JUNE 29, 2023
11 min read
As you grow your fintech business, you will face many challenges, some of which can be solved by vendor integrations. They can help you comply with regulatory requirements, ensure customers can exchange money or get a loan, issue cards, and perform other essential tasks.
When you start, it takes much time to understand which vendors you will eventually need and which option to choose. Since my experience allowed me to help over 200 companies, and one of the most notable cases I’ve worked on has over 25 integrations, I’ve decided to share this experience with you.
So, without further ado, let’s dive into the world of fintech vendors and find out how they can help launch your product successfully.
What are the software vendors?
Software vendors are companies or organizations that develop and sell software products or services to use by the larger market. These vendors create software solutions for various needs, ranging from general-purpose applications to specialized industry-specific software. Their applications can be crafted for multiple devices, from mobile phones to tablets, PCs, manufacturing equipment, or even automobiles.
A qualified software vendor may offer their products to end-users or through resellers and partners. Their offerings can be deployed on-premise or cloud-based, allowing customers to access them via the Internet. Software vendors provide customers with reliable software solutions to address specific requirements and enhance productivity, efficiency, or functionality in various domains.
What can a software vendor do for your business?
A software vendor can offer various services and solutions to benefit your business in several ways. In short, they can be classified by the services they provide, so in this paragraph, I suggest we explore the productiveness of software vendors.
- KYC/KYB (Know Your Customer/Know Your Business): A software vendor can provide tools and systems to help you streamline and automate your customer onboarding and verification processes. These solutions ensure compliance with regulatory requirements and help mitigate fraud and identity theft risks.
- Card Issuing and Processing: If your business involves issuing payment cards, a software vendor can offer card management systems that enable you to issue and manage cards for your customers. They can also provide payment processing solutions to handle card transactions securely and efficiently.
- AML (Anti-Money Laundering): A software vendor can provide AML solutions that help detect and prevent money laundering and other financial crimes. These solutions typically include transaction monitoring, risk assessment, and compliance reporting capabilities to ensure adherence to AML regulations.
- Acquiring: A software vendor can offer to acquire services if you accept card payments from your customers. This involves setting up the necessary infrastructure and connectivity to enable you to receive and process card payments securely.
- Holding Accounts: Some software vendors may provide account services, which allow you to store funds on behalf of your customers. This can be useful in various industries, such as crowdfunding platforms or marketplaces, where funds must be kept in escrow until certain conditions are met.
- Banking Rails: A software vendor can access banking rails or payment networks, connecting your business to various financial institutions and payment systems. This enables you to initiate and receive payments, transfer funds, and access other banking services.
- Cross-Border Payments: If your business involves international transactions, a software vendor can offer solutions for facilitating cross-border payments. These solutions may include currency conversion, compliance with international regulations, and integration with global payment networks to ensure smooth and cost-effective cross-border transactions.
In summary, software vendors can provide ready-made software solutions, customization options, support, and ongoing maintenance to help optimize your business processes, improve efficiency, and support your organization’s growth. It’s important to note that a software vendor’s specific services and capabilities may vary, and you should evaluate different vendors based on your business requirements and objectives.
What are the types of software vendors?
Software vendors can also be classified into various types based on their offerings and business models.
These vendors provide Application Programming Interfaces (APIs) that allow developers to integrate certain functionalities or services. APIs are a set of rules that provides software applications to communicate.
So, these vendors enable the companies to have faster access to the desired functionality and more efficient workflow. Examples include Stripe, PayPal, and ClearBank.
Product vendors develop and sell standalone software products that are ready for use by end-users right out of the box. They create software solutions that focus on and fulfill specific needs.
Software product vendors supply customers with a client-facing solution with no ability to access the source code or alter it somehow. Products can be comprised of APIs to get the customers’ data and transfer it across the pipeline. However, these APIs are created exclusively for the said product.
Examples of software product vendors include Microsoft and Oracle, which provide software products like Terrabut Gateway and Oracle Database.
