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Dec 14, 2023

How Middesk accelerates business onboarding for fintechs

Alex Casserly
Account Management

At Middesk, we believe that building trust between businesses accelerates economic growth, so we build products that provide comprehensive insights into a business's risk profile, helping B2B companies establish trusted relationships more quickly with their customers. 

Many leading fintechs turn to Middesk for support in achieving sustainable growth, navigating regulatory compliance, and scaling their operations. Amid the collapse of Silicon Valley Bank, rising interest rates, and decreased risk appetites among investors and regulators, 2023 has brought on a wave of new challenges for fintech founders, and striking the right balance between new user growth and risk mitigation remains top of mind. Whether you offer commercial accounts, access to capital, or payroll and accounting solutions, small businesses are increasingly drawn to platforms that can provide a seamless user experience. Fintech companies of all sizes trust Middesk to help them simplify the customer journey, approve more customers, and build compliance workflows that align with their products. 

Read on for some specific examples of how Middesk has built strong, lasting partnerships with our fintech customers and continues to help them achieve their goals of new user growth while streamlining their compliance and operations. 

Neobanks

Overview 

Middesk collaborated with a leading SMB neobank, automating and scaling manual onboarding procedures during a time of exponential growth. This neobank provides an elegantly designed banking platform for early-stage startups, venture capital firms, and ecommerce businesses. The company’s core product is their business checking account, complemented by credit products, treasury services, and venture debt. They prioritize security, usability, and time savings for their customers, distinguishing themselves in a competitive market through a strong emphasis on trust and community.

Challenge 

The startup had found product-market fit quickly within its first year and was growing as much as 40% month over month, until the pandemic hit and the Federal Reserve slashed interest rates. Now the company had to quickly differentiate their core product offering, because at the time most of their revenue was generated by earning interest through deposits with partner banks. They had found early success while maintaining a lean team, but this approach proved to be a challenge when trying to onboard new customers at scale. The company didn’t have the bandwidth to onboard all of its customers manually, and it needed to generate new revenue streams in a zero-interest environment by cross-selling other products.

Up to this point, the neobank had conducted all business verification through manual reviews. The compliance team recognized that there was a lot of friction for customers in the document collection process, manual reviews were inefficient, and onboarding delays negatively impacted conversion. In order to cross-sell its other products, the neobank needed to convert new applicants to deposit customers more quickly. Hiring a large compliance team to manually review the large volume of new business applications wasn’t a scalable long-term solution, so the founders sought to introduce automation to the process. 

Solution 

The CEO, who was an early investor in Middesk, saw the benefits of a tech-forward, developer-friendly business onboarding solution. The compliance team saw an opportunity to improve the onboarding experience for their customers and more quickly verify key details required to onboard a new business.

The neobank successfully introduced automation to their onboarding flow with Middesk’s Business Verification solution and TIN Match, noting a swift integration. While achieving the desired auto-approval rate took time, the team saw value quickly with the automation of TIN verification, which enabled them to eliminate SS4 form submissions from their onboarding flow. The Middesk team leveraged their existing relationship with the sponsor bank to negotiate adjustments to onboarding criteria and collaborated with the compliance team to further optimize their KYB processes. This resulted in increased auto-approvals, showcasing Middesk's value in fast-tracking good customers and filtering out undesired ones.

Outcome 

Over the course of the first year of their partnership with Middesk, the company increased their auto-approval rate by 20% and approved more applicants overall, achieving up to a 75% verification success rate. They were also able to significantly reduce their operational costs and improve the onboarding experience while achieving their ultimate goal of cross-selling other products quickly. 

The neobank achieved a rare milestone for an early-stage startup–sustainable profitability–despite a crowded market and a challenging macroeconomic environment. They attribute their success to investing heavily in the customer experience and building a resilient business model. The company’s rapid growth has continued in spite of the tech banking crisis, as they responded quickly to their customers’ needs by increasing FDIC insurance on deposits and distributing risk between their network of partner institutions. 

Lenders

Overview 

A growing SMB fintech lender chose to work with Middesk to enhance their data quality and streamline onboarding ahead of launching their new deposit account product. As a leading provider of alternative business financing, they saw an opportunity to better serve their customers with the expansion into business checking accounts. Today their product lineup also includes flexible credit lines, international payments, accounts payable, and budgeting tools, offering an all-in-one solution for SMB financial management. Targeting early-stage startup founders and small to mid-sized business owners, the fintech prioritizes designing financial solutions to support business growth.

Challenge 

Prior to Middesk, the company had been using LexisNexis as its primary KYB data provider and heavily relied on manual reviews by the compliance team. Compliance analysts found it difficult to match the applicant’s data to the correct business with LexisNexis’ results, citing challenges with data freshness and accuracy. At one point, they began passing businesses that couldn’t be found with LexisNexis to Middesk, but this added significant operational overhead and an increase in customer acquisition costs. The compliance team still had to manually review applications to resolve discrepancies in data, and their current process wouldn’t scale well to support new product lines or more aggressive growth targets. 

The fintech lender determined that the top priority for the year was to grow their user base through the launch of their business deposit account. They needed to reorient their strategy around new customer acquisition, and doing so would require achieving a higher rate of auto-approvals and introducing more automation in the onboarding funnel. The product team ran a data test with both vendors, and Middesk outperformed LexisNexis on key data points such as business names, addresses, and TIN matching. The company’s product and compliance leaders agreed that relying on manual reviews and inconsistent data quality would inhibit their growth potential. They were willing to invest in a solution that would make a meaningful difference for their new customer acquisition. As the fintech prepared for its upcoming product launch, they saw Middesk as not only a KYB vendor, but a strategic partner in achieving their new user growth goals.

Solution

The fintech lender began to leverage Middesk’s Business Verification solution with TIN Match, at first for its core business underwriting product. Eventually, the company switched to Middesk as its sole KYB provider and used Business Verification in the onboarding flow for all of its products. The Middesk team had a high level of confidence in their data quality and agreed to include a minimum auto-approval rate in the contract. 

The integration process was complex because it involved many stakeholders, including the fintech’s sponsor bank, who had to approve all changes to the KYB ruleset. Middesk built a strong partnership with both parties by focusing on opportunities to optimize conversion without taking on more risk. One example involves proposing the use of a similar name matching rule in place of exact name matching. The sponsor bank was skeptical, but Middesk overcame their concerns by conducting a manual audit to confirm that even with slightly more flexible rulesets, Middesk could locate the correct business with 99% accuracy. Middesk also helped the company successfully onboard more applicants by refining their KYB rulesets to reduce the number of automatic denials, instead routing applicants for manual review. Within just six months, Middesk helped the company increase its auto-approval rate by 50% and serve thousands of new customers.

Middesk continued to help the company optimize for new user growth by running frequent analyses and manually reviewing results for accuracy, over time building confidence in both the quality of the product and the team’s customer-centric approach. Middesk integrated additional data sources for address matching and built configurable watchlists, demonstrating a commitment to continually improving the product and serving the customer’s needs. 

Outcome 

Within the first year of the partnership, Middesk was able to help the company drive its auto-approval rate up from just 40% to more than 75 percent. Optimization was possible in part due to the company’s higher level of risk tolerance, and the sponsor banks' willingness to approve more flexible rules. Since that first year, they have further optimized the onboarding flow to achieve an 80% auto-approval rate. Middesk’s sustained commitment to helping the company achieve their goals opened new opportunities for Middesk as well, including the leadership team’s willingness to collaborate in building new products and make introductions to potential customers. Today, the lender processes approximately 350,000 business applications through Middesk, making them one of Middesk’s largest customers. 

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