14 steps to closing & working with a bank

This guide servers as a compliment to the “How to select a bank partner” guide (WIP).

1. Determine your product

Decide what your product construct will be, whether its credit or debit or savings or asset management. Think about who the customer you’re serving is and how you are uniquely bringing your offering to market. Then work on selecting technology vendors and learn which banks they work with. Do all the work yourself, up front. Make their life easy.

Remember, each Sponsor is unique:

* Some support merchant acquiring, most do not
* Some support push-to-debit, card issuance, most do not
* Most provide an omnibus FBO account tied to ACH & Wire processing
* Some provide an ACH API 
* Each Sponsor is the license holder, their license is at risk 
* Each Sponsor tends to have a specialty: high net worth deposits, lending, issuring, etc.  
* Every Sponsor sits on a legacy core platform (FIS, Fiserv, JH, etc.) 

2. Make an overview deck

This is not the same thing as a fundraising deck. Much more product oriented, it also covers flow of funds, financials, and any product nuances they would need to be comfortable with to work with you.

Think through this like a banker…

* You serve consumers or businesses
* Here’s your underwriting & risk models 
* Here’s your flow of funds (example below) 
* Here’s your fee/pricing model 
* Here’s how to pass data to the bank (if/when appropriate)

3. Reach out to banks

The most important considerations when reaching out to banks is their speciality. Also be aware of who is making the introduction, it can help or hurt their willingness to even talk (although I’ve cold called banks and it’s worked out in the past). Some banks only focus on / want high net worth deposits. If you’re building a prepaid card for the underserved, that’s going to be an inherent conflict. Some banks specialize in deposit accounts, some in lending, very few in both.

Furthermore, consider speaking with some of the BaaS providers alongside banks, as their pricing is more competitive and may be a better strategic fit for your business. For instance, if you’re super early stage at pre-seed, a BaaS provider is likely a better option given that you can spin up your product in 3 weeks (as opposed to 6-12 months).

Have low expectations and be explicit in the intro’s you want, thinking about the industry/model you’re after to guide you:

* Focused on underserved, fee avoidant, card-driven experience 
* Stay away from fee-driven, processing heavy sponsors 
* Lending and underwriting focused
* Whose balance sheet is at play? What’s the underwriting model?
* Who are the FinTech apps you’ve been most inspired by? 
* Can you meet/speak with the founding team for introductions? 
* Value of your investor network should be leveraged here

4. First Bank meeting - getting to know you

Get to know each other and explain what you’re building, your background, the market opportunity and how you are going to acquire customers.

1. Assume banks are monogamous - they want all of your business. Just another reason to be explicit about your product roadmap.
2. Push them for next steps. Banks aren’t quite able to keep pace with fintechs yet, however, they do know the process and should know what comes next. Push them for step 1: the NDA.
3. Do this with multiple banks. Think of it like dating, except try to keep them all on a similar timeline.

5. Second Bank meeting - deep dive

• This will be a deep dive on what you’re building, your team, fundraising history, and a bunch of other topics specific to your product needs.
• Ideally you do this within two weeks from the initial meeting, but banks can move slowly, so it’s your job to create a sense of urgency and get this meeting scheduled.
• Additionally, the more documentation you can provide at this point the better, it will give the bank confidence that you have your shit together.

6. Receive Pricing from Bank

• Depending on their experience and aggression, it will either be over or underpriced, and really not much room in-between. Expect this and know the general metrics.
• Most likely, you are the riskiest business to bank, assume the pricing is expensive unless you’re negotiating for your next sponsor bank with a proven business model.
• The market is so fresh that bank pricing is all over the map. We’ve seen integration pricing starting at $12k and spanning to $250k. Fight for pricing that works for you, it is flexible.
• Interchange splits are important – go in with a percentage of total you’d be comfortable with and negotiate hard (like you would for anything). Again, it is flexible.

Example fees for Savings product:

• Example from Evolve / SilaMoney
• Example of Dwolla / Veridian Credit Union

Example ACH pricing

7. Negotiate the LOI

Model out the pricing you receive from the bank based on your projected volumes and figure out which fees you should negotiate hardest against. Banks will rarely waive minimums so they can ensure they hit their monthly revenue requirements for the contracts to be worth it. This can take weeks of back and forth, so treat it urgently cause it can quickly make the bank the long tail determining a launch date.

8. Sign LOI with Bank

Once you’ve come to terms, it’s relatively simple to sign an LOI and more forward. This step usually involves wiring some money to the bank partner in order to kick off diligence and prepay legal fees.

9. Complete Due Diligence with the Bank

You want a list of policies ready to go because bank diligence takes a long time. The best advice is likely “never have anything on your plate, always make sure you turn around requests as quickly as possible.”

10. Negotiate and Sign MSA

In parallel with diligence the bank should be putting together a MSA, as well as any other contracts necessary for your product to go live. This can include, but is not limited to, a receivable sales agreement, a tri-party data sharing agreement, network sponsorship agreement and a bunch more. Expect your lawyers to have a lot of readlines and this to take many weeks of back and forth to get everything setup to sign them all on one day.

11. Setup bank integration

This includes flow of funds, processor integration, network settlement accounts, and more. Depending on the product and contracts, you also may open up a dozen bank accounts to hold funds for specific purposes and to control who has access to those funds.

12. Internal pilot with Bank

After everything is signed, set up and built you will typically go live with the bank internally for at least one month to ensure the entire system works across a calendar boundary, the month. This ensures any interest calculations, fees, statementing or whatnot works correctly and they can manually validate it.

13. Go live with customers

This will likely be a soft launch with no marketing buzz, or a test run with direct mail to see how originating external accounts flows through the system. It can take up to 2-3 months for the bank to really allow you to step up the amount of marketing and account booking that you do.

14. Ongoing bank touch bases and compliance

Expect regular monthly touch points with your bank partner to go through your program and present on metrics, exceptions and any other pieces they’ve written into the contact. Additionally, quarterly and annual deeper dives and audit processes are to be expected and ensure the bank has strong oversight on you as a third party.

Sample Diligence Process/list for Credit Product:

1. Review of entire Borrower Experience, performed by independent counsel, if needed, for compliance with regulations, including but not limited to:

* Electronic delivery message placement
* E-sign disclosure placement
* Credit Pull language – specific to Borrower and Cosigner, with applicable required disclosures
* TCPA language/placement
* Verify required disclosures presented at the right time (Borrower/Cosigner)
* Adherence to specific Wisconsin statutes

2. Document review performed by Independent counsel:

* Develop, review and/or revise program manual(s), as applicable
* Application, Approval, and Final Disclosure
* Risk Based Pricing Notices
* Adverse Action Notices
* Promissory Note

3. Marketing review performed independent counsel, if applicable:

* Review of any/all marketing material
* Review of website - jump page, disclosures, rates, etc.

4. Compliance Review

* Validation of Truth-in-lending disclosures pre-launch
* Audit of first 5 loans originated

5. Implementation of program with originator

* Development of Customer Correspondence
* Program Guidelines
* Underwriting Set-Up
* Testing
* Validation
* Launch