Why Brands Don’t Have to be a FinTech to Play Like One

Every brand can become a FinTech if they put enough time and money into the effort. The question, though, is whether they should.

In an interview with PYMNTS, Netspend Senior Vice President of Bank and Network Operations and Partnerships Walt Granville said firms need to be a bit introspective as they seek to answer that existential question.

That might be a controversial view, given the fact that so many companies have set out to burnish their digital-first and digital-only credentials, he said. After all, the conventional wisdom seems to be that payment and financial service capabilities need to be embedded everywhere.

The determining factor is tied to the payments and other functionality that a brand intends to integrate into its services, he said. Legal, regulatory and operational obligations — and the requirements for running and operating the programs — might make a good case for outsourcing the service.

That might lead to outsourcing those tasks to a partner in a bid for firms to “focus on what you are good at, to focus on the core strengths of the business, and not the new FinTech elements of the business,” he said.

Do What You Do Best

Take, for example, a gaming app or website that wants to roll out accounts that let players store funds for betting and deposit what they win.

The gaming firm will want to focus on product development and marketing — and the embedded account serves as a utility for those core functions. Working with a third party to run the accounts — and take on the operational and infrastructure-related risks — is better than doing it in-house.

Striking a relationship with a third-party provider has the added benefit of helping the company “future-proof” against changes in the regulatory or compliance environments, he said.

As Granville told PYMNTS, “the entity needs to investigate the partner they are working with to understand what the financial product is going to be, what the future roadmap is.”

White-label partnerships produce a strong current of valuable data and information flows that can be used to build out services via application programming interfaces (APIs) and automate regulatory compliance changes, he said.

He cautioned that many infrastructure providers may say they want to be “one stop shops” for their clients, offering a range of account and service types — but delivering on that promise is a challenge (and they may be better off focusing on a key vertical). The embedded finance field is broad and typically involves creating and maintaining regulated financial accounts designed to satisfy discrete use cases.

“There are requirements in terms of how the product is marketed to the customer, the steps they have to take to set up the accounts — and of course, everything has to remain compliant,” he said.

The app developers themselves may be relatively unfamiliar with the compliance mandates for the accounts, and third-party providers — with white-label services and products — can help fill in the gaps.

A Continued Polarization

Granville predicted that there will be a continued polarization of FinTech. Entities looking to embed financial offerings into their own go-to-market strategies are going to have to decide whether they will become dedicated FinTechs and “own” the technical and operational aspects. Firms that go this route will have to develop and evolve their solutions over time to remain competitive.

But if those new functions are ancillary and arguably less integral to the brand, it’s increasingly likely that they will link up with third-party providers or white-label services to integrate into their applications.

As Granville noted to PYMNTS, “every brand may seek to offer some sort of FinTech solution — but it’s not the case that every brand should become a FinTech.”