When Fintech Giants Stumble: The Ripple Effects of Stripe’s Outrage

In October of 2017, Stripe experienced a significant outage that lasted approximately 2 hours. Not long, but enough time to affect numerous businesses worldwide that relied on Stripe for payment processing. The company later revealed the outage was caused by a failure in their domain name system (DNS) provider– Dyn.

The event highlighted a key aspect of single-provider risk: the domino effect. When a service provider like Dyn experiences an outage, it can quickly cascade down well-passed just the businesses that depend on them. 

In this case, Dyn's failure not only impacted Stripe, but also a number of Dyn’s other customers. And when Stripe went down for those fateful two hours – it took a chunk of the internet along with it. Stripe’s sites were inaccessible, including the Dashboard, stripe.com, and api.stripe.com. It prevented many businesses from creating charges, accessing their account information, and processing payments. 

How many end users were left unable to complete their purchases? Who really knows? 

It was turtles all the way down, and a stark reminder of how vulnerable fintech businesses can be when they rely too heavily on a single provider for essential services.

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Don't Put All Your Fintech Eggs in One Basket

Think about it this way: when you put all your eggs in one basket, you're exposed to the risk of that basket breaking and you're also limiting your options. If your sole provider goes down, you're stuck. You're at their mercy, unable to adapt or innovate.

And it’s not just about avoiding outages and service disruptions. 

Your service provider changed their terms of service? Too bad. You’re stuck.

Did they raise prices? Pay up or pack up, those are your options.

A diversified fintech stack equips you with the ability to pivot in these moments.

It also provides flexibility. Flexibility to mix and match the best solutions for your specific needs. You can cherry-pick. To continue with payments - most providers are limited in geographic scope. If your audience is global, you’ll need multiple providers to satisfy them. 

It's like having a well-diversified investment portfolio– building a diversified fintech stack helps you spread your risk and maximizes your growth potential.

In this article, we delve into effective strategies for fintech companies to diversify their technology stack. By exploring a range of approaches—from conducting a thorough needs analysis and identifying your critical dependencies, engaging in strategic partnerships, and prioritizing interoperability—we seek to provide fintech leaders with actionable insights. 

Our goal is to empower you to navigate the complexities of the fintech ecosystem with confidence so that you're prepared for potential challenges and positioned to capitalize on growth opportunities.

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Fintech’s Single-Provider Pitfalls: Lessons from Chime and Robinhood

Most mature businesses will have comprehensive business continuity plans in place that cover a host of contingencies— including single-provider risk. 

You just don’t see the likes of PayPal or Square putting all their eggs in one basket and risking it all on a single technology or provider. 

They’ve been around the block. They diversify their operations and partnerships. They build resilience and operational integrity into their stacks, and with that they earn the continued trust of their customers and partners.

Startups typically don’t have that luxury. 

They're often operating on tight budgets and even tighter timelines. They need to move fast, iterate quickly, and get to market to prove product-market fit as soon as possible.

It’s no surprise navigating these constraints often forces startups into a position where they have to rely on a single provider for key services. It’s a calculated risk, taken with the hope of scaling quickly enough to later diversify and strengthen their operational frameworks.

In the short term that might work out just fine for you. You get your product out the door, you start to generate some buzz, and maybe you land a few big customers.

But as you start to scale, I can tell you almost without a shadow of a doubt the cracks will begin to show.

In October 2019, the cracks were showing for Chime. They experienced a major disruption that left millions of their customers unable to access accounts or funds. The outage was caused by an issue with their payment processor, Galileo.

In March 2020, Robinhood experienced several outages during a period of high market volatility, which left users unable to trade or access their accounts. The company later confirmed the outages were due to issues with one of its infrastructure providers.

So now that you’re convinced of the critical importance of not being tethered to a single provider, let’s take a look at some of the steps you should consider to diversify your fintech stack.

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Step 1: Know Your Needs - Mapping Your Fintech Ecoystem 

Before you can effectively diversify your fintech stack, you need to have a clear understanding of your current and future needs. 

