How to choose the right partner banks with Mambu Payments

In this article, we outline six key criteria to evaluate when choosing a partner bank – based on our own perspective at Mambu Payments, as well as insights from product and business leaders at leading payment companies. We also share how Mambu Payments helps streamline and scale relationships between fintechs and their banking partners.

How to choose a partner bank as a fintech company

Behind any successful fintech company is one or multiple partner banks. Partner banks enable fintech companies to deliver their financial services to their customers, mainly by holding their accounts and giving them access to payment schemes and networks such as SEPA, Bacs, Faster Payments, Swift, Visa, or Mastercard.

A fintech company’s product is only as good as its partner bank’s products, systems, and operations, as a fintech company is both enabled and limited by the services its partner bank can and cannot offer. This is why the most successful fintech companies go multi-bank.

In this section, we highlight six key criteria to look at when evaluating partner banks. Not all six criteria might matter equally, so we recommend adopting a weighted approach to each criterion.

1. Commercial strategy and priorities

Different banks have different commercial strategies and priorities. Commercial strategies are very often based on the bank’s history as well as the overall market dynamic.

Some banks are known for being long-time partners to fintech companies. Others have joined the bandwagon much more recently, appealed by success stories of fintech companies such as Revolut, Klarna, or Qonto.

Different banks have different appetites for fintech companies, depending on fintech companies’ size, activity, country of regulation, countries of operations, risk, and potential.

Tier 1 banks are notoriously wary of companies in certain industries, with certain customer bases (e.g., gambling, travel, money remittance, cryptos…), or regulated in specific countries (e.g., Malta, Cyprus, Gibraltar…), while challenger banks might have a higher risk appetite.

Some banks might be new to serving other financial institutions and fintech companies in particular. They might be eager to work with them but might only have limited experience onboarding quickly and supporting them at scale.

Commercial priorities can be linked to the achievement of the bank’s commercial strategy as well as short-term needs and opportunities.

2. Geographical footprint

Very few banks are truly global. All banks were born local, and some were more successful than others at expanding outside of their home country.

When they do, it is often through a combination of local banks, resulting in a disparate product offering and commercial coverage. Very few banks deliver the exact same services to their customers in all the countries where they operate, serve them with the same systems, and have a single commercial coverage.

As a result, expanding internationally as a fintech company often means assembling multiple partner banks to build on the strengths of a given partner bank in a given country.

3. Financial services

Depending on your own activity and product, you need different financial services from your partner banks.

Such services can range from accounts to lending through payments and cards:

• Accounts: settlement, safeguarding, collateral, operations…

• Payments: SEPA credit transfer, direct debit, or instant credit transfer, Bacs credit or debit, Faster Payments, Swift…

• Other cash management capabilities: FX, cash pooling…

• Cards: acquiring or issuing, Visa or Mastercard, consumer or corporate cards, debit, credit, or prepaid cards…

• Lending: commercial or consumer, short-term or long-term…

With payments at the core of the product or the operations of many fintech companies, banks offer different types of access to payment schemes and networks, including agency banking, SEPA sponsorship, and corporate access.

Depending on their own infrastructures and balance sheets, banks will have strengths across some product areas and weaknesses across others.

4. Value-added services

In addition to financial services, banks offer value-added services that can be used by fintech companies to build their products and run their operations.

Account reporting services, such as intra-day account statements or debit and credit notifications, that enable a fine-grained monitoring of transactions booked on the accounts as well as payments rejected or returned.

Virtual account numbers (also sometimes called virtual IBANs or vBANs) enable fintechs to allocate individual account numbers to their customers to facilitate the attribution of incoming payments, without the need to be a SEPA indirect participant and issuing their own IBANs.

Account verification solutions such as SEPAmail Diamond enable the verification of accounts by matching them with their holders.

SEPA direct debit management solutions enable to manage direct debit mandates (including information capture and signature), plans, payments, and retries.

