The Unusual Dynamics Between Fintech Companies and Vendors

In this article, I want to explore the unique and often misunderstood dynamics between fintech companies –  the end brands selling products to users – and the vendors they work with. 

Traditional vendor relationships usually operate under a simple premise: the customer is in charge. The buyer, who spends money and drives revenue for the provider, naturally wields more power. This dynamic is familiar to us as consumers, as evidenced by phrases like "the customer is always right." Companies such as Costco and Nordstrom are famous for their lenient return policies, emphasizing customer satisfaction above all else. These companies realize that keeping the customer happy drives long-term value. In most industries, this is the established norm.

However, the fintech world plays by different rules. The power dynamics between customers and vendors are often entirely reversed. At the heart of this inversion are banking partners. Unlike typical customer-vendor relationships, fintech companies — especially those offering banking products — cannot always control their products because they aren’t chartered depository institutions. Instead, they rely on actual banks to provide these products, and the banks, in turn, contract them out to the fintech brands. 

A key example of this flipped relationship can be seen in products like the Brex Mastercard business card. While users perceive this as a Brex product, legally speaking, Emigrant Bank owns the relationship with the customer. Brex functions as an intermediary, offering Emigrant’s banking product under its own brand while handling customer service, marketing, and management. Despite Brex’s role as the face of the product, Emigrant Bank retains ultimate control over the offering, holding the regulatory responsibility, as fintechs are not themselves directly covered by the prudential bank regulators. 

This kind of arrangement creates a dynamic fundamentally different from what we usually expect in vendor relationships. For example, the issuing bank often has extensive rights that allow it to audit the fintech company and ensure compliance with regulations. These audits are not optional—they are a regulatory requirement—and can extend into various aspects of the fintech’s operations. This includes the ability of banks to approve or even reject key employees in fintech companies, including executives, and to dictate marketing strategies, sales tactics, and fraud prevention methods. 

While one might argue that such oversight is necessary for the integrity of the financial system, it undeniably alters the nature of the customer-vendor dynamic. In a traditional setting, the customer has far more autonomy over how they operate and manage their business. In fintech, however, the bank holds significant control, creating a vendor relationship where the customer can be restricted in ways not usually encountered in other industries.

This dynamic becomes even more complicated as we move beyond the direct bank-fintech relationship. While some fintech companies act as a program manager and work directly with a bank, many others engage with intermediaries—often called infrastructure providers or platforms. These companies, which historically fell under the umbrella of "banking as a service" (a term that has since fallen out of favor), provide the infrastructure layer that connects fintechs to banks. 

In many cases, when working with a platform intermediary, the fintech doesn’t have direct contact with the bank. Instead, it is beholden to the program manager, who acts on behalf of both the bank and itself. This intermediary not only interprets the bank’s requirements but also introduces its own, mandating that the fintech adheres to a set of rules that reflect the interests of both parties.

Providers like Lithic or Apto play a gatekeeping role in this arrangement. Many of these infrastructure companies are larger than the fintech startups they serve, particularly in the early stages. This size discrepancy adds yet another layer of complexity to the relationship. Not only does the bank hold power over the fintech company, but now there’s an additional layer of gatekeeping from the infrastructure provider.

For example, when I was at Apto, we had raised more money than many of our customers, which gave us a level of authority that a typical vendor wouldn’t have. Our role was to say no to customers on behalf of the bank when necessary. In a traditional customer-vendor relationship, it’s hard to imagine a situation where the vendor tells the paying customer no on such a frequent basis. Yet in fintech, this is common practice.

Over the past year, as regulatory scrutiny has increased in the fintech industry, there is a shift away from these intermediary relationships to one where infrastructure providers provide the technology, but not the banking relationship. While companies like Unit and Treasury Prime have emphasized this model, other program managers continue to operate as a middleware layer. Some sponsor banks have traditionally preferred to have an intermediary managing many fintech clients so as to reduce the sales and partnership overhead.

