The embedded finance sector is exploding as more and more businesses look to integrate financial services into their core offerings. At a high level, embedded finance solutions help traditionally non-financial technology companies layer financial products and services into their core platforms in a seamless, cost-effective, and user-friendly way. While embedded finance models can take different forms, one group we at Accion Venture Lab are excited about are the “enablers” – the companies that work with (oftentimes non-financial) technology platforms to enable the provision of financial services and products to end customers. Customers using these platforms – mostly individual consumers or small businesses – can then access these financial products where they’re already transacting, which reduces friction costs of seeking those much-needed products (e.g., credit, insurance) elsewhere. 

At Accion Venture Lab, we are particularly excited about the new wave of embedded finance offerings being introduced in historically underbanked markets. We’ve invested in several early-stage companies acting as “enablers,” tapping into spaces like the African insurance market (via portfolio company, Lami) or the Brazilian SME financing space (via portfolio company, Dinie). When consumers and small businesses can more easily access financial products and services, they are able to improve their livelihoods and embark on the journey toward sustainable financial health. But for these embedded finance solutions to provide real value to end customers, they have to establish strong partnerships with the platforms that help them access those customers.

For early-stage fintech startups building embedded solutions, it’s common to be opportunistic and accept a platform’s invitation to integrate your financial solution. And for the sake of cash flow and customer acquisition, many startups take the bait.

But as we’ve seen many startups head down this path, we think it’s all the more essential to have a system in place for evaluating and prioritizing your prospective integration partners. At Accion Venture Lab, we work with our embedded finance portfolio companies to help them craft their own “prospective partner scoring system” using tools we’ve built internally. We’ve designed this system to help companies think through which eligibility criteria are most important when vetting a partner (and further, the weight or importance that each criterion holds).

Understanding how to prioritize partnership opportunities as they arise can be a strategic advantage and also save you from operational headaches in the future.

Evaluating startup partnerships: what to keep in mind

For an embedded finance product, there are some clear advantages to finding the right platform partner. First, access to in-platform data on existing customers can help with more automated and effective credit decision-making. Second, platform partners allow embedded fintech players to meet customers where they already are, reducing per-customer acquisition costs. And third, platforms usually possess tested technologies and messaging that they can use to market products to their customer base seamlessly.

But this isn’t a one-sided relationship – platform partners also benefit from working with embedded finance startups. Throughout our work with our embedded finance companies, we’ve found that the main value proposition for the platform is increased customer engagement and stickiness. The ability to offer financial services to end customers helps the platform remain competitive, increase revenue per user, and meet customer demands for financial services and products. Partnering with an embedded finance startup also means platforms can avoid jumping through regulatory and licensing hoops to become lenders or insurance providers themselves, allowing them to focus instead on optimizing their core product.

As early-stage startups, you need to ensure your platform partners meet specific criteria to achieve mutual benefit. Partners should not only provide a seamless end-customer experience and fair revenue sharing, but they should also align with your company’s values and, ultimately, support your long-term goals.

Here are a few things to think about when evaluating potential partners:

1. Does your partner’s reputation align with your values?

It might seem intuitive, but it’s critical to vet a partner’s track record and reputation before getting into the weeds. For many embedded fintechs, the reality is that the platform owns the customer relationship and is the one that will likely be “the face” of your product to end customers. Particularly if you are an early-stage startup working with more notable platform brands, it’s important to understand how both the market and end customers view their relationship with that brand.

Outside of external brand reputation, also gauge what type of a partner they are by seeking references from other companies that have successfully worked with them. These references will give you a better idea of the partner’s reliability and how well they collaborate.

2. Will the partnership enhance the customer experience?

Embedded finance, at its core, is about forming partnerships that improve the end customer experience. In evaluating a new partner, you’ll first want to be sure that they deeply understand target customer needs and that the addition of your product will help elevate the customer experience in the long term.

You should therefore assess whether they have a proven track record of success in delivering high-quality customer experiences and retaining customers. This assessment could include customer satisfaction ratings, reviews, and awards or recognitions for excellence they have achieved in this area. More technically, it might also involve digging into metrics around customer churn figures (and the reason for that churn), understanding the platform’s ability to ingest and incorporate customer feedback into product design improvements, and considering how the platform differentiates itself from competitors.

You’ll also want to ensure the platform delivers a strong customer experience to you as its partner. This could include vetting the platform’s ability to support the technology infrastructure, data and analytics capabilities, and what their partner support team might look like.

3. Will the partnership be easy to implement?

When considering a new partnership, it’s critical to think about the ease of technical implementation. Does your prospective partner already have the necessary technical expertise, staff, and infrastructure to stand up and maintain an integration?  Will the partnership require you to change your technology, processes, or systems significantly? Who is responsible for which parts of the implementation process (you, versus your partner)?

It’s important to answer these questions early in the relationship negotiation stage. You can get creative – in the past, we’ve seen companies tranche implementation payments to align with key milestones or clearly state implementation timeline goals in their partnership agreement. Being candid about these types of barriers upfront is key. Though it can potentially prolong negotiations, it’ll prove beneficial in the long term and hopefully prevent substantial disruptions to both your internal teams and the end customer.

4. Can you agree on a clear division of responsibilities and measurements for success?

While keeping customer experience top of mind, clearly delineate proposed roles and responsibilities between you and your platform partner once the relationship is up and running. For example, you’ll want to cover topics like who will be responsible for developing the product marketing strategy versus who will handle customer incident management and support. You’ll want these roles – from both a personnel and budget perspective – clearly defined from the start to avoid disrupting the customer experience as much as possible.

Finally, both sides should understand how they plan to measure outcomes and what success will look like to them. We recommend having this conversation early in the partnership negotiation stage and setting “check-in” dates at regular intervals to evaluate the Key Performance Indicators (KPIs) you and your partner are keen on measuring. For more information on how to think about KPI-setting (particularly as it pertains to measuring the impact of your partnership on end customers), check out our resource on how fintechs can think about setting operational metrics.

The bottom line

As platform demand for embedded fintech products continues to rise, it’ll be essential for you, as an early-stage startup, to set criteria by which you can evaluate and prioritize your pipeline of potential partners.

We hope this quick guide will assist you along your journey of finding, evaluating, and building successful partnerships – and creating a lasting impact for end customers. For more insights from Accion Venture Lab, follow us on LinkedIn and Twitter.

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