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What are the criteria for choosing an ideal BaaS platform partner in a crowded market with increasing competition?
Anonymous
Founder of neobank company
Guest: What you want is a newer platform that is stable. I would avoid all the incumbents. I would not go to Galileo or i2c directly.
If I had to choose an issuer processor, I would select Marqeta or Lithic. I think those are pretty solid. Lithic is very rock-solid, but they are expensive. You're not going to get really good unit economics with them. And I think they need to start competing on pricing. Right now they're justifying their costs because people don't know any better. Eventually, people are going to catch on at scale.
Although I think your best bet is actually, get a term sheet from every single provider and counter negotiate and compare the feature set. So talk to all 10 BaaS providers, make sure you get a full picture of what they can actually do, push them to their limits on what they are offering. What is happening though is that a couple of key sponsor banks are actually the deciding factor.
Out of some of the BaaS providers, the farthest behind is actually surprisingly Stripe. Stripe is actually the most immature in terms of what they can offer. And they're not able to actually provide deep custom systems. Stripe powers Step as an issuer processor, but they are not ready for any customer other than Step. They built a system that's entirely custom and only works for Step. So in terms of selecting a BaaS provider, I would actually leave Stripe out until they actually reorient things in 2022. I'm probably not going to touch that until 2023 in terms of their stability.
What matters more is less the BaaS and more the BIN sponsor. It's a misnomer to focus on the BaaS. It's much better to focus on the actual BIN sponsor. Once you have the BIN sponsor down or you look at the provider and see if they work with a specific BIN sponsor, that's really when you can really make a true decision.
Another key thing on a BaaS provider is you own the cardholder relationship. If you do not own the cardholder relationship, avoid the BaaS. This is actually a very critical thing that people always miss.