Sources-based products are finished applications or functionalities created through software development to fulfill user needs. In this case, you gain access to the source code, and the outcome of the product is up to you, as your developers can alter the source.
Think of a blueprint for a house. Two houses can have similar or identical blueprints, but how those buildings look still depends on the people working there. These vendors sell source codes and technical documentation, allowing you to customize the end product extensively.
Source vendors distribute software based on source principles, where anyone can modify, distribute, and use the source code. They provide software solutions with permissive licenses, allowing users to use, modify, and distribute the software freely. This also speeds up time-to-market.
Examples of open-source vendors are OpenCBS, Apache Finteract, and FintechCore.
Licensing vendors provide software licenses for various software products. They act as intermediaries between software developers and end-users, facilitating the licensing process. These vendors help customers acquire and manage software licenses, ensuring compliance with usage terms and conditions set by the software developers. Examples of licensing vendors include Flexera, Snow Software, and License Dashboard.
It’s worth noting that some software vendors may fall into multiple categories depending on their business models and offerings.
vendor services costs
vendor service costs can vary depending on the type of service offered and the vendors ’ pricing models.
Customers pay a recurring fee to access and use the vendor’s services at regular intervals, such as monthly or annually. The subscription cost is often based on factors such as the number of users, features included, or usage levels. Customers benefit from regular updates and support while having predictable recurring costs.
It’s a fraud prevention non-profit organization in the UK. With them, you can get Projecting Registration services that will reduce the risks of identity theft. In turn, you will be paying Cifas £25 per two years. You pay a flat fee per the selected period, independent of the number of API calls, executed inspections, etc.
In this model, the cost of the vendor’s services is directly tied to the amount or intensity of usage. The vendor charges customers based on metrics like data storage volume or compute hours utilized. This model is prevalent in cloud computing services, where customers pay for consumed resources.
This suite of APIs for online payment processing charges you a specific fee for using the said APIs. It’s important to note that you don’t only pay for successful usage of the said functionality but for unsuccessful too. For example, suppose you check a user according to KYC. In that case, you are to pay for every user you check, not only those allowed to proceed using your fintech platform.
In my practice, I’ve encountered the issue that bugs a lot of startups and enterprises; if you were to check 100,000 users with the KYC services, only half of them would be allowed to your platform. So, to mitigate this, I’ve done some research and found out that many people got declined from fintech platforms not because of invalid or suspicious documents but because of the quality of the info or pictures. So, I’ve acquired additional optical character recognition (OCR) software to check the quality of the end-customer’s photos before submitting the documents. This trick allowed customers to lower the cost of customer checks by 30% since the images were checked manually.
3. Fixed Cost:
Some vendors offer services at a fixed, one-time cost predetermined by the software or service license. This model is standard for traditional software products installed locally or on-premises. This payment model means you buy a particular part of the code for a flat fee and are free to use it afterward for as long as you need since you will acquire a license.
Some vendors can combine or customize the pricing models based on their specific offerings. Pricing structures may include additional factors such as support levels, customization options, or enterprise licensing agreements.
Non-functional requirements for a vendor
Non-functional requirements define how a fintech vendor integration should perform rather than specifying the specific functionalities it should deliver. When considering a fintech vendor, it is crucial to address various non-functional requirements. Some of them that I deem the most imperative is as follows:
- Jurisdiction: It is essential to ensure that the vendor’s solution complies with the applicable laws and regulations in your target markets. However, when looking for a fintech vendor, you should consider your solution’s scalability and your business’s growth plans. Suppose you actively cooperate with a vendor that only legally covers your region. In that case, you will be blocked from entering other markets.
- Pricing: Understand the cost structure, such as upfront fees, licensing fees, and transaction-based pricing, and consider that in some cases, you will pay for failed cases. An example of failed instances you would have to pay for in the usage-based payment model is, per se, an issued card that has yet to be activated after issuing. Determine if the pricing aligns with your budget and business requirements. For example, in some cases, it would be better for you to use more expensive services with extensive functionalities rather than cutting costs; this is especially relevant if you’re planning to go global.
