch by months or years. After launch, your ability to continue to innovate depends on your bank partner’s willingness to support your roadmap.
Once you’ve identified a promising potential partner, the next step is tapping your network for 2–3 referrals and candid reviews. Talk to companies that already partner with the bank you’re considering: what have they experienced? Would they recommend that you follow in their footsteps? And be sure to do your due diligence, as outlined in the bulleted list above.
Wondering how to find the right bank partner? Feel free to drop us a line.
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