The advent of banking-as-a-service (BaaS) tools has significantly lowered the barrier to entry for founders to build new fintech companies or for businesses to embed financial services into their existing offerings. This allows companies to integrate financial services into their product experience, drastically reducing the development effort, product complexity, and regulatory burdens to offer loans, financial accounts, and card products.

With technology making it easier than ever to build a fintech company, there has been a surge of new companies and products entering the market, all aiming to offer financial services tailored to different users’ needs. However, while BaaS has reduced the overhead and complexity of building a fintech, software development and engineering is only one piece of building a new fintech business. Founders also need to think about product-market fit, monetization strategies, customer acquisition, and more.

This guide outlines some of the steps and best practices for businesses looking to build a successful fintech, focusing on fintechs that offer financial accounts and cards. We paired our internal knowledge with insights from fintech startups to help you design, build, and grow your business.

Fintech basics

A fintech is a business that offers any financial service—such as financial accounts, cards, or loans—and makes them accessible to their customers via software. It can refer to a “pure play” fintech business, where the core product offering is a financial service (e.g., a fintech whose primary offering is loans to small businesses). It can also refer to a business that embeds financial services into their platform to supplement their core offering (e.g., an appointment software tool for salons that also allows salon owners to process payments and spend on an expense card).

With the proliferation of companies building and offering financial services, determining whether a company is a fintech isn’t straightforward anymore. Because financial services play a larger role in the product and business strategy for many companies, more and more businesses today can be defined as a fintech.

Examples of a fintech

There are a variety of ways you can offer financial services, including:

• Becoming the primary banking relationship with users: The goal of these fintechs is to be the primary banking relationship for their customers, supplanting their existing banking relationships (if any). These businesses generally need to offer a wide range of financial offerings that meet all or most of a user’s financial needs, including checking and savings accounts, credit and debit cards, loans, and more.
  
• Building a fintech point solution: Point-solution fintechs are focused on solving a targeted problem or need in financial services, differentiating their offering against existing offerings in some particular manner. Examples of this include making it easier to send money via remittances, increasing accessibility to capital via loans, enabling corporate expense management via cards, and more.
  
• Developing financial infrastructure: These businesses improve and solve pain points with existing financial services infrastructure for other fintech businesses, which can range from providing compliance and security capabilities, payments and financial services infrastructure, and more. (Stripe is an example of a financial infrastructure business.)
  

Businesses building an expense card or spend management solution, such as Ramp, Emburse, and Brex, are examples of fintechs (specifically, fintech point solutions). These companies have built products that enable their business customers to easily facilitate, manage, and track corporate expenses made by their employees.

Traditionally, corporate expense management is a highly manual, resource-intensive, and error-prone process. Employees need to pay out of pocket for corporate expenses and then wait for reimbursements after filing their expense reports. Additionally, finance and accounting teams need to spend significant amounts of time managing expense report submissions, validating receipts, and managing expense reimbursements.

Modern expense management solutions provide businesses and their employees with virtual or physical cards that have specific spend controls in place, all while streamlining and automating the expense management and reimbursement process.

Expense management solutions are just one type of fintech business. The fintech landscape is vast and constantly evolving, and there are many other types of fintech businesses in the market, including neobanks and challenger banks, benefit disbursement cards, business-to-business (B2B) lending providers, remittance companies, bill payment tools, wealth management platforms, and many more. With all of these businesses, customers can access financial services directly within the fintech’s platform or product rather than needing to visit or interact with a traditional financial institution.

Key things to consider when building a fintech

We interviewed several fintech startups to learn how they identified their product offering and monetized it, how they built their technology infrastructure, and how they acquired their first customers. Here, we highlight their insights and anecdotes and share the key questions for your business to consider based on their learnings.

1. Identify a high-need and underserved audience

Traditional banks and financial institutions typically build general offerings for the entire market (as opposed to building products tailored for a specific audience). As a result, there are many underserved audiences who can’t easily access the financial services they need or leverage solutions tailored to their specific business needs. For example, only 48% of small businesses have access to all of the financing they require, and 33% of businesses were denied a line of credit because financial institutions determined that they didn’t have a sufficient credit history or were too new. Identifying high-need and underserved customers like these creates opportunities for your fintech to pursue and solve substantial problems.

