Fintech is showing its age. More than a decade has elapsed since Congress unleashed innovation in financial services with the passage of the Durbin Amendment . We have seen debit cards evolve to include fine-grained spend controls and prepaid cards that can be funded programmatically at the point of sale, a practice known as just-in-time funding. But differentiating a debit card product is increasingly difficult.

“I hate to say this, but all Neobanks are starting to look the same. Some have metal cards, some have rewards, some are for couples, some focus on excluded communities, but they’re all the same product,” Simon Taylor wrote in his weekly column, Fintech Brain Food, back in October .

The Apple Card, launched in 2019, offered the tantalizing possibility of “a credit card re-imagined” but instead delivered a sleek new sign-up process for a product that varied only superficially from other credit cards. The primary benefit of the Apple Card was the 3% cash back offered to Apple customers. “For those who buy a lot of Apple products and regularly use Apple Pay, the Apple Credit Card is a no-brainer,” finance writer Tamara Holmes concluded .

How to out-innovate Apple

The challenge in creating new credit products lay in the aging infrastructure that underpinned credit as it is currently conceived. For Fintechs to re-imagine credit products, someone first had to re-imagine the infrastructure required to bring those products to life and maintain them in existence. This meant rethinking software that dated back to the late 1960s and covered everything from the decisioning engine behind loan origination to servicing and collection. 

A common mistake made by Fintechs was to underestimate the code at the core of every financial product. Ledgers had been around for thousands of years. Maybe simpler was better? Instead of spending a million+ dollars on a lengthy integration with a legacy provider, they recorded loans and revolving credit lines in Google Sheets. This worked as long as a credit product was simple and each borrower had a single product, paid on time, and didn’t dispute any charges.

That rarely happens in the real world, where credit is complicated and often messy. 

As Canopy co-founders Matt Bivons and Will Hanson discovered when they tried to launch a safer student credit card, innovating in credit was impossible without a modern core. They set out to build their own and then pivoted Canopy from offering credit cards to infrastructure.

20+ parameters 

Like proteins, which are made up of 20 amino acids, credit products built on a modern core comprise 20+ parameters. These parameters include everything from billing cycles and credit limits to interest and promotional periods. Like the dizzying variety of life made possible by a limited number of amino acids, so is a mind-boggling diversity in credit products made possible by the configurable parameters of a modern core.

Buy Now Pay Later loans are one of the most popular forms of financing today. But very soon, you won’t have to choose between a BNPL provider like Klarna or AfterPay and your existing credit card. You’ll be able to switch between BNPL and revolving credit from a single financing provider, who will be able to tailor your financing instrument to your specific need.

Fintech, which for so long has been associated with neobanks like Chime and payment services like Venmo or Cash App, not to mention crypto, is heading into a new phase.

Build and service

Product and servicing are typically conceived as distinct from each other. You build products, and your servicing organization takes care of the customers that buy them. The relationship between product and servicing works like this for most sectors of the economy, but credit and lending products are different. After a loan is originated, its life as a product is inseparable from the servicing it receives.

A borrower makes a payment, triggering a string of servicing actions and events defined by the loan product’s parameters — the equivalent of its biological blueprint. Payments are allocated between fees, finance charges, and the outstanding balance. They are “poured” in a predetermined order — a cash advance may be required to be paid off before interest or principal.

When a purchase made with a credit card or BNPL loan is returned, the pouring happens in reverse. Consumers tend to focus on how they are treated by a customer service agent who may or may not have visibility into the ledger, or system of record, where all actions and events are recorded. But what is happening on the backend, behind the scenes, is as important. In many cases, it can determine the level of frustration a customer will experience in disputing a charge.

At Canopy, we believe innovative credit products start with servicing. How you define your lending or credit product — what parameters you set — not only determine what kind of product you will bring to market but how your borrowers will experience that product over time.

The modern core and modern servicing are more than a technology upgrade. They’re a new way of thinking about lending and borrowing, credits and debits. They enable financial products that are more personalized, more transparent, and safer for borrowers and lenders. And they are driving the Fintech renewal led by credit and lending.