Outlook in Today’s FinTech Bank Partnerships — FinTechtris

Outlook in Today's FinTech Bank Partnerships — FinTechtris

Not all financial institutions would like to take on the complexity of integrating an unknown fintech program as part of their core business. Not all fintechs are interested in managing a full scope banking program.

For these banks and tech firms, the format to partner is through a referral partnership program. Fintechs essentially refer their clients interested in opening a product/service to a bank (specifically the bank’s mobile app or website). This bank owns user communication and the banking relationship without the fintech company being involved (in exchange for a one-time referral fee). Banks then make recurring revenue from deposits and other user transaction activity. Pros and Cons:

Financial institutions

  • PROS: Increase customer base and deposits, own customer relationship, eliminate need to audit 3rd party fintechs;

  • CONS: Lack of control with quality of users referred, difficult to maintain lengthy customer relationships, fintechs can easily shift work with multiple banks;


  • PROS: Minimal (or no) responsibility with compliance or program management, generates revenue, no fixed cost to refer users;

  • CONS: Revenue potential is flat, banks may not onboard all referred users, customers may not feel comfortable interacting directly with a bank;

For banks and fintechs that believe in an integrated relationship, embedded partnership programs exist through Banking-as-a-Service (BaaS) frameworks. Licensed financial institutions partner with companies that directly offer digital banking services (accounts, payments, cards) to their end users via API (application programming interfaces). There’s no direct communication from the bank to the end-user.

An early version of BaaS came in the form of the first neobanks — Simple (launched through Bancorp Bank) served US-based users from 2012–2020. There was more of a one-on-one format about a decade ago, in which a bank only took on one fintech partnership. Many partner banks now accept multiple companies in an embedded model.

There’s a definite step-up in the working relationship and responsibilities, but the upside with revenue & scale is a true gamechanger (for both sides). Financial institutions are able to scale deposits at a faster rate. Fintechs are able to increase revenue share through interchange (from user’s card spend) and rebates (based on user’s deposit balances). Additional PROS and CONS:

Financial institutions

  • PROS: Faster scale of customer base and deposits, increased user retention and overall activity levels;

  • CONS: No direct control of type of customers that are onboarded, critical compliance oversight and monitoring of fintechs;


  • PROS: Increased monetization per user, ability to manage the user relationship, deep control the user experience;

  • CONS: Higher fixed cost to properly manage compliance obligations and bank relationships, lengthy & unknown review process from banks can delay launch;

With this type of embedded, direct bank partnership, there’s a larger emphasis on compliance policies and controls. Since financial institutions have less involvement with users, it’s up to the fintech company to ensure proper onboarding of users and continuous monitoring of transaction activity. If banks no longer feel comfortable with a program partner, a platform would be shut down and user accounts eventually closed. In recent weeks, regulators in the US started to demand rigorous standards and checkpoints between financial institutions and fintech companies.

Regulatory Headwinds are forming in the US

Go to Publisher: Articles – FinTechtris
Author: William Morales, Founder