How do you future proof your fintech business?

In recent years there have been a significant number of new Fintechs launched with much hype, here in the UK. Many of these appear to have been brought to market quickly, on the back of a pre-paid card platform and are buying customers now with a plan to build a revenue model at some point in the future.

Whilst I am not planning to comment on that as a business model, I do wonder at the wisdom of starting from a pre-paid card platform when building a financial institution that may later become a bank.

Every transaction on a pre-paid card platform is a card transaction, every account on the platform is another card and each must be paid for as such, even if the transaction has nothing to do with the card or the account has no need of card access. This makes creating a business model that funds itself extremely difficult and limits growth of the platform into other areas.

Surely, if you’re coming to market with a brand new proposition for the customer, flexibility is going to be the cornerstone of your success.

If you intend to expand your operations out from your initial country, either throughout Europe or in a wider capacity then you will need to operate in different jurisdictions, under multiple regulators with different KYC & AML rules and manage multiple currencies.

In order to offer the full range of financial transactions to your customers you will need to ensure that you are integrated to all the payment networks, along with card issuing and acquiring.

How do you ensure that the technology and platform you are starting out with meets your immediate requirements of getting to market, but also has the flexibility and scalability to expand the services you want to offer and the geographical areas you want to cover?

When starting out you need to consider not only the great product or service you will be offering to your customers, what this will look like and the customer experience, but also 

1. The security of your platform, does it monitor and deal with all the cyber security issues?
2. Flexibility to deal with different regulatory requirements, can you offer accounts with different onboarding, KYC/KYB, AML requirements?
3. Accounts with multiple Users and Users with multiple accounts?
4. Can you offer multi-currency accounts and fee structures and integrate with all the various payment networks?

Having a flexible platform to be able to react to new pieces of regulation or new markets is important, but so is your ability to deal with financial crime and cyber security.

Your platform could be the most user-friendly and cost-effective product on the market, you could even bring your product to market quicker than all your competitors, but if your security or infrastructure is found wanting, you will get caught out.

The temptation is to launch on a platform that will get your new service to market as quickly as possible saving money, which may be in short supply at this stage, in the short term, without paying too much thought to the long term. This approach could create potential issues in the mid to long term when you come to expand and could create a development cul-de-sac.

What’s the alternative?

You could look instead at an Account Management Platform. Clearly you will still need cards but they become an access point to the account. Any transaction that doesn’t use the card (e.g. deposit, transfer, payment) attract only operational expenses rather than card charges. Any account that doesn’t need a card, doesn’t have one and in the business model there is no charge for that. As a result you can give your customers a current account (with overdraft), savings accounts, loan account. You can even let customers create their own accounts as they start to save for a special purpose, and close them again when they are done. Joint accounts and company accounts can be shared with those who need access and appropriate user access can be granted (a partner may be given equal access to a joint account while a tax accountant may be given read only access for example).

This Account Management Platform will have the security, modules and connections you need to launch, with all the flexibility built in to expand as your business and geographical footprint grows. You can then develop your services on top of this base platform and get to market in the shortest time and at minimal cost, while concentrating your efforts on what you do best.

Your Account Management Platform will allow you to integrate into any payments network and support any currency (even crypto), as long as you have banking to support it. Some will even allow you to store multiple currencies in one account (but that’s a bit niche). They provide double-entry ledgers, manage KYC/AML, apply any fees or limits the business requires, manage your Call Centre and provide all security and logging.

So, given that Account Management Platforms exist, why are there so many neo-banks running on pre-paid platforms?