How to choose your embedded finance partner: A 10-question checklist

Embedded finance went from a buzzword to an industry game-changer in a few years. By 2030, forecasts expect that 40% of financial services will be delivered through an embedded model.

What’s interesting is that both financial and non-financial companies stand to benefit hugely from embedded finance. That includes fintechs, of course, but also SaaS, marketplaces and e-commerce platforms. Who doesn’t want to deliver a fully integrated experience, make their customers happy, drive customer loyalty, and cash in more profits?

But where do you start? The key is to find the right partner.

I was one of the founders of Spendesk, a French SaaS caleup that quickly became a unicorn. Spendesk is a market-leading spend management platform today, and we were able to move and grow so quickly thanks in large part to the fintech services we built on. It's a great example of embedded finance and banking-as-a-service done well.

But it wasn't always an easy process, and there were plenty of lessons learned along the way. In this article I'll share:

• Our experience as buyers in a French scale-up — and the mistakes we made
• Why finding the right partner is critical for your business
• The checklist to kickstart your embedded finance journey.

Finding our Banking-as-a-Service partner

At Spendesk's inception, we immediately had a crucial choice to make: which company would be our banking-as-a-service partner? The whole enterprise relied on this — it was central to our activity.

For context: we didn’t know anything about the payment ecosystem then. We had to make a huge decision, quite irreversible, with very little information. Not a situation I would recommend.

But we made a choice anyway and it turned out to be a good decision. We learned a few things along the way.

• ‍Want to offer a best-in-class credit journey to customers? Learn more about Defacto Core.

3 mistakes to avoid when choosing an embedded finance partner

The whole point of embedded finance is to offer a new product or service to your customers without building it from scratch. By definition, you need a partner to work with. The decision is critical for your company. It’s often under-estimated but it holds serious implications: tech consequences at the very beginning, and operational ones in the long run.

Imagine if you need to switch providers in a few months because you made a mistake, or if your stop offering the new service altogether because everything went south. You want to build a long-term relationship. It all starts by choosing the right partner.

We were good at prioritizing our goals with the BaaS partner. First: international. Second: seamless customer onboarding.

But we still made some mistakes, and could have done things differently.

Clearly define operations management

For payment services, you have a lot of operational workload: identity check, verification of suspicious payments, blocked or lost cards, etc. We didn’t clearly define who should take care of this at the beginning and we had to figure things out on the way — which isn’t the best way to do it.

Remember that money and finance are emotional topics for customers

Even in B2B, people have a strong emotional link with money and financial services. In our case, the IBANs we offered started with ‘GI’ (instead of ‘FR’ for accounts held in France). Our early French customers had a harder time trusting the service, and asked questions they never would have of a French-registered provider.

It didn’t change a thing operationally — the service worked well and provided everything they expected. But psychologically, it did.

You want to be the ideal customer profile (ICP) of your partner

There was a divergence in the strategy between our partner and us. We didn’t match their ICP and had no power over their product roadmap. In other words, they were building a product for a different buyer than us, even once we were onboard and bring them revenue.

This wasn't really their fault. Overall, we had a good relationship with our BaaS partner.

But if we had to make that choice again, with more information in hand, we may make a different one. We could have built an even more delightful customer experience with more features if the fit was smoother.

5 tips to choose the right embedded finance parter

These tips might seem obvious, but keeping them in mind sets you up for success.

1. Understand the value of finance features for the end customer. The promise of embedded finance is attractive. But for it to deliver its full potential, it has to meet a real demand from your customers. Knowing their pain points will help you know where and how to add the perfect financial product or service to your existing offer. You shouldn’t add embedded financial services for the sake of it.
2. Know your goals. What do you expect from the embedded finance features? Is it customer acquisition, or is it upsell? Clarify your goals and define your KPIs to know if it’s working for you. You’ll also be able to forecast expected volumes — which will help to find the right partner.
   Remember: you can't have 5 different goals. You need to be able to arbitrate or you won’t pick the right solution.
3. Be ready for change. You have a whole set of criteria now. That’s good. But be ready for them to evolve. The growth and changes in use cases will lead to a redefinition of the functional needs of your embedded finance partner.
4. Align with your partner. Communication with your partner is key for a successful relationship. When you start working together, share your projections to make sure you're aligned. Being transparent about volume expectations is central to building a long-term trustworthy relationship. Also, include their team for specific kick-offs, on a regular basis.
5. Remember it’s not magic. Finding and implementing the product that meets your customers’ needs is great. But it’s not enough. You still need to bridge the gaps between your product and the market: train your sales team and market the product.

Embedded finance: your checklist to find the right match

We shared our experience and the basics to keep in mind. It’s now time for you to dive into the embedded finance journey. Here is our 10-question checklist to help you choose the right partner.

Tech & operations

1. Is the API documentation well-written? Can you have a sandbox access? If the documentation isn’t online, if it’s a PDF, it’s a red flag. Getting sandbox access quickly is important.
2. Who’s doing what? Are the roles clearly defined? Document them.
3. Can you have direct access to the tech and operations teams? Tech, for integration and run. Operations, for run and scale. Your team should have direct access to their counterparts on the partner's side. A ticket system with a 2-week delay in replies won’t work.
4. What solutions does the partner offer to scale operations? Do you have a back-office access?

Product

1. Is the pricing structure beneficial for both companies?
2. What is the product roadmap? Can you have an impact on it? Don’t overly trust their roadmap. Just like yours, it’s subject to variability. Beyond 3 months, everything is only an hypothesis.
3. Are you the ideal customer of your partner? If you’re not the ICP of your partner, their roadmap is going to significantly diverge from your needs. This will drive frustration, overtime, and the sentiment that you’re not moving fast enough with your partner — and compared to your competitors.

Strategy

1. Can the partner scale with you? (Financially and HR-wise.)
2. Do you share the same values/culture? It’s really important, especially when there are bumps in the road.
3. What are the exit clauses if you need to get out of the contract?

Hope for the best, prepare for the worst

When searching for your ideal embedded finance partner, keep this motto in mind. Remember: it’s a hiring process. You’re ‘hiring’ an API product, but more importantly, you’re hiring the underlying team. Having a wide feature set is great, but co-construction is the thing to look for. Can you scale together, delivering the best experience for your customers?

At Defacto, that’s our mission. We believe the future of finance belongs to builders, not bankers. And that access to capital should be fair and instant. Marketplaces, SMBs, startups, fintechs: if you’re looking for an embedding lending partner, API-based, we might be your right match.