Paperchain, an instant payments app for creators, identified a major source of friction for music creators. According to Paperchain, creators are the primary contributors to the $30 billion music streaming industry, but they often have issues with their cash flow, waiting up to 18 months for income payments. The same is also true for video streamers, influencers, and game and app developers, but Paperchain decided to specifically focus on music creators, believing Paperchain was best equipped to solve their pain points.

Two-thirds of Paperchain’s founders were music producers, giving them unique insights into their target audience because they had worked closely with other creators before and experienced their challenges firsthand. They knew that creators needed to invest in production and promotion, but they were often waiting for their next income check because of cash-flow constraints.

As a result, Paperchain built a fintech business focused on solving music producers’ biggest pain point by enabling them to get paid instantly via a digital wallet and card. Not only do their products specifically target creators, but Paperchain’s marketing strategy is also laser focused on their ability to best serve this high-need audience.

Key questions for your business to consider:

• Who is my target audience?
  
• How big is this market or opportunity?
  
• What are my potential customers currently using for financial services?
  
• What are their financial pain points today? Where do they currently experience friction?
  

2. Solicit customer feedback to inform your product roadmap

It is essential to have a deep understanding of your target audience as you build your core product. However, simply learning your potential customers’ pain points isn’t always enough to help you build the best fintech offering. Sending surveys and creating personas have value, but many times—especially when you’re starting out—the best course of action is to talk directly to customers to find out what they want you to build.

According to the Arc team, whose mission is to build the future of finance for startups, this meant engaging with “thousands of founders across the country.” Through one-on-one conversations, the team noted major pain points about the startup fundraising process: It takes “too much time,” is “incredibly distracting for founders who are already stretched too thin,” and “who you know [matters more] than how your business actually performs.” For founders seeking institutional capital, neither available option was ideal—they were forced to choose between traditional debt that “burdens startups with all-asset liens, covenants, transaction fees, and warrant coverage” and the “uncapped cost of dilution and loss of control” that comes with selling equity. As Arc added hundreds of paying customers to its platform, it soon uncovered a much larger pain point for these high-growth, early-stage companies. “The same distracting, offline, and manual processes that plague startup fundraising also persist across the B2B finance stack,” said the Arc team.

These insights, combined with the team’s mission to help startups grow, fueled Arc to create a vertically integrated financing, cash management, and insights platform. With Arc, startups can seamlessly “tap into their future revenue streams to access non-dilutive capital, deposit these funds into a virtual treasury account held by Evolve Bank (member FDIC), and instantly deploy spend to drive growth”—all via one digitally native account.

Key questions for your business to consider:

• How does my fintech offering solve my target user’s pain points?
  
• How is my offering an improvement from their existing financial services?
  
• Have I talked with potential users about my idea? Have I tested the idea with users?
  
• What do users like and not like about my idea? Is there anything they think is missing?
  

3. Diversify your revenue streams

Fintechs, like all other businesses, need to be profitable (or have a clear path to profitability). Depending on the type of fintech business you’re building, there are a variety of monetization levers available to control. Here are a few options:

• Interchange: If you offer a card product, you may be able to keep a share of the interchange fees that are generated for every card transaction.
  
• Lending: You can make money by offering loans and charging origination fees and interest.
  
• Earn fees on funds held: If you allow customers to store funds, you can earn fees as a share of the funds held. You can capture this entire revenue, share it with the customer, or some combination of the two.
  
• Subscription or service fees: Charge customers a recurring fee for subscription or membership plans in exchange for access to your offerings or services.
  
• Mark up money movement services: Mark up the costs of various money movement services (e.g., accelerated access to funds, wire transfers, currency exchange, etc.).
  

Many fintechs leverage more than one of these revenue streams to diversify their income and improve the profitability of their business. They can also test different monetization strategies and see where the majority of their revenue comes from long term, adjusting their strategy accordingly. For example, Persona, a business management solution for self-employed professionals and independent business owners, has five revenue streams for their business:

1. Capturing a portion of the interchange fee from transactions on their Persona Visa card
   
2. Charging payment processing fees when businesses accept payments on their platform
   
3. Generating deposit fees from funds held in financial accounts on their platform
   
4. Charging fees for short-term financing
   
5. Offering affiliate deals with businesses where both Persona and their customers are compensated for specific purchases
   

Key questions for your business to consider:

• When am I going to start monetizing my offering? Will I start trying to generate revenue from the very start? Am I going to focus on acquiring users and evolving my product first before determining how I should monetize?
  
