Hey fintech friends,

For financial institutions, the “Traditional banks vs. Neobanks” narrative often frames competition to offer banking services as a zero-sum game. This ignores an underlying reality: It may seem that most fintechs need sponsor banks (i.e. traditional financial institutions) to provide the banking & money movement services that power their digital financial experiences. While the opportunity to embed financial products in new solutions is still massive– eighty percent of the $185 billion total addressable potential  for embedded finance is still untapped– one of the biggest constraints to building embedded finance is that demand for sponsor banks now far exceeds supply. As a result, banks are now increasingly selective about their fintech partners.

A recent report on bank sponsorship by Visa & Datos Insights surveyed 15 executives from leading U.S. sponsor banks to understand how they evaluate and select fintech partners. Beyond demonstrating strong compliance capabilities (we covered this in a previous piece) the research shows how fintechs with a clear revenue proposition can better position themselves to win bank sponsor capacity.

Here are some takeaways for fintechs looking to work with bank sponsors in launching embedded finance products.

Bank sponsors report that embedded finance drives 51% of banks’ overall revenues and deposits, on average, with 90% of sponsor banks reporting that embedded finance makes up a significant percentage of total revenues.

However, investing in new programs comes at no small cost. Visa & Datos Insights’ report reveals that banks generally expect to spend upwards of $1 million and anywhere from 3-12 months onboarding new fintech programs.

Given the steep up-front investment, banks typically need to understand how a fintech program can generate positive ROI for the institution. Fintechs that understand bank sponsors’ revenues can build a strong case around the value drivers that banks care about.

Specifically, bank sponsors can generate revenue through a combination of:

Fintechs that have mapped their business plans to banks’ revenue streams can help prospective sponsors assess their economic upside early on in diligence. 

Payments account for over half of fintech revenues, with digital wallets, merchant acquiring, and vertical SaaS driving the lion’s share of top-line activity.

Payment volume can represent a major revenue driver for sponsor banks, and the specific payment types– card transactions, ACH transfers, wire payments, real-time payments via RTP/FedNow, and cross-border transfers– matter significantly, as each carries a different fee structure and risk profile. A fintech facilitating small-dollar P2P transfers presents a different revenue and risk profile than one processing large B2B vendor payments, even if both use similar underlying rails.

Banks typically assess payment opportunities by understanding the complete transaction mix a fintech program will generate, monthly send and receive projections broken down by payment rail, average transaction sizes, expected geographic distribution for cross-border flows, and anticipated customer segments. The more detailed and realistic these projections, the better banks can model expected returns and price the relationship appropriately.

At scale, the Visa & Datos Insights report notes that banks often structure tiered pricing that offers volume discounts once fintechs hit certain transaction thresholds, aligning all parties’ incentives for growth. Some partnerships also explore revenue-sharing arrangements on items like card interchange.

Beyond demonstrating immediate revenue potential, successful fintechs map out how their programs will evolve and expand over time. Compelling fintech programs have the potential to expand into new, adjacent products and deepen relationships with their end-users over time. A fintech launching business charge cards, for example, might outline a three-year roadmap to launch vendor payment automation, then treasury management tools, and eventually working capital financing.

Tactically, fintechs strengthen their case during diligence conversations by arriving prepared with comprehensive documentation, broadly including (but not limited to):

One bank program manager explains: "As a rule of thumb, we expect the program to generate US$250,000 revenue for us in the first year with some path to continue growing in years two and three.”

Fintechs that can credibly project multi-year growth across diversified revenue streams– showing how transaction volumes, deposit balances, and new product lines deliver value over time– position themselves as strategic partners to prospective sponsors.

Competition between fintechs and traditional banks has never been a zero-sum game– but with over 80% of the embedded finance TAM still unaddressed, and demand for bank sponsors far exceeding supply, anecdotes from financial executives showcase that fintechs can gain a meaningful edge by serving as strategic partners to the banks they work with.

Successful partnership starts with understanding each other’s goals: Banks are looking for partners who can generate transaction volume, grow deposits, and demonstrate a credible multi-year revenue trajectory. Fintechs that position their product roadmap in those terms and show up to diligence conversations with realistic projections can make a compelling case for sponsorship.

Sponsor capacity is competitive, but it’s still accessible. There is real incentive for banks to expand their reach through embedded finance. For fintechs, having a credible revenue story that resonates with banks’ economic objectives can be the key to successfully delivering on their own long-term growth opportunities.

Read the full Visa and Datos Insights report: Bank Sponsorship for Faster Money Movement.

* Actual fund availability for all Visa Direct transactions may depend on receiving financial institution, account type, region, compliance processes, along with other factors, as applicable. Availability varies by geography. Please refer to your Visa representative for more information on availability.

These materials and best practice recommendations are provided for informational purposes only and should not be relied upon for marketing, legal, regulatory or other advice. You should independently evaluate all content and recommendations in light of your specific business needs, operations, and policies, as well as any applicable laws and regulations. Visa is not responsible for your use of the marketing materials, best practice recommendations, or other information, including errors of any kind, or conclusions you might draw from their use. You should consult with your own legal department when creating your own materials or policies to determine if any legal disclosures, changes, or registrations may be required under applicable federal, state and local laws and regulations and your own institution’s policies.

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