Fintechs - Buy or Build?

At Peach, we work with many early-stage fintechs looking to launch new lending products. A common question they face is whether to buy a piece of the lending technology stack or build it in-house.

These fintechs are technology companies themselves, with strong in-house product and engineering teams. So it’s no surprise that they’re often strongly inclined to build. Here’s how we help our customers think about this decision with regard to servicing tech specifically.

The first question is: What functions are core and differentiated to your business? Our view is that in lending there are two core differentiators: 1) marketing and customer acquisition, and 2) underwriting and risk management. Though loan servicing is an important part of the lending business, it isn’t core or differentiated.

From an investment standpoint, our customers typically find that it isn’t a good use of engineering resources to build and maintain a proprietary servicing platform. At least not if there’s a flexible, modern servicing technology partner that can support the needs of your current and future lending products without months of customization effort.

Fintechs who come to this view naturally gravitate toward a partner like Peach that specializes in modern servicing technology and gives lenders a choice between a true all-in-one solution (including system of record, payment processing, white-label borrower portal, CRM and compliance) and modules with open APIs they can build on top of.

Other fintechs go through the exercise of measuring and comparing the costs of buying versus building. However, the cost to build servicing technology is surprisingly difficult to forecast, for a few reasons.

First, lending products often start off simple—no interest accruals or fees, simple terms, single repayment method, etc. The requirements (and costs) for your servicing tech will grow as your product requirements change. Second, servicing tech has many constituents, including finance and accounting, credit risk, operations and collections, legal and compliance, and capital markets. And don’t forget about your end users! Building technology that truly works for all these stakeholders is not easy or cheap.

And third, approximately 90% of your servicing costs will come from 10% of your customers. Within that 10% group are many different cases you’ll need to deal with—payment failures, product returns, bankruptcies, identity theft, active military cases, FEMA federal disasters and identity theft, not to mention hardship and loan modifications (which can be forward-looking or retroactive). To forecast accurately you have to plan for every corner case and build these into your cost model in advance. It’s difficult to do this if you haven’t built a servicing system before.

That’s why we built Peach. Peach is the third generation of the modern servicing platform our team has worked on at companies like Affirm, Enova International, and Prosper. We support a wide variety of asset classes, including credit cards, charge cards, cash advances, BNPL/POS, RISAs, personal loans (installments and lines of credit), home improvement loans, private student loans, business loans, MCAs, and auto loans and leases.

Our loan management system has 250+ configuration variables that define loan product behavior. We can configure new loan types in a day and launch new lending programs in weeks. And if your requirements change or you want to launch a new product, we’re well-positioned to support your growth.

We love consulting with early-stage fintechs! If you’re planning to launch a lending product, please connect with us at [email protected]. We’d love to hear from you.