How to Build a Scalable Vendor Management System in Fintech

Startups and established firms alike rely heavily on outside providers for payments, cloud infrastructure, identity verification, and more. These relationships make it possible to launch and scale quickly, but they also introduce risks that regulators watch closely.

This article explains how fintech founders, compliance officers, and legal teams can build a vendor management system that supports growth without losing control of compliance. We’ll cover what regulators expect, the core components of a scalable framework, and practical steps to implement one. 

Along the way, we’ll address common misconceptions and highlight recent enforcement trends that shape how vendor oversight is handled today. By the end, you will have a clear view of what an effective vendor management program looks like in financial services, what to prioritize, and how to structure processes that scale with your business.

Why Vendor Management Matters in Fintech

Most startup fintechs think vendor management is only for larger organizations. In reality, every fintech depends on third parties, and weak oversight can quickly create regulatory or operational problems. Effective vendor management matters because it:

• Protects customer data and funds by requiring vendors to follow cybersecurity, privacy, and fraud-prevention standards.

• Meets regulatory expectations since agencies like the SEC, FINRA, and state regulators hold firms accountable for vendor actions.

• Prevents service disruptions by identifying critical vendors and planning for outages or contract failures.

• Builds investor and partner confidence by showing that the fintech is systematically addressing compliance and operational risks.

The Role of Third-Party Vendors in Fintech Growth

Third-party vendors are central to how fintech companies operate. Payments, customer onboarding, trading platforms, and data storage are rarely built in-house from scratch. 

Instead, firms plug into specialized providers that already have the infrastructure and expertise. This approach allows companies to scale quickly and focus resources on product innovation rather than operational plumbing.

For early-stage fintechs, outsourcing can also be cost-effective. Rather than hiring teams of specialists, startups can rely on external providers for services such as AML screening or cybersecurity monitoring. For instance, Regly provides tools to document and track vendor relationships in one place, which can support a more organized oversight process. The trade-off is that these vendors become critical to the business model, sometimes controlling customer-facing processes or handling sensitive financial data.

Tip: Download our free fintech compliance checklist and stay updated on your compliance necessities.

Common Risks in Vendor Relationships

With this reliance comes exposure to risk. 

If a vendor experiences downtime, suffers a breach, or mishandles compliance tasks, the impact flows directly to the fintech and its customers. In financial services, these failures can trigger regulatory scrutiny, enforcement actions, or reputational harm.

Common risk areas include:

• Operational disruptions: Outages at payment processors or cloud providers.

• Data security and privacy breaches: Exposure of customer information through third-party systems.

• Regulatory non-compliance: Vendors failing to meet AML, KYC, or securities rules.

• Concentration risk: Reliance on a small number of dominant providers, especially in cloud services.

• Fourth-party risk: Hidden dependencies on the vendors that your vendors use.

For fintech leaders, the challenge is to capture the benefits of vendor partnerships without losing oversight. A scalable vendor management system provides the structure to do that by identifying risks, applying controls, and maintaining accountability even as the number of vendors grows.

Regly simplifies vendor risk assessments and gives you a clear view of your third-party ecosystem.

Regulatory Expectations for Vendor Management Systems

Fintechs desiring to build a vendor management system have to tackle multiple regulatory expectations. From knowing different US regulatory bodies to specific requirements set by various frameworks, here’s what you should know:

US Regulators and Guidance

In the US, several regulators set expectations around vendor management systems, depending on the type of financial institution. For banks and credit unions, interagency guidance from the OCC, Federal Reserve, and FDIC (updated in 2023) outlines a full lifecycle approach:

• Planning and risk assessment before engaging a vendor

• Due diligence to evaluate financial stability, controls, and compliance history

• Contracting with clear performance standards and audit rights

• Ongoing monitoring of performance and compliance

• Termination and transition planning when relationships end

Each focuses on slightly different risks, but they all share one principle: outsourcing a function does not remove responsibility. If a vendor mishandles customer data or fails a compliance task, regulators will hold the financial firm accountable.

Broker-dealers and investment advisors face similar requirements under the SEC and FINRA. Key expectations include:

• Supervising third parties that perform regulated activities

• Maintaining written supervisory procedures that cover vendor work

• Testing vendor performance and documenting oversight activities

• Demonstrating to examiners how risks are identified and controlled

For example, if a vendor handles customer onboarding or recordkeeping, that work falls under a firm’s supervisory obligations. 

State-level and Sector-specific Requirements

State regulators add another layer. Licensed money transmitters and consumer lenders often need formal vendor oversight policies as part of their licensing obligations. The CFPB has also emphasized that banks and fintech partners remain responsible for service providers’ compliance with consumer protection laws.

One prominent example is the New York Department of Financial Services (NYDFS) Cybersecurity Regulation (23 NYCRR 500). It requires covered financial institutions to:

• Conduct vendor risk assessments of third parties that access sensitive information or systems

• Include specific cybersecurity provisions in contracts, such as incident notification timelines

• Maintain written policies for monitoring service providers’ security practices

For fintechs operating in New York or partnering with entities regulated by NYDFS, these requirements make vendor oversight not just a best practice but a legal obligation.

