Fintech stack overview
Why there is a need for a no-code fintech app builder on top of the fintech stack
It would appear building a fintech app is a matter of stacking various providers and adding your branding. Unfortunately, the industry is still highly fragmented and it is difficult to navigate providers and compare apples with apples.
Our clients constantly ask us what is the difference between Plaid, Truelayer, TreasuryPrime, Synapse, Wyre, Marqeta, Onfido, Sumsub, Visa, Swift, etc. Knowing what the fintech stack consists of, and where different providers fit in can help you to better plan your architecture.
At Rehive, we have met and worked with hundreds of fintech startups. We focus on the application layer on top of the fintech stack, which gives us a birds-eye view of the fintech landscape and the providers companies choose for different use cases and regions.
In this post, we look at the CeFi stack in the context of the U.S. market. By CeFi, we mean centralized and traditional banking/financial services. We are drawing significant inspiration from Chris McCann’s popular article: “FinTech Infrastructure 101”. Our goal is to adapt the article to develop the terminology that would help clients navigate their options. We also highlight why there is a need for Rehive’s no-code application layer to bring everything together.
Financial technology has undergone much change in recent times. These changes are the consequences of powerful market trends. Understanding these market trends will help you navigate the fintech stack — read more here.
Fintech infrastructure
Market trends are driving the need for new fintech infrastructure and, in particular, developer tools. New players relentlessly pursue solutions — some are literally scraping banking services and packaging them as APIs to get the job done!
We break the modern financial stack into 5 layers to help clients navigate their options. Here’s a market map of the fintech financial infrastructure with U.S. based examples on each layer:
Let’s look at each layer in some more detail.
Applications
Includes the end-user app as well as the ledger and user management system that powers the app experience. In some cases, the app is built directly on any of the layers below without a ledger and user management system in between. The end-user application can be for web, mobile, or embedded.
Connectors
Authentication, information extraction, and transaction authorization tools. Connectors typically do not have the ability to open accounts on behalf of users and do not operate as licensed financial service providers. Connectors either scrape banking applications or aggregate any available APIs to access individual customer accounts.
Abstractors
Typically positioned as banking-as-a-service, compliance-as-a-service, brokerage-as-a-service, etc. They partner with underlying banks, or sometimes become banks themselves, and provide a simplified set of APIs to mimic everything a bank can do. In some cases, banks provide their own abstraction layer. This should not be confused with open banking.
Core
Traditional core banking systems are built according to strict specifications to meet international and national regulatory requirements as well as payment rail standards. The core is managed by licensed banks that ultimately control the movement of funds.
Rails
Underlying payment rails/messaging system used to settle funds between entities, for example, ACH, SWIFT, VISA, etc.
Where does Rehive fit in?
With an understanding of the whole fintech stack, Rehive’s role and place in the stack becomes much clearer. Rehive is uniquely positioned as the application layer on top of the fintech stack. We provide a flexible transaction ledger and user management system that slots on top of any underlying store of value, whether banks or cryptocurrencies.
Whether you are pure fintech or a non-fintech business, Rehive can help you save time and money to go to market faster with a fully fledge Cash App-like solution.
We aggregate various providers, while also making it easy for clients to build their own integrations. Businesses can easily configure their project, launch, and manage everything from a single portal without having to develop anything.
Rehive is a fintech app builder on top of the fintech stack.
The solution consists of an administrator portal, as well as consumer and business applications for iOS, Android, and web. It is also possible to build custom features or integrations via the SDK or API.
Rehive product overview: Platform, Extensions and Applications
It is a popular opinion that the hardest part of building a fintech business is regulations. This is true, but the good news is providers like Wyre, SynapseFi, and Treasury Prime in the U.S are solving this problem. Rehive’s partnership with Wyre is making it extremely easy to go live with a production-ready fintech app. The first step is to open a Wyre account and then import your API keys to start transacting as a user.
Rehive’s business model is similar to Shopify’s, but instead of being focused on e-commerce, we are going after the finance and banking sector. While Shopify made it possible for anyone to create an e-store, Rehive makes it easy to create a fintech app. There is a monthly subscription fee as well as a usage fee for active users. In order for Shopify to have succeeded as an e-commerce store builder, they needed infrastructures such as packaging, shipping and delivery, stock management, and payment processing to exist. In Rehive’s case, the infrastructure requirements are instead compliance/licensing, on/off ramps, brokerage services, and custody of user funds — all provided by Wyre.