Begin by mapping out your entire ecosystem. This includes all the technologies, services, and providers you currently use, as well as those you may need in the future as your business grows and evolves.

Consider factors such as your target market, product roadmap, regulatory requirements, and growth projections. What features and functionalities are essential to serving your customers and achieving your business goals today, and tomorrow?

Once you have a holistic view of your fintech ecosystem, the next step is to identify your critical dependencies. These are the components and services that are absolutely essential to your business operations.

For many fintechs, critical dependencies might include:

• Payment processing: The ability to securely and reliably process transactions is the backbone of your business. Any disruption to this service could be catastrophic.
• Banking relationships: You need stable, reliable banking partners to hold funds, settle transactions, and comply with regulations.
• Identity verification: Robust KYC (Know Your Customer) and AML (Anti-Money Laundering) processes are essential to preventing fraud and meeting regulatory requirements.
• Licensing and compliance: Depending on your jurisdiction and business model, you may need specific licenses and certifications to operate legally.

By identifying these, you can start to assess where your biggest risks and vulnerabilities lie. 

Are you relying on a single provider for any of these essential functions? What would happen if that provider experienced an outage or went out of business?

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Collaboration as Diversification: Smart Fintech Partnerships

With a clear understanding of your critical dependencies, you can start to prioritize your diversification efforts. Focus on the areas where a single point of failure could have the most severe impact.

For each critical dependency, consider:

• Redundancy: Do you have backup providers or failover mechanisms in place to ensure continuity of service?
• Interoperability: Are your systems and data portable across different providers and platforms?
• Vendor risk: How stable and reliable are your current providers? Do they have a track record of outages or security breaches?
• Regulatory compliance: Are your providers and partners fully compliant with all relevant regulations and industry standards?

By asking these questions, you can start identifying areas where diversification is most urgently needed. You can then develop a prioritized roadmap for adding redundancy, improving interoperability, and mitigating vendor risk across your fintech stack.

It's important to remember that your needs analysis isn't a one-and-done exercise. As your business grows, so too will your critical dependencies.

That's why it's crucial to continuously reassess your needs and adapt your diversification strategy over time. Regularly revisit your ecosystem map, re-evaluate your critical dependencies, and adjust your prioritization as needed.

By taking a proactive, ongoing approach to needs analysis and diversification, you can ensure that your fintech stack remains resilient, flexible, and aligned with your changing business needs. This, in turn, can help you mitigate risk, improve agility, and set the stage for long-term growth and success.

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Maintaining Trust: Compliance and Security in a Diversified Stack

As you diversify your fintech stack and work with multiple partners and providers, it's essential to maintain a strong focus on regulatory compliance and security. Any weak link in your ecosystem could expose you to legal, financial, or reputational risks.

When you rely on multiple providers for different components of your fintech stack, it's crucial to ensure that each one meets all relevant regulatory requirements and industry standards. This might include:

• Payment Card Industry Data Security Standard (PCI DSS) for handling credit card data.
• General Data Protection Regulation (GDPR) or California Consumer Privacy Act (CCPA) for protecting customer data privacy.
• Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations for preventing financial crimes.
• Financial Industry Regulatory Authority (FINRA) or Securities and Exchange Commission (SEC) rules for investment and trading activities.

To maintain compliance across your ecosystem, you'll need to:

• Conduct thorough due diligence on all potential partners and providers, including reviewing their compliance certifications, audits, and regulatory filings.
• Include strong compliance requirements and service level agreements (SLAs) in all contracts and partnership agreements.
• Implement robust monitoring and reporting processes to detect and respond to any compliance issues or breaches.

A final note on diversifying your stack. So far, we’ve covered the subject mostly from the lens of ‘business continuity,’ and it should be clear by now: no company can afford to go it alone. 

But what if diversifying means more than just building redundancy in your stack? 

What if it means forging strategic partnerships so you can expand your product capabilities? 

What if it means collaborating with other fintechs to enter new markets, to differentiate your offerings in a crowded space?

Well, it does. So what does that mean?