Transaction monitoring solutions enable the verification of payments sent and received through a combination of sanction lists, adverse media information, and proprietary data.

5. Cash management channels

Fintech companies with large volumes of payments rely on bank cash management channels to send payment instructions and retrieve payment and account information.

Cash management channels range from standard file servers (SFTP, EBICS, ETEBAC…) or message brokers to proprietary APIs or vendor-owned networks such as SWIFTNet.

Cash management channels are only as good as their documentation. Our experience shows that getting hold of up-to-date, accurate, and comprehensive documentation can be a challenging task.

It is not uncommon for a bank integration to be paused for days or weeks due to back-and-forth communications on bank connectivity, payment file signature protocols, or file formats.

6. Pricing

“Price is what you pay. Value is what you get.” This applies to partner banks and financial services. We have deliberately put pricing as criterion #6, as it should only be looked at with respect to criteria #1-5.

Depending on their strategy, priorities, offerings, and capabilities, different banks have different pricing strategies. They might also have different pricing models that might be more suited for certain types of customers, activities, and business models.

Banks in the EU are mandated to publish their pricing grids. You will often find them in the footer of their websites. Such prices can and should be negotiated. We often see fintech companies pay a tenth of public prices for payment fees or get offered cash management channels for free.

Pricing is probably the last criterion to optimize for, though. At the very least, attractive pricing should not compensate for inadequate commercial fit, limited geographical footprint, sub-par financial services, value-added services, cash management capabilities, or a weak relationship

The payment companies' product and business leaders' point of view

We invited payment companies' product and business leaders to a webinar about building resilient payment operations. Our panellists – namely Nirav Patel, CEO of Andaria Financial Services, Dimitri Rodrigues, Chief Product Officer at iBanFirst, and Dan Wong, Senior PM Core Banking at TrueLayer – shared their learnings from their extensive experience.

The right partner at the right stage

The kind of partner bank you are looking for will highly depend on the stage of your company. Early stage companies will look for banks that are used to working with young fintech companies and might offer financing facilities alongside their payment and safeguarding products.

Later stage companies will look for partner banks bridging gaps in their current coverage and allowing fine cost optimisation.

Risk vs. fintech friendliness

As our panel discussed when covering the recent bank failures, risk assessment is a major element when choosing a partner bank. But also a hard balance to strike. Indeed, the banks the most willing to work with fintech companies might be the least risk averse. Whatever your stage, it might be worse to go the extra mile to show potential robust partner banks your low-risk profile to secure at least one bank of this kind in your coverage.

Commercials

Obviously, costs will be a critical factor when deciding which banks to work with. But first, we need to understand why reasonable costs (and potentially interesting remuneration of customer deposits) are critical for payment companies.

Payment companies aren’t simple distributors of banks’ products, in our case, payment services and deposit holding. They add value on top of them by building complex products with advanced customer experience, abstracting the complexity of payments, providing exceptional customer service, and offering extensive payment coverage from one single product.

Building and running such products have a cost, so payment companies do have to add their margins on what banks bill. And they have to do so while remaining competitive against other solutions on the market. It is not a question of driving prices down at all costs. It is a matter of building robust businesses that offer great customer experiences.

If the prospective partner bank doesn’t understand this, this is a red flag. It shows that working with payment companies isn’t part of their DNA and doesn’t look good for the future of the relationship.

As a payment company grows, its payment volumes and deposits will grow, driving more negotiating power and economies of scale. Through an aggregation effect, partner banks should understand that they will also benefit from this growth and offer better terms for larger volumes. But some don’t. That is why payment companies need to constantly keep an ear on the ground for potential better terms with new partner banks.

Coverage

One reason payment companies go multi-bank is to increase their geographic, currency and payment method coverage. But working with banks that have strong coverage can reduce the number of banks required to offer a complete solution to customer needs. And working with fewer banks reduces the complexity of a multi-banking infrastructure.