This means fintechs working with agents, payment processors, or marketing partners must evaluate those relationships with the same rigor as internal operations. Failures by service providers, such as deceptive practices by a call center or data mishandling by a technology partner, can trigger enforcement against the licensed entity.

Global Frameworks to Watch

Even if your business is US-focused, global frameworks are worth noting. The European Banking Authority (EBA) has detailed outsourcing guidelines, and the UK’s FCA requires firms to manage operational resilience risks tied to third parties. 

The EU’s Digital Operational Resilience Act (DORA) goes further by setting binding requirements on how financial entities manage third-party ICT (Information and Communication Technology) risk, including oversight of critical cloud providers. Singapore’s MAS has issued similar guidance.

These frameworks influence international partners and can shape expectations for cross-border fintechs, especially those working with European banks or global investors who adopt these standards.

Core Components of a Scalable Vendor Management System

A vendor management system is a framework that should grow with your business. Below are the core components you should consider when developing a vendor management system without creating regulatory blind spots:

Governance and Policy Foundations

A scalable vendor management system starts with governance. Clear roles, responsibilities, and policies prevent oversight gaps. A written vendor management policy should explain how vendors are approved, monitored, and offboarded. Leadership or the board should review this framework to demonstrate top-level accountability.

Practical elements to include:

• Defined ownership of vendor relationships (who manages contracts, who monitors risk)

• A vendor management policy and procedure manual

• Regular training for staff involved in procurement or compliance

• Escalation paths for when vendor issues arise

With these foundations, a growing fintech can add vendors without relying on ad hoc practices.

Vendor Inventory and Risk Classification

You cannot manage what you don’t track. Building an inventory of all vendors, including agents, technology providers, and subcontractors, is essential. Each vendor should be assigned a risk level based on factors like:

• Criticality of the service to your business

• Access to customer data or funds

• Regulatory impact of the service provided

• Dependence on subcontractors (fourth parties)

Most programs use a tiered system: high, medium, and low risk. This structure makes oversight scalable because it allows more rigorous controls for high-risk vendors while avoiding wasted effort on low-risk ones.

Standardized Onboarding and Due Diligence

Vendor due diligence is not one-size-fits-all, but it should be systematic. High-risk vendors may require reviews of SOC 2 reports, financial statements, and cybersecurity controls. Lower-risk vendors may only require basic background checks.

Standardizing the process prevents gaps. A checklist or structured questionnaire can keep reviews consistent across departments. Over time, automation or specialized software can streamline document collection and reminders for updates.

Contracts and Legal Protections

A contract is the first line of defense in vendor management. Strong agreements cover:

• Service level expectations (SLAs)

• Cybersecurity and privacy requirements

• Breach notification timelines

• Audit rights and cooperation with regulators

• Termination and data return procedures

Fintechs should involve compliance and legal teams early in vendor negotiations to avoid gaps that could later create regulatory risk.

Ongoing Monitoring and Oversight

Vendor risk changes over time, which means monitoring cannot be a one-time task. Reviews should be scheduled according to each vendor’s risk tier, with high-risk partners receiving more frequent attention. 

Monitoring also covers service performance, such as uptime and support response, as well as annual checks of compliance attestations or audit reports. Instead of juggling spreadsheets, you can use Regly to automate monitoring and mitigate regulatory risks. Beyond these internal reviews, firms need to stay alert to external signals. News of regulatory actions, lawsuits, or security incidents tied to a vendor can quickly shift its risk profile. 

Using a dedicated vendor management platform like Regly or general project management tools helps organize these activities and makes it practical to keep oversight consistent as the number of vendors grows.

Contingency Planning and Exit Strategies

No vendor relationship lasts forever. Contracts end, vendors fail, or the business simply outgrows a provider. A scalable vendor management system anticipates these changes rather than reacts to them. Planning should cover how:

• Data will be returned or securely destroyed

• System access will be removed

• Replace a critical service if need be

It also helps to think ahead about backup options for high-risk services. Having an alternative provider identified, even at a high level, can reduce downtime if a transition becomes necessary. After an offboarding, documenting lessons learned strengthens the program and improves how future vendor relationships are managed.

Step-by-Step: Building Your Vendor Management System

Building a vendor management system doesn’t have to be overwhelming. Breaking down the process into steps helps fintech founders and compliance officers structure oversight in a way that grows with the company. The following framework combines regulatory expectations with practical workflows:

Planning and Vendor Identification

The first step is to understand the full scope of your vendor relationships. This means going beyond obvious technology partners and mapping every third-party that supports your operations, from payment processors to subcontractors. 

Once identified, divide them into critical and non-critical groups.

• Critical vendors are those whose failure could disrupt your operations or trigger compliance issues, such as payment processors or cloud hosts.

• Non-critical vendors provide supportive services, like office administration or basic SaaS tools.

