How to Evaluate Fintech Vendors

Bringing on a fintech vendor means handing over some piece of your business's money or data. A weak evaluation process is how businesses end up with security gaps, compliance problems, or a vendor that disappears when things go wrong. Here is how to evaluate one properly.

Understand the full relationship lifecycle

Federal bank regulators require financial institutions to manage vendor relationships through distinct stages: planning, due diligence and selection, contract negotiation, ongoing monitoring, and termination. This framework applies directly to banks, but it's useful for any business, because it makes one point clear: evaluation does not end once you sign a contract. A vendor needs to be assessed before you commit and monitored for as long as you work together.

Match your scrutiny to the risk

Not every vendor needs the same level of review. Regulators expect institutions to apply oversight that is proportionate to how critical the vendor is to their operations. A tool that touches customer payment data or account access deserves far more scrutiny than a scheduling app. Before evaluating a vendor, ask what would happen to your business if that vendor failed, was breached, or shut down. That answer tells you how deep your review needs to go.

Ask for a SOC 2 report, and read it

A SOC 2 report is an independent audit, conducted by a licensed accounting firm, that evaluates how a vendor protects the data it handles. It is the standard document fintech vendors use to demonstrate their security practices. A few things matter when you review one:

• Type matters. A Type I report reflects a vendor's controls at a single point in time. A Type II report shows whether those controls worked effectively over a period of months. Type II is the stronger evidence and the one you should ask for.

• Scope matters. Confirm the report actually covers the services you're using, not just part of the vendor's business.

• Recency matters. A report older than a year may not reflect the vendor's current practices.

• Exceptions matter. Read the auditor's opinion for any noted control failures, and ask the vendor directly how they were resolved.

Check who is really on the hook

If a vendor fails, subcontracts part of the service, or gets breached, you need to know in advance what your recourse is and who bears responsibility. This includes understanding "fourth-party" risk, meaning any subcontractors your vendor relies on. A vendor that cannot clearly explain who else touches your data is a vendor you should question further.

Confirm ongoing monitoring, not just a one-time check

A vendor that passed your review a year ago may not be the same vendor today. Regulatory guidance calls for continuous oversight throughout the relationship, not a single approval at onboarding. At minimum, this means checking in on a vendor's security posture and compliance status on a regular schedule and requesting updated audit reports as they're issued.

Plan your exit before you need it

Every vendor relationship should have a clear path out. Know how you would retrieve your data, transition to another provider, and confirm the vendor properly deletes your information if the relationship ends. Building this into your evaluation now saves significant pain later.

If you take one thing away

Evaluating a fintech vendor comes down to matching your scrutiny to the risk, verifying their security claims through a current SOC 2 report, understanding who else has access to your data, and monitoring the relationship for as long as it lasts. These are the same principles bank regulators require of financial institutions, and they hold up well for any business trusting a vendor with its money or data.

More information to help you

Office of the Comptroller of the Currency, Agencies Issue Final Guidance on Third-Party Risk Management, https://www.occ.treas.gov/news-issuances/news-releases/2023/nr-ia-2023-53.html

Federal Register, Interagency Guidance on Third-Party Relationships: Risk Management, https://www.federalregister.gov/documents/2023/06/09/2023-12340/interagency-guidance-on-third-party-relationships-risk-management

American Institute of Certified Public Accountants (AICPA), SOC 2 Report Overview, referenced via Scrut, Vendor SOC 2 Reports: 9 Easy Review Steps + Checklist, https://www.scrut.io/hub/soc-2/review-vendor-soc-2-report