Payment companies also need to balance the long tail with the core of the activity. From our panellists' experience, irrespective of which markets your address, the majority of payments will take place in USD, GBP or EUR, and from or to a few geographies.

Ultimately, confidence and understanding of the fintech’s business are key

Once all these objective criteria have been assessed, and sometimes in place of some of these criteria, what matters when selecting a partner bank is their understanding of your business and its evolution.

Whether you process consumer or business payments, local or international payments, or purchase and selling of crypto assets or stocks, the partner bank needs to understand what such payments imply in terms of technical and compliance requirements, volumes, types of end users, KYC processes, and be entirely at ease with that.

At the end of the day, partner banks will be responsible for sending these payments on the interbank systems and shouldn’t discover that these payments don’t fit their risk appetite and block your payments or cut you off overnight.

How Mambu Payments creates value for both companies and banks

Banks are essential partners to companies and the most reliable and cost-effective way to send and receive large volumes of payments.

Yet, opening a corporate bank account and setting it up to automate payments through the bank's direct connectivity solutions such as file servers and APIs can be a long and complex process. Not only do companies need to go through an extensive due diligence process, but they also need to know the bank's offerings and the inner workings of the bank's systems. As a result, companies can spend months before they can send and receive payments programmatically. Banks often wait months until their customers start generating revenue.

This section explains how Mambu Payments facilitates and accelerates this process for both companies and banks. Mambu Payments helps companies scale their payment operations and banks to attract and retain strategic customers.

How banks uniquely serve companies

Banks play a central role in the economy. They finance companies and keep their funds safe. Acting as advisors to companies, they help them grow and thrive. They also act as the gateway to payment networks and schemes. Behind every neo-bank or next-generation payment service provider is a bank partner. No single payment is sent or received without going through a bank.

Although banks may not be as hyped as some fintech companies, they remain the most efficient, reliable, secure, and cost-effective way to send and receive large volumes of payments for companies. This unique advantage comes from dozens of years of operations, robust systems and processes, huge volumes of payments, and significant economies of scale.

The outstanding bank connectivity problem

The state of bank connectivity

When we talk to banks’ account managers, we often hear that their customers’ first request is not financing or lower fees, but better banking applications and APIs.

APIs (for application programming interfaces) are pieces of software that enable two applications to communicate and exchange data with each other. APIs are used by software providers to enable them to consume their services in their own applications. APIs are Lego bricks that can be assembled together to build products and features.

In the context of banks and payments, APIs enable companies to programmatically send, receive, and reconcile payments with their banks within their own systems, as opposed to their banks’ applications.

In 2022, most banks still do not have corporate APIs. They have open banking / PSD2 APIs that are not a good fit for companies with large volumes of payments. When they do have corporate APIs, they are often scattered and incomplete.

Truth be told, banks did not wait for open banking / PSD2 regulations and APIs to open their systems to their corporate customers. Every corporate bank has one or multiple direct connectivity solutions, usually in the form of an EBICS, SFTP, or SWIFTNet file server that a company must connect to upload payment files and download payment status reports and account report files.

How the bank connectivity gap impacts companies

Although robust and scalable, banks’ file server-based direct connectivity solutions have a number of drawbacks.

Steep learning curve – Banks’ direct connectivity solutions can be complex to apprehend for non-experts, especially as documentation can often be lacking, jargon-loaded, or outdated. This results in a steep learning curve for companies’ finance, operations, product, and engineering teams.

Complex approvals – Due to their syntax and length, payment files can be difficult to review and approve. Removing individual payments from a file requires rejecting the entire file and putting all payments on hold until a new file is created.

Inefficient error management – Depending on the setup, a single incorrect payment in a payment file can result in the rejection of the entire payment file. The incorrect payment might not be easy to identify and the rejection error might not be straightforward without a human investigation.

Asynchronous processing – Banks’ direct connectivity solutions are asynchronous by nature. Banks only process payment files periodically. Corresponding file status and payment status reports are not immediately available. As a result, companies are forced to periodically connect to their banks’ servers to check if any new report file is available.