- Support Model: Consider the level and quality of support the fintech vendor provides. Assess their support channels (e.g., email, phone, live chat) and response times. Determine if they offer 24/7 support or have service level agreements (SLAs). Additionally, evaluate the vendor’s track record for issue resolution and customer satisfaction to determine how fast they deal with arising issues.
- Customization: As you grow, you might need to pivot your business product or add more functionality to your software. So, when choosing a software vendor, consider whether they deem customization possible.
How to fasten the product launch?
The main challenge in fintech product launch, in most cases, hides in integrations with vendors. Hence I wrote this article to navigate you through this process. It takes a lot of communication effort, double-checking, and regulatory compliance to ensure that you can integrate with the selected service providers. However, some solutions include third-party integrations, to begin with.
So, using the opportunity, I would like to tell you about the white-label modular solution we created to help fintech startups and established companies with several business processes. FintechCore can handle onboarding, KYC & KYB, AML, card orchestration, and other functionality. We already have established connections with selected vendors, so if you choose FintechCore, you have these integrations completed already and can choose different modules depending on your business needs.
This solution can accelerate your time to market, enabling you to launch in weeks. FintechCore is also compliant with standard regulators and will help you to scale. With this product, you can have a solid base for a neobank, digital wallet, general ledger, and other fintech products.
Fintech vendor integration refers to connecting and integrating a fintech vendor’s software solution with other systems, applications, or data sources within an organization’s technology ecosystem. The integration allows for seamless data exchange, process automation, and collaboration between different systems. There are several approaches to fintech vendor integration:
- API-Based Integration: Fintech vendors often provide well-documented APIs that expose specific functionalities and data endpoints. However, they don’t mention that you would have to create algorithms for particular business processes, such as user authorization. For example, a malfunction occurred in iOS4 when there was a way to trick ApplePay into thinking the payment had been successfully completed without actually paying anything. So, even with API integrations, you are still required to complete the back-end part to ensure your product’s proper operation.
- Sources-Based Integration: If you’re buying the source code, you won’t have as many hidden stepping stones as in API-based integrations. You could easily outsource the development with source-based integrations. So, in this case, you have the middleware and can alter the code to fit your business processes.
- Product-Based Integration: This could be easily seen as the most effortless integration, as you won’t need a large technical team to complete it. However, the issue is the lack of environmental and security control.
Real-life examples of good and lousy vendor integrations
Fintech is a complex matter, and choosing the wrong software vendor can be hindering issue. To help you define when your choice is good and you need to rethink it again, I want to review two real-life examples from my hands-on experience.
Good example of a KYC process. KYC vendors nowadays become more sophisticated each day, but you can achieve more if you combine different vendors ’ services. This is what happened in this particular case. We’ve combined two different vendors with two other models. DashDevs integrated a fixed-priced OCR with the usage-based KYC. This allowed us to eliminate failed checks that wouldn’t allow customers to join the platform due to imagery-related issues.
Bad example of a vendor integration. In this case, I would like to review the cooperation between CENTROlink (Bank of Lithuania) and one of our UK-based customers. They had a contract for integration with CENTROlink for the payments in the European Union. So, as we were trying to establish the integration, we checked how this specific vendor would work with our customers’ products. The surprising finding was that our customer’s company didn’t have the legal permit to cooperate with CENROlink as they only had an EMI license.
In conclusion, software vendor integrations play a crucial role in overcoming challenges and driving the success of your fintech business. By leveraging the expertise and capabilities of various vendors, you can address regulatory compliance, facilitate financial transactions, and streamline essential processes.
As you embark on your fintech journey, investing time in understanding the specific vendors you’ll need and making informed choices is essential. Selecting the right fintech vendors and effectively integrating their solutions can significantly impact your product’s launch and ongoing operations.
Best of luck in your fintech journey, and may your product launch be a resounding success!