• How can I monetize my offering in the long term? What monetization levers could I leverage?
  
• What conditions and requirements are necessary for me to successfully monetize my offering?
  
• What do the unit economics of my business look like?
  

4. Determine the infrastructure you’re going to build on

A fintech doesn’t need to own the financial infrastructure or technology it is using (though it can certainly choose to do so). The vast majority of fintechs use a BaaS solution to help them build and go to market with their offering more quickly and easily. BaaS providers act as an intermediary between the fintech business and banks, providing the underlying infrastructure on which fintechs can build their financial products.

Once you’ve decided what you’re going to build, you need to decide how you’re going to build it. This is a key decision for any fintech, because it determines the underlying foundation of your product, and it will be costly to switch your infrastructure after you’ve started building.

There are two primary ways to build your fintech offering:

1. Work with a bank directly

Partnering with a bank gives you more control over your financial offering, since you’re building everything yourself. However, this also requires significantly more resources and investment, both to get started and to continually manage after launch. When working directly with a bank partner, you have to manage all elements of building a new financial service on your own. This includes managing the relationship with your banking partner, building core money storage and money movement infrastructure from scratch, handling compliance and regulatory requirements, and more—in addition to building your actual financial product.

2. Partner with a BaaS provider

Alternatively, you can partner with a BaaS provider that offers the core infrastructure necessary to build a new financial offering, absorbing most of the product and compliance complexity. The diagram below shows exactly how a BaaS provider takes on most of the responsibilities and brings bank services to fintechs at scale.

Working with a BaaS provider can drastically reduce your time to market so you can quickly find product-market fit and build differentiating features on top of core financial offerings. However, you aren’t able to customize your offering to the same extent that you can when working directly with a bank partner.

When you’re evaluating BaaS providers, you want to consider factors such as what capabilities they support (both now and planned for the future), their reliability, geographic availability, customer service, and more.

The route you choose will depend on what you’re prioritizing. You might identify that you want to build and scale quickly with a BaaS provider or build a more custom solution by partnering with a bank for more control.

Persona decided to work with a BaaS provider, because they didn’t have the resources to build banking infrastructure as a small startup. By working with a BaaS provider like Stripe, they could “rely on Stripe’s infrastructure, which enabled [them] to build a set of features that [they] couldn’t build otherwise.” Stripe also offered all of the capabilities their business needed at launch and might potentially need in the future. “The last thing you want is to select a vendor, start building, and then completely change your architecture when you need additional features,” said the team at Persona.

Key questions for your business to consider:

• Do I have the engineering and development resources to build a fintech offering on my own?
  
• Do I have a deep understanding of the financial ecosystem (e.g., Nacha Operating Rules, card BINs, fair lending laws, etc.)? Do I want to be responsible for navigating this?
  
• How quickly am I trying to go live with my product?
  
• What are all of the capabilities or functionalities that I need (or might need) for my long-term roadmap?
  

When evaluating BaaS providers:

• Do they offer the capabilities I need today and capabilities I might need in the future?
  
• Are they an established business in the fintech space? What other fintechs have they supported?
  
• Do they have expertise in fintech? In compliance? In risk management and fraud prevention?
  
• What level of support can they provide my business?
  

5. Formalize your customer acquisition strategy

As with most new businesses, your marketing and go-to-market approach will play a significant role in determining your business’s success. You may be able to benefit from some organic adoption and word-of-mouth awareness, but you’ll need to have a formal user acquisition strategy to make sure that you grow your customer base.

Take advantage of the relevant marketing channels at your disposal to reach your target customers. Determine what channels and approaches will be most impactful for your specific audience, and continue to experiment with your marketing and awareness strategies to see what works best. Owned channels, such as emails, your blog, social media, your website, and your product dashboard, are free and easy to experiment with. Other channels, such as paid search, retargeting ads, or display ads, require more investment and a dedicated budget to successfully pursue.