Mambu Payments combines the reliability of banks with the flexibility of a modern API

By connecting banks to our platform, we aim to create win-win-win relationships between companies, banks, and Mambu Payments.

At the core of Mambu Payments are banks and real-time bank integrations. Mambu Payments securely connects to banks using direct connectivity channels (e.g. EBICS, SFTP, messaging queues, or APIs) and exchanges payment instructions, file and payment status reports, and account reports with the bank.

Mambu Payments then abstracts the diversity and complexity of bank protocols and file formats with a single API that is easy and quick to integrate and enables companies to build real-time, custom payment and reconciliation workflows.

How companies benefit from Mambu Payments

After we connect a bank to the Mambu Payments platform, our mutual customers can connect to the bank through our API.

It saves them the hard work of developing foundational bank integrations and managing bank protocols, authentication and encryption, file generation and parsing, and data reconciliation.

In addition to modernised bank connectivity, our mutual customers can use Mambu Payments’ advanced features to scale their payment operations through programmatic payment approvals, reconciliations, and real-time notifications.

As we look at their business and operations and map their payment flows and processes, we can also guide them toward the banks that will best fit and serve their needs.

How banks benefit from Mambu Payments

Banks connected to the Mambu Payments platform are uniquely positioned to acquire and retain strategic customers and accelerate implementation projects through our API-first platform.

Mambu Payments accelerates the API-fication of banks

Mambu Payments develops integrations on top of banks’ existing direct connectivity solutions and exposes them through a single API. We do it at scale and at no cost to the banks. It is our unique expertise and investment to develop the Mambu Payments platform.

Mambu Payments accelerates implementation projects

By abstracting the complexity of bank systems and integrations, Mambu Payments accelerates and reduces the cost of implementation projects. Accelerated implementation projects result in improved customer satisfaction, accelerated time-to-revenue, improved internal resource allocation, and reduced cost of implantation.

Improved customer satisfaction – Mambu Payments improves the satisfaction of our joint customers by making implementation projects more manageable, more predictable, and faster, thanks to our unique knowledge of banks’ offerings and systems, standard API, and best-in-class documentation. With dedicated Bank Partnerships Managers and Implementation Managers, Mambu Payments is a true partner to both companies and banks throughout their implementation projects.

Accelerated time-to-revenue – With Mambu Payments, companies can start sending and receiving payments and generating revenue and deposits faster. They also tend to accelerate the migration from their other bank and non-bank service providers and other systems more quickly. They have greater trust in their bank integration and perceive less operational risk in pushing large volumes of payments sooner rather than later.

Improved internal resource allocation – As implementation projects become more accessible, faster, and more predictable, banks can better allocate their internal resources. They can parallelise projects to reduce the time it takes to launch a project. They can also allocate more time and resources to more complex or high-value projects.

Reduced cost of implementation – Because they mobilise fewer resources for less time, implementation projects also cost less to the banks. Banks can invest in other business areas, such as customer relationships.

Mambu Payments helps banks acquire strategic customers

Mambu Payments supports leading tech companies such as Spendesk and Swile in accelerating and scaling their payment operations.

Today's tech companies are tomorrow's leaders in industries as diverse as financial services, insurance, real estate, temp work, or retail. They build unique products, deliver distinctive user experiences, grow large customer bases, and build defensible market positions. While tech companies can initially look small for banks when compared to incumbents, it is not uncommon for tech companies to grow 2-5x per year, generating a very sizeable and lucrative business for banks after a few years.

Banks supported by Mambu Payments can tap into this new category of companies by enabling them to build a best-in-class payment experience, win them against the competition, and turn them into strategic customers.

Payments are only one element of the global, long-term relationships banks are building with tech companies as they grow their revenue and headcount, expand geographically, acquire companies, and finance their growth – sometimes to an IPO.