The stark difference between fintech and traditional industries becomes apparent when you consider how consumers purchase everyday products. Let’s say I want to buy a pair of socks. I visit a website, add the socks to my cart, and complete the purchase. It’s a simple, transactional process. As long as the seller can ship to my location, the purchase goes through.

Now, compare this with the process of acquiring a financial product like a credit card. The customer can’t simply add a card to their cart and checkout. Instead, the fintech company has to evaluate whether the customer is eligible to receive the card. The company must ensure that the applicant is a real person and not a fraudster. This verification process is built into the very structure of financial services, and it’s not something that occurs with everyday consumer goods. There’s a lending component to credit cards, but even for simpler financial products like debit cards or money transfer services, a similar approval process is in place.

This approval dynamic also applies to the B2B side of fintech. If a fintech company wants to issue debit cards through a platform like Apto, they must first secure approval from the infrastructure provider and the bank. The infrastructure provider acts as a middleman, ensuring that the fintech company complies with banking regulations and that the end users are legitimate. This setup adds more friction to the relationship, especially when the infrastructure provider has to reject certain requests from the fintech company.

The friction introduced by this setup is not insignificant. For many fintech companies, the relationship between themselves, infrastructure providers, and banks can feel like a never-ending series of compliance hurdles. Banks often express concern that they are losing control over compliance when middle-layer providers approve too many customers or fail to adequately enforce regulations. This tension between ensuring compliance and enabling growth is one of the core challenges of the banking-as-a-service model.Adding to this complexity is the fact that program managers often work with multiple banks, each with its own set of requirements. During my time at Apto, we managed relationships with several banks, each demanding different compliance measures. To streamline operations and avoid complications, we often built our product to meet the most stringent requirements across all our banking partners. This approach is crucial for fintechs to understand: even if your specific bank doesn’t require certain measures, your program manager might enforce them to satisfy the broader demands of all their banking relationships.

At the end of the day, the fintech company, which may be paying thousands of dollars a month to the infrastructure provider, can find itself in the uncomfortable position of being denied requests. Imagine paying a vendor $5,000 a month, only to be told no to a significant number of your requests. This is not how traditional customer-vendor relationships work, but in fintech, it’s the norm. This power shift can be frustrating, especially for founders and executives who come from industries where the customer is king.

For certain financial products, such as accounts and cards, the cost of switching providers is very high. If a program switches to a new bank, it must migrate the user's data and funds, issue new physical cards, update disclosures, and, in many cases, require users to accept new terms and agreements. Users may also need to complete new credit or KYC reviews. Because of the high switching costs, many programs find themselves logically captive to their provider stack, even if contractually, they can leave.

While it is possible to migrate accounts or to onboard new customers to a new partner while churning out the old platform, these processes are expensive and time-consuming. Because of this lock-in, the vendor (bank or platform) has a high degree of influence and control over the customer, knowing that the ability to migrate is limited. 

Few industries exhibit the same kind of power dynamics that fintech does. In most sectors, the customer holds more power, dictating terms to the vendor. In fintech, the opposite often happens. Those collecting the money—banks and infrastructure providers—tend to have more authority than the fintech companies they serve. This leads to a customer-vendor relationship that is complex and uniquely challenging. In this ecosystem, banks and infrastructure providers must recognize that their success is tied to the success of the fintechs they support. By acting as true partners and allowing fintechs to focus on their areas of expertise, they can create a more collaborative environment that benefits everyone involved.

This dynamic can be incredibly frustrating for those new to the fintech space. It’s hard to operate effectively when the usual rules of business don’t apply. The entities that you rely on to deliver products to your customers are often the ones setting the rules, dictating terms, and restricting your operations. In fintech, the very concept of what it means to be a customer is turned on its head. 

Understanding these dynamics is crucial for anyone looking to navigate the fintech landscape successfully. It’s an industry where the customer-vendor relationship is not just inverted but often opaque, with layers of complexity that are difficult to unravel. For fintech companies, success often means finding ways to work within this system while constantly seeking to innovate and push boundaries.