Why Your Property Management Software Shouldn’t Be Your Bank

We’ve seen a growing number of property management platforms act like banks … “Open a bank account with us and earn 5% interest 💸!” This offer can be tempting to anyone who owns real estate and sees thousands of dollars in rental income hitting their account each month.

But let’s be clear – if this approach truly benefited our customers, we would have offered it ourselves. Landlords should be aware of the risks involved in treating their property management software as a banking solution. It’s essential to ask the right questions before entrusting your growing cash balance to these platforms.

The Rise of Banking-as-a-Service (BaaS)

Banking-as-a-Service (BaaS) is a model where tech companies, including property management software providers, use APIs to embed banking services directly into their platforms, sidestepping the need for a banking license. BaaS enables these platforms to offer a “one-stop shop” experience, while licensed banks manage the regulatory and operational aspects behind the scenes.

Leading BaaS Providers

The BaaS industry is rapidly expanding, with several major players leading the way:

• Unit.co: Facilitates banking services integration into various applications, with features like account creation, payments, and card issuance.
• Synctera: Connects fintechs and banks to help build and launch financial products.
• Treasury Prime: Offers APIs for integrating banking services, with a focus on compliance and scalability.

If you’re using property management software that offers BaaS, you can typically identify the BaaS partner by checking the platform’s website or Terms of Service.

Which Banks Partner with BaaS Providers?

Major banks like Wells Fargo and Bank of America don’t typically integrate with tech platforms, requiring customers to open accounts directly through their portals. BaaS partnerships are generally more appealing to smaller banks for several reasons:

• Growth and Revenue Opportunities: Smaller banks often see BaaS as a way to expand their customer base and generate revenue without needing physical branches. Through BaaS, they can earn additional income from transaction fees, account fees, or debit card usage fees.
• Enhanced Competitiveness: By partnering with tech platforms, community and regional banks can remain competitive in a market increasingly dominated by large banks and neobanks.
• Regulatory Flexibility: Smaller banks may have more flexibility in tailoring compliance programs, which can make them attractive to BaaS providers. However, they still need to manage regulatory compliance carefully.

In contrast, large banks often prefer building their own online platforms or working with select fintech partners, giving them more control over their services and compliance.

Risks of Using Property Management Software as Your Bank

1. Limited Customer Support: We’ve heard from users who struggled to get support when they needed it most. Imagine trying to transfer money on the day you close on a rental property, only to face delays and poor customer service. In cases of technical issues, you may experience delays in issue resolution, as problems might require coordination between the software platform, BaaS provider, and partner bank.

2. Data Privacy and Security Concerns: BaaS models require consumer financial data sharing among the tech platform, BaaS provider, and partner bank, increasing the risk of data breaches. Smaller platforms might lack robust security infrastructure, leaving consumer data more vulnerable than with traditional banks.

3. Limited Consumer Protections: If a BaaS provider or partner bank fails, accessing your funds could be challenging—even if deposits are FDIC-insured. Consumers may not fully understand which protections apply or which institution is responsible, leading to potential confusion and disputes.

4. Reliance on Third-Party Compliance: Some BaaS providers partner with smaller banks that may have less regulatory oversight, potentially resulting in looser compliance. In cases of fraud or error, customers may face difficulties identifying which entity holds liability.

5. Potential Service Disruptions: BaaS relies on multiple parties, so technical issues with any one of them (the tech platform, BaaS provider, or bank) can disrupt services. Some property management software companies are newer and lack the financial stability of large banks, increasing the risk of disruptions.

6. Higher Fees for Lower Interest Rates: Many tech platforms use BaaS as an additional revenue stream. This can result in higher fees or rigid fee structures (e.g., overdraft or ATM fees), and interest rates on accounts may be lower than traditional banks due to revenue-sharing agreements.

Lessons from Silicon Valley Bank’s Collapse

The collapse of Silicon Valley Bank (SVB) serves as a cautionary tale. When SVB failed, clients faced immediate disruptions to their funds, highlighting the risks of concentration and asset-liability mismatches. These same risks could apply to smaller banks used by many BaaS providers. For rental property banking, I prefer institutions with a stable track record, capable of weathering downturns and avoiding unnecessary risks.

What You Should Take Away

If you’ve already opened a bank account through your property management software, evaluate the financial health of the partner bank. A diversified portfolio and conservative asset management strategies are key.

And if you’re wondering why many top property management platforms don’t promote high-interest accounts, it’s likely because their product teams have carefully evaluated the risks and are focused on delivering what’s best for customers.