20 years ago, if you had a great idea for an online business, it would take significant time and capital to launch. First you’d buy some servers and some networking gear; next you’d have to buy software licenses; then develop a custom web server, a database, a front end server to handle requests… etc. Then came Amazon Web Services—and the next 10 years transformed all of that to a few simple clicks by providing all of those capabilities into abstracted services as APIs or GUI based clicks. Today, you can launch a new company with little more than an idea, a laptop, and a credit card.
Financial services today is an industry still very much in the pre-AWS age. Getting a FinTech company started is hard—requiring multiple partnerships, deep financial services knowledge, and requiring established connections and capital. In most cases, it still takes on average of 18 months to 2 years to get a new financial services company going.
Let’s look at what it would take to launch a new “bank” that offers users the basic products of a high yield savings accounts and a debit card. First, NewCo Bank needs to comply with regulation. In the US, this is most often done by finding a sponsoring bank partner. This is a regulated bank that agrees to “lend” the FinTech its license, in exchange for a financial cut of whatever the FinTech is offering. For example, in return for NewCo Bank getting a license through that sponsoring bank, the sponsor bank in turn get more deposits without customer acquisition cost (since that’s what the NewCo would do).
This process is confusing, opaque, and riddled with challenges for both parties. Finding the right sponsor bank partner for NewCo is hard. There’s no directory of these banks, and even once you’ve identified a potential partner, who is the right contact there? How do you get their attention and convince them that your (maybe pre-launch) startup is worth partnering with? On the sponsoring bank’s side, the bank gets the benefit (e.g., more deposits) but also must carry added risk. This includes, for example, being responsible for the compliance risk of their partners and ensuring that the partners are properly doing KYC (Know Your Customer) & AML (Anti Money Laundering), and so on. Given this risk, when approached by potential FinTech startups, how does a bank evaluate a startup partner the right way, and efficiently?
Because of these complexities, some FinTechs will meet with dozens of banks before landing on a deal. Then partnerships take a long time to negotiate and sign–very likely a year or more. And even then, you’re still not done! You’ll need a card processor (more cost, more negotiation), a card issuer or relationship with a card network (e.g., Visa or MasterCard), a card printer (more back and forth with designs), some way to hook into other bank accounts for data, a way for consumers to make payments, a vendor to help with your KYC, an ATM network, etc., etc.
I first heard about Synapse directly from Synapse’s customers. In asking the startups I was meeting about the inevitable series of partnerships they needed to strike to get their products out the door, I sat back and waited to hear the familiar stories of slow moving incumbents and frustration. Instead, I started to hear about start-to-finish launches in weeks vs. months or years.
Synapse’s goal is to enable companies to launch “best in class financial products”–or as I like to call them, “the AWS of banking”. To get started with Synapse, you simply choose which of their services you’ll need (for now; you can add more later), such as user deposit accounts, ACH transactions including same day & Remote Deposit capture, Debit Card processing & issuing, and KYC data & compliance checks. Pre-Synapse, those alone would have been about 6 different partnerships right there. Synapse partners with banks on the back end so these banks gain all the benefit of deposits and revenue from interchange, plus technology that makes it easy for banks to allow FinTechs to integrate with their infrastructure and for banks & FinTechs to both ensure strict levels of regulatory compliance. For some services, Synapse integrates with best in class partners (e.g, card printing); for others, Synapse is continually improving its own technology to allow for maximum feature flexibility for its partners (e.g., payment processing).
Synapse’s clients have launched consumer banking services, business banking services, new cards for different uses and many other financial products that might have taken months or more–or might not have made it to market otherwise. If it was (almost) as easy to launch a FinTech company as it is today to launch a website, what might we see happen to innovation overall in the financial services industry?
Synapse’s founder, Sankaet Pathak came to the US from India to study computer engineering at the University of Memphis. Frustrated by his own experience of not being able to open a bank account without showing up in person as an immigrant, he started down the path of building a better financial services company and discovered that the real barrier to innovation in the industry was the infrastructure. Sankaet is one of the best product minds in financial services, and has a robust product vision for how Synapse can offer more and more of the infrastructure such that launching the next FinTech company will become increasingly easy. We expect to see Synapse enable and empower more and more FinTechs solving problems in new spaces, with new tools; and of course, more geographies.
The walls are coming down. Now, non-native financial services companies can enable financial services for their customers, much the way Lyft launched driver services without needing to be native to the cab and taxi ecosystem. Lyft had the resources to go through the existing process; but what about the next platform who wants to augment their services with payments or lending? In a way, by using Synapse, every company now has the potential to become a FinTech company.
