There’s a moment that inevitably comes for every fintech startup. You’ve created a product that works, customers are utilizing it, cash flow is running through your system. You think you’re in a good place. Then, the enterprise potential client asks for your SOC 2 report. The banking partner needs to see your audit documentation. Now, you realize you’re playing in the big leagues.
But here’s the thing: you can’t just say your security is good anymore. Not when someone needs to be vetted to use your services, whether you’re sending financial information, making transactions, or connecting to bank accounts. The era of trusting what vendors say has long since passed.
The Trust Dilemma That Sparked Change
So, what happened over the last decade plus? Financial services became complicated. Banks began outsourcing more operations. Payment processors became hallmarks of e-commerce. SaaS applications now manage payroll, invoicing, accounting – essentially anything with money involved.
That’s a problem – how can you trust a third-party vendor with your reputation (and regulatory compliance) in their hands? Sure, you can walk through their offices, meet their staff, look at their policy papers. But that doesn’t give any proof that they have systems in place that are working.
Well, that’s where due diligence fails. Organizations now need proof that vendors have true controls and that someone else evaluated whether those controls exist and operate.
What Actually Drives These Requirements
You’d be surprised how many fintech founders want to wake up one day and get audited for fun.
No, it’s a contractual obligation from a client. Enterprise clients – especially in banking or insurance – have compliance departments that won’t greenlight new vendors without this form of attestation. They have regulators breathing down their necks, and they aren’t going to accept your word on it.
Or investors ask for it down the line. Once you’ve progressed past seed stage and are talking to Series A or Series B investors, they need assurances to bring you into enterprise space. This means you should have the compliance framework before you need it.
Or it’s the banking institutions themselves. Connecting with financial institutions via APIs or anything involving moving funds will require the documentation needed to show your systems are aligned.
The concern is that waiting until someone requests an audit puts you in a terrible position. These assessments take months to get ready for – and complete.
The Technical Nature of The Assessment
It’s not just checking a box on a form. Fintech companies have to show auditors their systems and put in evidence that’s the controls exist and function.
For example, which roles control access management? Who gets into production systems? How are folks issued and removed from the systems? Is there a formal policy on giving people passwords to log in? If your company is big enough for people not to fight over passwords, then you’re already doing something wrong. Auditors will want logs that show your access control works.
What’s the change management like? How does code get into production from a developer’s laptop? Does it get tested? Does another developer review it? Is there auditor oversight? Or can programmers change anything they want on their own? If you’re managing financial assets, you aren’t allowed that freedom.
The importance of data integrity matters. If your program (or application) processes transactions or finances, the auditor needs to see that data cannot be changed improperly. This means looking at various controls within databases, backup systems and implementation, recovery, etc.
The Various Frameworks Make This Even More Complicated
When multiple audits exist, determining which ones apply to your company requires knowing what you do.
If you provide financial reporting controls for clients – payroll processing, transaction handling, or accounting applications – you’ll need an soc 1 report focused on financial reporting-related controls. Banks and financial institutions pay especially close attention to these findings.
Then there’s SOC 2 reports – security reports – focusing on any security concerns, availability, and confidentiality applicable to all service organizations but not necessarily related to financial reporting applications. These are mostly for SaaS organizations and processes.
Some companies need both – a payment processor must have SOC 1 reports because they impact their client’s data but also want SOC 2 reports for broader general security purposes.
There’s PCI DSS (Payment Card Industry Data Security Standards) if you’re processing consumer credit cards directly in addition to ISO 27001 if you’re selling internationally or to specific enterprise clients. The more business models you explore, the more regulations you’ll find applicable.
Why It’s Worth The Cost
The reports aren’t cheap either – from $20,000 to $100,000+ depending on the scope and depth of application – as well as internal man hours gathering documentation, gathering assets and working with auditors.
Founders hesitate at such costs for early-stage companies looking at burn rates skyrocketing but here’s the thing – without these reports, it costs more down the line.
Every enterprise deal lost because proper attestation wasn’t provided is revenue gone for good. If you’re selling into financial institutions or large enterprises, compliance documentation isn’t optional; it’s a prerequisite. Without one – your request won’t even get through procurement.
Moreover, efforts made during audit preparation process are invaluable. Most companies realize they have gaps during readiness efforts. Access isn’t as comprehensive as first thought; change management exists only anecdotally as companies realize their informal systems exist but aren’t documented or tracked enough.
There’s also the efficiency perspective; once established with a formalized control process, responding to security questionnaires and due diligence requests becomes easier than always custom-answering requests for every potential customer.
The Preparation People Overlook
The audit is just the last piece of work everyone thinks is required. Instead, all of this is done months ahead of when auditors come in.
Everything has to be documented – not only writing policies but showing those policies are enforced and existence is proved through collected evidence – screenshots, logs, tickets, approvals – whatever shows your controls are real where they count.
Remediation takes time – usually, gaps are found during pre-readiness assessment work – and that stuff needs adjusting (maybe your monitoring isn’t across the board; maybe certain admin actions aren’t being appropriately tracked).
People are surprised about timing – from deciding on needing an audit to getting a report typically takes four to six months. If you’re trying to get a deal that needs compliance documentation by next week, you better start yesterday!
Making It Work For Your Company
The businesses that thrive don’t consider compliance as a burden; they treat it like it’s a value-add differentiator.
When proper attestation exists – and not everyone else has it – sales cycles shorten because procurement teams don’t push back as hard – they instead reserve those conversations about enterprises who use smaller competitors without proper compliance status.
It impresses investors and partners alike – a formalized compliance program shows maturity beyond just startup considerations with infrastructure scaling efforts getting underway sooner rather than later when market pressure forces compliance upon other fintech organizations months down the line when they still don’t have documentation acceptable to clients because everything was rushed at the end.
