Today, we are going to focus on why FinTech Banks fail with their fintech originators. These FinTechs serve as a marketing channel to funnel depositors, borrowers to the bank to be underwritten and issued a product. These products could be a checking account, savings account, credit card and lending products such as a personal loan.

Here are five areas where relationships between bank and fintech partners can quickly break down.

Regulator Compliance

There are so many areas to cover, but we are going to talk about customer facing issues such as data security and regulatory enforcements. Some of the fintech players may be great at marketing and product design, they need help in terms of presenting consents, promissory notes, contracts to the customer, or even emails and SMS to the customer. In fact, these presentations are really up to the banks to design and provide. Ultimately, these FinTech partners are essentially an extension of the banks and their banking or lending products. The best way to achieve this is to let banks deliver these documents via API calls for FinTechs to consume. The banks themselves should have a digital library of sorts to maintain all the documents, templates for each of their fintech partners to consume and present to their clients. Banks should version all of these documents and have real time insight into how these documents are consumed by their fintech partners and strictly enforce the usage of these approved documents. 

FinTech partners will focus on customer experience and call the bank’s API to consume and display key documents without having to worry about whether they have the latest version or whether these documents were approved by the right person at the bank. Again, the burden of compliance really falls on the bank. Instead of auditing the fintech partners, the bank should focus their efforts on maintaining and tracking document usages and work with regulators to show them that proper document control is in place. 

LendAPI’s document center with its tenant design is helping banks to track their fintech partners with reporting and auditor logins to track all versions. Banks has the ability to edit and maintain the documents from a command center styled library and provide API endpoints to their fintech partners to consume.

This solves many of the regulatory issues the bank faces today. Not only are unapproved documents being presented, the banks have no knowledge of what version of the document is being used by their fintech partners.

Underwriting and Verification

Almost all of the Banks that work with their fintech partners have no clue on what data providers or underwriting criteria is being used. Some of the banks have very little requirements when it comes to enforcing identity verification and credit underwriting criteria. Most of the fintech banks do not actually hold their own paper and loans are sold off after a day or two to private equities so there isn’t much concern until regulators come with their examiners.

If the banks don’t pick the data vendor, have very little say in how fintech partners verify identity and most importantly make proper credit underwriting decisions, then this entire fintech partnership might be short lived either by regulatory enforcement or the capital providers will stop funding loans due to poor performance.

We often see that banks start to hire chief credit officers after a regulator action, that’s because banks often rely on fintechs to have credit underwriting expertise. Even if the fintechs have those skillsets, the banks have no clue how to verify the effectiveness of their strategies.

This could easily be resolved if banks give fintechs a way to manage their data vendors, credit underwriting rules and models as well as identity verification strategies that’s reviewed and approved by the banks.

The banks themselves must contain some level of fraud and credit risk management skills but a collaborative effort is most important with professional peers at their correspondent fintech partners. These teams can manage these business rules on a platform where they can collaborate together. 

LendAPI can implement, deliver all types of credit underwriting criteria, rules and models which banks and fintechs can collaborate with. The approval process is built in and logged. The platform can help fintechs and banks to quickly deploy their new process with proper testing or revert back to their old process with a click of a button.

This way, the banks can issue underwriting rules, pricing algorithms, and identity verification processes via an API that each fintech player can leverage. Banks can monitor usage in real time and take action to stop certain activities at a click of a button.

This level of transparency and control is unprecedented and banks are using this tool today to deliver, control and monitor their fintech partners with all of the underwriting rules in a collaborative platform.

Data Volume Advantages

If banks offer their fintech partners access to documents, and underwriting policies through LendAPI’s platform, the banks can also take advantage of volume discounts with their vendors. Traditionally, FinTech partners individually sign up with identity verification vendors, banking transaction vendors and credit bureaus individually, costing fintech partners a lot of money on datacost. 

If the Bank is the billing partner for credit bureaus that fintech partners are using, the banks can negotiate a much better pricing and therefore passing parts of the savings to their fintech partners.

This way, there’s only one master contract between the bank and the data vendors. It’s easier to manage. When it comes to credit bureaus, the bank is truly the entity with permissible purpose to access this data and therefore it will be easier on all parties involved to have the banks be approved by the credit bureaus and lessen the burden to bank’s fintech affiliates.

There are many reasons why banks and fintechs should collaborate on a single platform that delivers compliance and underwriting and LendAPI is built for this collaborative environment. Give us a chime in 2025 and we can help you be more productive.

About LendAPI

LendAPI is a venture backed fintech builder launching any financial products in minutes. Follow us on Linkedin, X, YouTube, and check out our  LendAPI Academy, LendAPI Podcast.