March 22, 2023
It goes without saying that the recent events in the banking industry took many in the fintech sector by surprise. On the fateful Friday when the FDIC stepped in to take control of SVB, many companies didn’t know when, or even if, they’d be able pull their funds from the bank. Very real fears percolated about whether a myriad of startups would be solvent the following week, leaving investors scrambling to find solutions, and founders losing countless hours of sleep over the weekend. Fortunately, the FDIC reassured depositors that all their funds would be made available, and at least that side of the crisis was averted. On the following Monday, talk centered around bank diversification and where companies should keep their assets to avoid having a bank failure put them out of business.
So, that’s deposits. What about the services side of the equation? If the financial services you use are single threaded through a bank that has an event similar to that of SVB or Signature, or goes under a regulatory order that inhibits your business, are you any less at risk? The regulatory eventuality is actually far more likely to occur – it already has…multiple times.
Earlier in my career, I was brought on to a company to run their open loop card business. Shortly after I arrived, I found that they were, you guessed it, single-threaded through their sponsor bank. I immediately began the hunt for a second bank, but before any substantive progress was made, the existing bank came under a consent order that prohibited us from signing new business. Our program could stay live, but it was stagnant. For the better part of a year, we had limited growth and lost multiple potential partnership deals. The cost to our bottom line was staggering. For the bank, this event was in no way comparable to going into receivership, but the impact on our business was.
The change of administrations in Washington in 2020, brought with it a tidal wave of increased regulatory scrutiny. One bank we spoke to in the middle of 2022 said they had, at that point in the year, nearly 50 regulatory audits either completed or underway. Now, this particular bank is pretty buttoned up and had nothing to worry about, but not every bank is. In recent months, we’ve seen a number of banks get hit by regulators, and this trend is likely to continue. Add on to this the current environment around bank solvency, and the services/supply risk of banking has never been higher. Fintech needs to put this consideration front and center of their risk strategy.
What’s the Solution?
If you weren’t thinking about supply-side banking diversification, now is the time. If you are single threaded either through your own bank relationship, or that of your fintech partner, it is critical to find additional partners to minimize your risk. But that takes time, resources, and knowledge. It takes stitching together more technical connections, more reconciliation and reporting, more payment operations overhead—and what do you do about servicing the customer?
At Qolo, we tackle this in a different way. Our advanced ledger and Financial CRM™ support having the services of multiple banks and their associated products connected to a single end user – automatically building in diversification and redundancy. Under this construct, our partners can seamlessly switch between redundant banking partners and programs simply by changing one parameter in our single API that powers all payment types. If a banking partner for a given program becomes unavailable, our partners can just change the API data and keep on running. Imagine, bank redundancy available through changing a single field.
But don’t take our word for it. In a recent press release, we announced a partnership with PayQuicker, a leading global fintech payouts provider. Critical to them was our ability to quickly integrate with new banks and provide access to multiple banking partners through our flexible, omnichannel platform. We’ve architected it to be n-bank capable, and it is already integrated to four bank partners, with at least three more in the pipeline for this year.
Reach out and learn how we provide next-generation, redundant infrastructure to power your critical payments needs.