The marketing teams at Arc, Paperchain, and Persona tested a variety of channels to see what was most effective for their respective businesses:

• “Founders are adopting alternative financing at an accelerating rate in order to preserve ownership in the business they’ve worked so hard to build. Rather than giving up 5–10% of ownership prematurely, founders can unlock growth capital today by tapping into their future revenue streams and raise from a position of strength later when revenues are higher and the equity markets come back. Given the macro and the non-dilutive nature of Arc Advance, we’ve seen strong traction through word-of-mouth referrals from our existing customers. This has influenced our inbound and outbound marketing efforts as well as our messaging. Over the coming months (and years), we’ll continue to lean into customer highlights and serve as a resource for founders in the journey of growing their business.” —Arc
  
• “Word of mouth has delivered 5,000 creators to our waitlist that we’re laser focused on unlocking. As we scale our onboarding process, we also leverage our B2B partners. We partnered with UnitedMasters [a major music distributor], and we have 100,000 artists wanting to use our app.” —Paperchain
  
• “Our team has a background in performance marketing and user acquisition, so we leverage every major advertising platform for user acquisition campaigns and put a lot of time and effort into hyper-optimizing them for specific sub-niches of businesses. Partnerships with organizations such as vocational schools, trade unions, certificates, and such have been a great way for us to grow using their referrals.” —Persona
  

6. Test and iterate

Your customers’ pain points and needs may evolve over time, so you should always be prepared to adapt and scale as needed. For example, the team at Karat was initially looking to build software that would help creators handle taxes, but it was met with a lukewarm reception. Karat found that their product wasn’t addressing creators’ immediate needs. When they would talk to their target audience, creators would always ask for a $5,000 or $10,000 loan up front to help them cover upcoming invoices, because they didn’t have the necessary working capital.

Based on this demand, Karat initially launched a merchant cash advance product to offer credit to creators, but they found that the product wasn’t resonating. They learned that a card product would provide creators with easy access to funding in a way that creators wanted. This led them to evolve their product again and build a business expense card product where they would provide financing for creators based on their revenue from different digital platforms. Their product today has processed over eight figures in transactions.

Similarly, the team at Persona found that being adaptable, especially when first building their product, was important to their startup.

“The first set of features that we set out with weren’t the ones that we ended up with,” said the team at Persona. Their app initially allowed users to process payments, but they found that their users were constantly asking for the ability to receive their funds immediately. Because of this user feedback and demand, their team prioritized building an Instant Pay feature for their platform.

“When you first go to market, that’s your learning period for what people actually want from your product and the capabilities they’re looking for,” said the Persona team.

How Stripe can help

Stripe is the easiest and most flexible way for companies to build and launch their own full-featured, scalable fintech—whether it’s payments, lending, cards, or bank account replacements. Stripe’s BaaS APIs, along with our entire ecosystem of financial infrastructure offerings, let businesses easily build a new fintech offering or embed financial services directly into their existing software.

Each of our BaaS products offers APIs that are building blocks you can combine in different ways, depending on what your customers need and what makes sense for your business.

• Stripe Issuing enables you to instantly create, manage, and distribute virtual or physical cards. With Issuing, you can build fintech businesses such as expense management platforms; buy now, pay later (BNPL) financing; and more.
  
• Stripe Treasury provides a flexible BaaS API to build a full-featured financial product for your customers, whether it’s a store and spend account or spend management offering. With Treasury, you have the core building blocks to create financial accounts, store funds, move money between parties, and attach cards for spending.
  
• Stripe Capital enables you to provide fast and flexible financing to help your customers grow their businesses. Many businesses struggle to get the financing they need to scale their business, and Stripe removes that barrier with a complete lending program through a single integration.
  
• Stripe Connect allows you to embed multiparty payments and offer a variety of financial services, like collecting payments from customers and paying out third parties. Platforms earn revenue by collecting fees for services provided.
  
• Stripe Financial Connections lets your users securely connect their existing financial accounts and share their financial data with your platform.
  
• Stripe Identity lets you programmatically confirm the identity of global users to comply with Know Your Customer (KYC) regulations.
  

Get in touch with our team to learn more about how you can use Stripe to build your fintech.

Visa® commercial credit cards are issued by Celtic Bank, a Utah-chartered industrial bank, member FDIC.

Stripe Treasury is provided by Stripe Payments Company, licensed money transmitter, with funds held at Evolve Bank & Trust and Goldman Sachs Bank USA, members FDIC.

Capital loans are issued by Celtic Bank, a Utah-chartered industrial bank, member FDIC. All loans subject to credit approval.