A Fintech Punch List14 Steps to Launch Custom Credit, Debit, & Lending Products
Only ten years ago, launching a customized version of a payment card required lengthy negotiations with the card networks and a banking partner. Working with technology partners could cost more than a million dollars and take over a year. More complex custom credit and lending products required more time, more money, and were just about impossible to take to market.
Today, it’s possible to design, build, and launch new credit and lending products in as little as three months, provided your team has its ducks in a row. This punch list aims to eliminate as much as possible the unknown unknowns that can wreak havoc with your schedule. With the Canopy Punch List, we hope to raise awareness of all that needs to be done and to help you close out as many of those items as we can so that you can launch on time and on budget.
1. A detailed design
Old-timers will call this stage product config. It is similar, in some respects, to design-first thinking in that it is critical to helping you bridge the gap between design and development. A general description of your product isn’t good enough. Before you do anything else, you need to decide on every attribute, from APR and balance transfers to late fees and promotional periods. (See Canopy’s API docs to learn to work with more than 20 customizable attributes.)
2. Borrower match
How will you decide which borrowers to approve? You will need to create or license “a decisioning engine.” Decisioning engines can be as simple as a single line of code, or they can take into account a mind-boggling number of variables. Your decisioning engine drives your underwriting system — the code that executes your credit policy. A simple example of a “borrower match” would be to approve anyone with a credit score of about 650 and/or a bank account balance that covers the monthly payment amount.
3. Marketing pre-work
What is your hook? What makes your product special? How will you find your ideal borrower, get their attention, and win their business? Insightful marketing is the secret to lower customer acquisition costs. You’ll need a marketing origination channel: a plan and the right systems to execute it. Depending on your go-to-market strategy, this may include a marketing website where borrowers can apply for credit and/or a mobile app and a direct mail automation vendor, along with content marketing, social media marketing, Instagram, TikTok, etc. to drive awareness.
4. Data security and compliance risk
How you protect customer data and comply with the alphabet soup of regulations governing financial products will be critical to your success. Compliance and legal expertise in-house or on retainer is a must-have. You’ll want to make sure you and your partners are compliant with SOC 2 Type 2, PCI DSS, and other security standards. And you’ll want to make sure you can provide regulators with an immutable audit trail covering the entire lifecycle of your debit, credit, and lending products.
5. A modern, immutable ledger
The core of any financial product, your ledger is easy to underestimate. Product teams who are new to the world of credit, debit, and lending have even been known to attempt to use a spreadsheet. However, they soon discover that neither spreadsheets nor traditional ledgers allow for the flexible management and servicing their products require. They end up adopting modern ledgers capable of real-time calculations, account-level policies, and automated actions to launch and grow innovative lending and credit products in a secure and compliant way.
6. Money movement
You’ll want to consider two flows of money — how you disburse credit or loans to your borrower and how you accept their payments. Using the card network “rails” is a popular solution that can involve working with an issuer processor who manages the relationships with a bank sponsor and the networks on your behalf. Either way, you will have the ability to disburse funds almost instantly, using a virtual card that is provisioned directly to a digital wallet. Or you can opt for same-day ACH via the National Automated Clearing House (ACH) or use traditional wires. Accepting payments from borrowers typically involves separate systems for processing payment via cards, ACH, and wires. Both disbursements and repayments are governed by the Electronic Funds Transfers Act.
7. Lender of record
Behind every credit or lending product there is a legal entity known as the lender of record. Depending on the lending laws in the geographies you plan to serve, you may decide to be your own lender of record. Or you may choose to partner with a bank or another organization. Where you want to lend and what your fees and rates are will also drive this decision.
Out of all punch list items, this is typically the most challenging, and it’s one of the chief reasons that some Fintechs choose banking as a service partners who can offer them a bank out of the box. Alternatively, the faster you can complete the other items on this punch list, the faster you will be able to get up and running on your own.
8. Obtaining a credit facility
You may find a bank willing to be your lender of record is not willing/able to lend you the capital you need. In this case, you will need to obtain a credit facility to fund the loans.
9. Servicing users, accounts, and cards
Managing each borrower, each borrower’s payment cards, and each borrower’s account can get complex quickly if you use siloed systems. And, as complexity increases, so does the chance that you may make a mistake in reporting to the credit bureaus or deliver less than excellent servicing. A modern loan management system integrated via APIs to your card management system, self-service borrower portal, and customer service agents can decrease servicing costs, streamline management, and increase borrower satisfaction.
10. Minimizing fraud and processing disputes
There are many ways that a fraudster can target credit or lending providers. Among your defenses, real-time data that can trigger alerts is a must-have. And you’ll also want to think about “friendly fraud” in which your customers challenge payments they made without having a legitimate reason to do so. Also known as chargeback fraud, you’ll want a chargeback management system to handle these and other disputes and a loan management system that is capable of retroactive calculations. (Learn more about retroactive calculations and the Canopy API.)
11. Merchant risk assessment
If you regularly lend to other businesses, you will want to conduct periodic risk assessments that take into account not only credit and strategic risks, but also risks related to liquidity, business operations, compliance, and reputation. If you utilize a card network as part of your product, you won’t be alone in doing this. Mastercard has a Business Risk Assessment and Mitigation program, and Visa has a similar Global Brand Protection Program. These programs prevent merchants that pose significant fraud, regulatory, or legal risks from using the card networks.
12. Delinquent accounts
Any time money is lent, some accounts will fail to repay according to the agreed-upon schedule. Customers fall into delinquency for a number of reasons, and a good lender will work with customers to protect positive payment history and ensure that the business has an asset that performs. When customers pay on time, capital markets can use repayment rates to identify the most valuable companies. Having a solid collections strategy can make that narrative a reality.
Read Canopy's Guide to A Better Debt Collection Strategy
13. Credit bureau and bank reporting
Once a month, at the end of each billing cycle, you may want to provide customer account updates to the credit bureaus for accounts in good standing and delinquent accounts. This is done using Metro 2 compliant systems. (Ask Canopy about Metro 2 files.)
14. Rewards vendor
Does your product include rewards? If so, you will want to have a rewards vendor in place for your launch. Vendors supply extensive catalogs of physical and digital rewards and global fulfillment services. They can enable you to offer unique experiences, charitable donations, cash-back, and more.
What is Canopy?
We believe in building technology that helps facilitate better life experiences. Financial products have largely been the same, lacking transparency and control. Canopy is built for developers to launch and service financial products in the most flexible way.