June 25, 2021

Stripe, Commercial Banking, and the Fragmentation Paradox

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The last holdout has given in. As of January 2021, consumers are now able run their entire financial lives — from budget management to investing — online. With the launch of Stripe Treasury, the consumerization of the enterprise has finally come for banking.

Many will say this move was a long time coming, and they’ll be right. For years, tech has pushed the financial ecosystem towards embedded finance, where financial services move progressively closer to the end consumer, eventually making their way into the products or services they already use. We've seen all manner of fintech companies that play within the embedded finance model, dating back to Mint and Square. The newest cohort of consumer-focused fintech start-ups continue this trend. From Chime to Robinhood, it’s clear that consumers want their access and relationship to money to be just as seamless as the rest of their digital life. 

Stripe Treasury has brought the last financial holdout, commercial banking, into the embedded finance fray. However, unlike the other financial systems that came before them, commercial banking presents unique challenges to the digital-first model. The fact is, the customer experience ecosystem within the banking industry is complex and already made up of many legacy vendors. While Stripe is hoping to prove that they can tackle the final frontier of finances, they may have bitten off more than they can chew. 

The Fragmentation Paradox

Commercial banking has long been a team sport. Core commercial banking services are often built and maintained by third parties like Fiserv, FIS, and Jack Henry. Each bank has a different stack of third party vendors and in house solutions for credit card processing, commercial card issuing, treasury services, and the like. Included in these contracts is often the agreement that these vendors will take over customer support as well. After all, commercial banks view these services as tangential add-ons to what is their actual core offering — deposits and lending.

This tangled web of third party technology is already a nightmare to navigate as a commercial banking customer. Each service takes you down a different rabbit hole of customer support, and no one person or team can solve all of your issues. Instead, each service is specialized to the extent that they can handle only questions around their specific offering. Think about it this way: a world with no primary care physicians, only specialist doctors for every unique ailment. Worse still, when you make the appointment, you have no idea whether the doctor you’re seeking out is the one that can help you.

While these players, Stripe included, look to simplify the consumer experience, they actually do the opposite on the banking side. Adding an additional layer of intermediaries between the core service stack and the customer further crowds the field. 

This is the fragmentation paradox in commercial banking. For every player that steps in to streamline the ecosystem, fragmentation actually increases. In the new model, a small business will go to Shopify to get the same services they used to get from their bank. But the underlying service is being provided by Stripe, so Shopify will escalate customer issues to Stripe.



The irony of course is that Stripe is an incredible product-focused company. In each of their products and services, the company strives to remove all unnecessary friction and complexity from the user experience. However, when it comes to commercial banking, there is a limit to the amount of customer pain they are able to eliminate. 

Based on their track record, I think it’s highly likely that Stripe will erect a faux firewall to spare their customers' customers the pain of dealing with back end banking complexity. They’ll take the problem in-house with the promise of a timely solution, leaving the consumer on a metaphorical (and sometimes) literal hold line, as Stripe orchestrates the fix between their system and the commercial bank’s. At the end of the day, the underlying problems are still the same, the complexity is greater, and the additional astroturfing makes it even hard to solve for the root cause of the problem.

Standardizing Customer Success

If the industry wants to finally solve this problem, they’re going to have to work together. Instead of tossing around a customer’s help ticket like a hot potato between service providers, they need to acknowledge that a great customer experience is only possible if they collaborate. 

If healthcare has taught us one thing, it’s that the fragmentation — whether it be around our health or money — isn’t going anywhere. This means we need industry-wide standards for embedded finance. Stripe should lead this charge and call for standards around product knowledge and documentation, information sharing, and interoperability across CX platforms. Only with these three things can they achieve a true “platform of platforms” that solves the root cause of the customer experience problem for the industry. 

How Stripe handles this roll-out will set the tone for how future fintech integrates into commercial banking. It’s time to knock down the faux firewall, remove the boundaries around customer experience, and usher in an era of banking where connecting the customer with solutions is effortless.