Fintech stack selection
If you are working on a fintech project and evaluating various vendors for each layer of the fintech stack, it is important to keep the following in mind:
Key observations
- It is not possible to build on the rails layer without working through a licensed core entity.
- Connectors and abstractors are generally much better at providing API services than traditional financial institutions on the core layer. They tend to be more developer-focused, use modern tools and deliver superior documentation, changelogs, and developer support compared to legacy institutions.
- It is possible to build a fintech app on either the abstractor or core layer directly. In some cases, core providers offer APIs, but it requires a special relationship with the underlying bank. In many cases, fintechs opt to build a custom ledger system on the application layer instead of relying on the underlying bank partners directly. Venmo is a great example of this.
- A major downside of connectors is that they typically own your users’ data when their service is used to extract useful information.
- Another downside of connectors is that your users’ authorization is handled via their servers to access bank information and authorize payments.
- It is possible to use multiple abstractors, for example using Wyre for USD for a cheque account and SynapseFi USD for a savings account. Abstractors may require that you disclose any funds being managed by another provider. Additional work is required to manage a float on each provider in order to seamlessly move funds between different accounts.
- Abstractors tend to work closely with one bank as a partner, which makes it hard for them to jump borders and work in multiple countries.
- Payments on the stack are not instant and can be reversed or failed. This makes it difficult to create instant payment settlements for your end-users.
- Abstractors tend to specialize in abstracting complex local regulations, which means it is necessary to work with multiple providers if you intend to go after a multi-region customer base.
- There are limited options on the application layer. Typically you have to build your own application from scratch.
Key questions and trade-offs
When choosing your fintech stack you have to ask the following questions:
- What is your target region?
- Do you plan to support multiple regions in the future?
- Do you want to keep the option open to switch underlying bank providers and avoid being locked in?
- Do you want users to use local rails, e.g. ACH and wire transfers?
- Do you want to support cards?
- Do you want to support multiple currencies?
- Do you plan to support cryptocurrencies?
What about DeFi?
Generally speaking, fintech applications are thought of as being built on top of existing banking rails, aka CeFi.
DeFi is a collective term for applications that are built on open blockchain networks such as Bitcoin, Ethereum, Stellar, and others.
The friction related to building on banking rails has led to the emergence of fintech infrastructure abstracting complexity, which is great. However, there are a couple of downsides:
- It is somewhat inefficient to run connectors and abstractors on top of legacy core infrastructure.
- Each layer in the stack charges a fee.
- The bank is still in control of the underlying user fund.
- Settlements are not instant and can even be reversed.
DeFi is an opposing force that competes with the banking rails (Core and Rails layers) as an alternative. A blockchain network is a distributed, interoperable and decentralized system that can directly be used as a payment rail, without a middleman.
Companies like Circle have used the programmable nature of blockchain to represent a “digital dollar” on various blockchain networks that are held in reserve by Circle. Their website tagline says it best: “Payments & treasury infrastructure for the internet”. Circle currently holds over $50 billion USDC stablecoins.
Digital dollars on blockchain networks are referred to as stablecoins, which inherits all the technical benefits of blockchain technology, while still being regulated as a fiat currency. Effectively, one digital dollar can be redeemed for one dollar in the traditional banking system at any time. Stablecoins are effectively a new payment rail making it easier to innovate for fintechs without the necessity of the core or abstractors layers. That being said, abstractors will continue to be valuable for fintechs to take care of the custody of funds.
Stellar is an example of an open and interoperable blockchain network that is well suited for stablecoins. The network has low transaction fees and near-instantaneous settlement time.
Japan is one of the first countries to announce a bank-deposit-backed digital currency that will be issued on a distributed ledger system.
It is to be determined whether stablecoins will continue to be centrally issued and/or whether projects like MakerDao will stand the test of time with their smart contract-backed stablecoin called DAI.
Rehive works on any store of value and works closely with Stellar to support more stablecoins and tokens on the Stellar network.
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