Making sense of banking infrastructure

Two ways to launch embedded financial products

In the process of scaling Unit, we’ve met hundreds of companies that have offered or are looking to offer embedded financial products to their end-customers.

If you’re a leader at a tech company who's thinking about embedded finance—but you aren't sure where to start—this post is for you. In it, we explain two different ways to launch embedded financial products, as well as how each will affect your time-to-market, the resources you'll need to invest, and what you'll be responsible for.

Say you're the CEO of Freelance Genius, a platform that serves 150,000 freelancers, each of whom makes $50,000–$80,000 per year. After deep research, you’ve built out a roadmap of embedded financial products, including high-interest checking accounts, automatic tax deductions, charge cards (including virtual cards), and cash advances. Ultimately, you plan to offer a complete banking experience.

How do you go about launching these financial features? Ultimately, you’ll have to choose between two very different approaches.

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Understanding your options

If you’re planning to launch embedded financial products, then you’ll need to work with a bank partner. Ultimately, they’re the only ones who can offer things like bank accounts, charge cards, etc.

But how will you work with your bank partner?

Some early pioneers in embedded finance (e.g., Uber, Current) chose to work with banks without the help of an embedded-finance platform. (At the time, that was the only option.)

The problem with that approach is that you’ll basically have to reinvent the wheel. You’ll need to build all the relevant technology (e.g., ledgering, KYB/KYC, reconciliation) from scratch. You’ll also have to assemble a large compliance team. We’ll do a deep dive on what’s involved down below 🔽

The upshot is that, if you’re planning to go to market without an embedded-finance platform, you should plan to spend at least 2 years and $2 million.

For this reason, the vast majority (95%+) of tech companies that launch embedded financial products choose to do so with the help of a platform like Unit.

Option 1: Bank + embedded finance platform

Platforms like Unit help tech companies like Invoice2go, Roofstock, and Nav launch embedded financial products.

The platform facilitates direct, ongoing relationships between the tech company and their bank partner(s). The difference is that the platform provides all the necessary banking technology while helping to streamline compliance obligations.

The result is that you can bring your embedded financial products to market in a matter of weeks, and you won’t need to hire a large, dedicated banking team.

Stripe is a good analogy. Of course, it would be possible for companies like Lyft and Shopify to partner with banks to process their own payments. But doing so would require hiring a large team, developing deep compliance expertise, and duplicating existing infrastructure. For this reason, almost every company chooses to use a payments platform like Stripe or Rainforest.

Ultimately, working with an embedded-finance platform provides three benefits:

1. Technology. A modern platform offers programmatic access (via API) to everything you need to launch and manage your embedded financial products. That includes things like accounts, terms, transactions, payments, and statements, as well as data about how your customers are using these products. Your platform will also handle security, ledgering, permissions, reconciliation, and data protection in the background—so you can focus on your customers.

2. Compliance. Embedded financial products are subject to the same rules and regulations as other banking products (e.g., KYB/KYC, transaction monitoring, dispute resolution). The virtue of partnering with a platform is that they’re familiar with what’s needed and can help you streamline your compliance workflows. As a result, you won’t need to hire a large, dedicated team.

3. Bank partners. When you work with a platform, you’ll still have a direct, ongoing relationship with your bank partner. But a good platform will be able to introduce you to several potential bank partners that might be a good fit for your goals, target audience, and use case. They’ll also help you manage the relationship and meet your bank partner’s expectations on an ongoing basis.

Option 2: Bank only (without platform)

If you plan to build embedded financial products without a platform, your road to launch will be much longer—and you’ll need to invest more resources, both now and in the future.

First, you’ll need to find a bank partner. There are more than 4,500 banks in the US, but only 30-40 of them have a track record of successfully partnering with tech companies. You’ll likely need to speak with at least ten banks before you identify a good candidate. Be sure to ask them questions like:

• What embedded financial products do you support?
• What technology do you provide? What will we need to build?
• What interest do you offer on accounts? What about interchange?
• What will my compliance obligations look like, both now and going forward?
• What will the KYB/KYC process look like for my end-customers?
• What is your typical launch timeline?

Second, you’ll need to build a banking technology stack. This typically includes things like ledgers (which keep track of your customers’ bank balances), banking statement generators, KYB/KYC flows, information security, reconciliation (making sure payments are executed correctly), reporting and data access, card issuing, interest calculations, and connectivity to payment networks.

‍Perfecting this technology will require specialized engineering, product, and business talent; it can take up to 18 months. Mistakes can cost millions, and your customers may never forgive you.

But the biggest investment for companies that choose to launch embedded finance without a platform is typically compliance. To build and maintain a compliant banking operation, you’ll need to:

1. Hire a Chief Compliance Officer (CCO)
2. Draft policies, terms, and conditions (200+ pages)
3. Select and onboard a Compliance Management System
4. Design and implement a compliant KYB/KYC flow
5. Design and implement a dispute management system
6. Manage periodic audits and re-certifications

Outside the “hard” costs of compliance, you’ll need to add in expenses like legal contractors, insurance, and hiring a full-time compliance team of 10–50 individuals. Overall, if you plan to proceed without a platform, you should plan to spend 2 years and $2 million.

How Unit can help

Unit is the leading embedded finance platform. That means we help tech companies like Relay, Homebase, and HoneyBook launch and scale their embedded finance programs.

With our White Label App—a fully prebuilt and customizable frontend—it’s typically possible to get to market in a matter of weeks. Alternately, you can have your engineers assemble prebuilt UI components or even build your frontend from scratch.

To date, nearly 200 leading platforms and marketplaces have trusted us to help launch and scale their embedded-finance programs. Here’s why:

1. A complete product. Your customers expect a complete set of banking products with a modern, best-in-class UI: things like same-day ACH, check deposits, recurring payments, and fee-free ATMs. They also expect to find and link their accounts on services like Plaid, Yodlee, Quickbooks, and PayPal. These features are critical to drive adoption and growth—and most embedded finance platforms don’t offer them.

2. Multiple bank relationships. Unit partners with multiple banks, which enables us to offer easy migrations and the most complete suite of embedded financial products. We’ll introduce you to several potential bank partners that match your goals, target audience, and use case. From there, we’ll help you manage the relationship, understanding the bank's expectations and meeting their requirements.

3. Industry-leading compliance. Our compliance leadership has decades of experience in the traditional financial services industry; many come from banks and government agencies. In addition to helping our customers design and implement compliance programs, Unit provides an additional layer of compliance and oversight on an ongoing basis. In practical terms, that translates to transaction monitoring, KYC checks, and oversight of systems and processes.

4. Underwriting. Underwriting means figuring out whom to lend to, how much, and on what terms. It’s hard to get right, and mistakes can be costly. Fortunately, Unit facilitates this part of the process, so you don’t have to worry about it. 

5. Capital. Lending to your customers requires operational capital—the funds you’ll advance, which will later be repaid. Many tech companies prefer not to leverage their own funds for this purpose. Fortunately, Unit provides access to capital to support your lending programs, so there’s no need to pull those funds from your company’s balance sheet.

Ready to take the next step? We’d love to brainstorm with you. Contact us to book a demo or sign up for sandbox.

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