Foundations #2: How do fintechs operate nowadays?
Foundations #2: How do fintechs operate nowadays?
Foundations #2: How do fintechs operate nowadays?
Foundations #2: How do fintechs operate nowadays?
Mateo Cascardo
Dec 27, 2024
To begin with, as I mentioned in article #1, fintechs today operate in a truly interconnected environment. They bring together services from multiple banking providers, such as banks, payment processors, compliance (KYC) platforms, risk platforms, card issuers, etc. with the goal of delivering a great experience to their end users.
In practice, a virtual wallet that wants to provide bank accounts to its users can integrate with BIND in Argentina and offer a CVU to each user, if it wants to offer cards in LatAm, it can integrate with Pomelo to issue them. And so on with every service.
This is spectacular, these providers (such as tapi, Pomelo, etc.) allow you to operate a new product in a few weeks, under license, and compliant with regulations.
Something that would have been impossible a few years ago.
Represented graphically...
The current infrastructure and its consequences
The downside of all this is that each different provider has an API that works in a different way, with its own schemas and systems.
So the information is split across multiple different databases. Ending up these companies with:
Scattered data: The information is scattered in disconnected systems.
Inconsistent formats: Suppliers send data differently, forcing constant reformatting.
Scalability problems: The addition of new suppliers makes data management even more difficult.
This means:
This is when inconsistencies appear between what processor A says, what bank B assures and what I have as a record in my database. Data is duplicated or records are lost, and it is easy that, with so much movement, no one knows where the discrepancy is. The cost of detecting and correcting these problems is rising every day, and may even slow down the expansion of fintech.
The Synapse case
One case that illustrates this situation is that of Synapse (also known as SynapseFi or Synapse Financial Technologies), which offered banking infrastructure as a service (BaaS) to fintechs and other businesses that wanted to launch financial products without dealing with all the regulatory and technological complexity of a traditional bank. According to the industry, Synapse is said to have lost sight of certain misrecorded or duplicate transactions, and failed to detect them in time due to a lack of synchronization between its systems and those of the banks it worked with. Although there are rumors of a figure of $50 million in losses, there are no official documents that confirm this absolutely. However, the case serves as a clear example of how a growing volume of transactions can generate inconsistencies that, without a robust reconciliation system, can escalate exponentially and put the business at risk.
If you want to learn more about what happened with Synapse, we recommend you review this article: Synapse's collapse has frozen nearly $160M from fintech users - here's how it happened.
Conclusion
Finally, all of these challenges related to data reconciliation and managing multiple integrations highlight the need for a centralized system that acts as a “source of truth”. It is vital to have a robust ledger that unifies all financial activity and allows for orderly, transparent and secure scaling.
In the next article we will discuss how to solve the current problem with Finbase Ledgers.
If you're tired of dealing with reconciliations or being held back by infrastructure, let's chat. We're convinced that together we can do much better.
Schedule a call - mateo@usefinbase.com
To begin with, as I mentioned in article #1, fintechs today operate in a truly interconnected environment. They bring together services from multiple banking providers, such as banks, payment processors, compliance (KYC) platforms, risk platforms, card issuers, etc. with the goal of delivering a great experience to their end users.
In practice, a virtual wallet that wants to provide bank accounts to its users can integrate with BIND in Argentina and offer a CVU to each user, if it wants to offer cards in LatAm, it can integrate with Pomelo to issue them. And so on with every service.
This is spectacular, these providers (such as tapi, Pomelo, etc.) allow you to operate a new product in a few weeks, under license, and compliant with regulations.
Something that would have been impossible a few years ago.
Represented graphically...
The current infrastructure and its consequences
The downside of all this is that each different provider has an API that works in a different way, with its own schemas and systems.
So the information is split across multiple different databases. Ending up these companies with:
Scattered data: The information is scattered in disconnected systems.
Inconsistent formats: Suppliers send data differently, forcing constant reformatting.
Scalability problems: The addition of new suppliers makes data management even more difficult.
This means:
This is when inconsistencies appear between what processor A says, what bank B assures and what I have as a record in my database. Data is duplicated or records are lost, and it is easy that, with so much movement, no one knows where the discrepancy is. The cost of detecting and correcting these problems is rising every day, and may even slow down the expansion of fintech.
The Synapse case
One case that illustrates this situation is that of Synapse (also known as SynapseFi or Synapse Financial Technologies), which offered banking infrastructure as a service (BaaS) to fintechs and other businesses that wanted to launch financial products without dealing with all the regulatory and technological complexity of a traditional bank. According to the industry, Synapse is said to have lost sight of certain misrecorded or duplicate transactions, and failed to detect them in time due to a lack of synchronization between its systems and those of the banks it worked with. Although there are rumors of a figure of $50 million in losses, there are no official documents that confirm this absolutely. However, the case serves as a clear example of how a growing volume of transactions can generate inconsistencies that, without a robust reconciliation system, can escalate exponentially and put the business at risk.
If you want to learn more about what happened with Synapse, we recommend you review this article: Synapse's collapse has frozen nearly $160M from fintech users - here's how it happened.
Conclusion
Finally, all of these challenges related to data reconciliation and managing multiple integrations highlight the need for a centralized system that acts as a “source of truth”. It is vital to have a robust ledger that unifies all financial activity and allows for orderly, transparent and secure scaling.
In the next article we will discuss how to solve the current problem with Finbase Ledgers.
If you're tired of dealing with reconciliations or being held back by infrastructure, let's chat. We're convinced that together we can do much better.
Schedule a call - mateo@usefinbase.com