This mapping exercise provides the baseline for risk classification and resource allocation.

Risk-Based Due Diligence

Due diligence should be risk-driven rather than uniform. Before onboarding, you should conduct due diligence and examine the following: 

• Financial stability

• Regulatory licenses

• Data security measures

• Incident response procedures

Fintechs should also establish a tiered approach to keep the process manageable, breaking it down into three categories:

Tools like standardized questionnaires, centralized document storage, and automated reminders make this process scalable as vendor numbers increase. Here are a few examples to build a vendor management system that scales in fintech:

• Vendor risk management platforms that centralize assessments and workflows

• Third-party security rating services that provide ongoing cybersecurity risk scores

• Background check and watchlist screening tools for ownership, sanctions, or adverse media 

• Collaboration systems to assign tasks and track progress across compliance and procurement teams

• Document automation tools that generate standard due diligence questionnaires and collect vendor attestations online

Tip: Regly can help you build a vendor management system that scales with you by assisting with some of the tasks mentioned above.

Contracting with Vendors

Contracts provide the foundation for managing risk. Key provisions for fintech firms include clear compliance obligations, defined service levels, and breach notification timelines. 

Audit rights should be included to give visibility into vendor performance, along with clauses covering data handling and secure termination procedures. Agreements and SLAs should also require cooperation with regulators if examinations involve the vendor’s services.

Ongoing Monitoring

Vendor oversight is an ongoing responsibility. Once onboarding is complete, monitoring should follow a schedule based on vendor tier: quarterly or semiannual for high-risk providers, annual for medium-risk, and lighter reviews for low-risk vendors. These reviews should not only confirm that the vendor is meeting contractual obligations but also check for changes in risk profile.

Monitoring typically includes three layers:

• Performance reviews: Tracking SLAs, uptime, response times, and client service issues.

• Compliance reviews: Requesting updated certifications, such as the SOC 2 or ISO 27001, and verifying continued licensing or insurance coverage.

• Cybersecurity monitoring: Reviewing incident logs, penetration test results, or continuous rating services that flag vulnerabilities.

Firms should also factor in external signals. Public news about lawsuits, regulatory findings, or security breaches involving a vendor can indicate rising risk. 

Many firms supplement manual checks with monitoring platforms that track deadlines, automate reminders, and even provide real-time security ratings. These tools reduce the burden on compliance teams and make scaling oversight realistic.

Managing Issues and Exits

Even the best vendors will encounter problems. A clear escalation path defines who investigates issues, how they are documented, and when senior leadership becomes involved. This avoids delays when a problem surfaces. For recurring issues or breaches, firms should track remediation plans and assign deadlines and accountability.

Contingency planning is essential for critical services. A good practice is to maintain a short list of potential replacement vendors, even if contracts are not yet in place. This reduces downtime if a sudden switch becomes necessary. Exit processes should also cover: revoking system access, retrieving or securely destroying sensitive data, and capturing lessons learned for future engagements.

Finally, don’t overlook fourth-party risks, which are the vendors your own vendors rely on. Ask critical providers about their subcontractors and dependencies. If a subcontractor suffers an outage or security breach, it can affect your operations even if your direct vendor is stable. Documenting these dependencies helps you plan for scenarios that might otherwise come as a surprise.

Common Challenges and Misconceptions

Even with the right framework, fintechs often struggle with vendor management in practice. Some challenges come from limited resources, while others stem from misconceptions about what regulators expect. Addressing these upfront makes it easier to build a program that scales without leaving compliance gaps.

“We’re Too Small for Formal Vendor Management”

Early-stage fintechs sometimes assume formal vendor oversight only applies to large institutions. In reality, regulators expect oversight at all levels. Even a two-person startup using a payment processor or a KYC service is responsible for how those vendors operate. 

Building vendor management practices early makes it easier to scale later and avoids costly fixes under regulatory pressure.

Mistaking Certifications for Full Due Diligence

Vendor certifications, like SOC 2 reports or ISO 27001, are useful but not sufficient on their own. They can provide assurance in certain areas, but may not cover issues specific to your business. Fintechs still need to ask targeted questions, confirm how the vendor will handle data,  and review contractual terms. Certifications are a piece of the puzzle, not the entire picture.

Underestimating Non-obvious Vendor Risks

Not all vendor risks are obvious. A marketing agency using unapproved customer data, or a subcontractor of your cloud provider suffering an outage, can create compliance exposure. Mapping fourth-party dependencies and reviewing non-technical vendors reduces the chance of missing hidden risks.

Balancing Oversight With Vendor Cooperation

Strong vendor oversight does not mean adversarial relationships. Too much rigidity can discourage cooperation, while too little scrutiny leaves gaps. The balance lies in clear expectations, documented responsibilities, and regular dialogue. 

Treating oversight as a collaborative process often makes vendors more willing to share updates and support compliance reviews.

Emerging Trends Shaping Vendor Management in Fintech

Vendor oversight is shifting from “point-in-time checks” to resilience, disclosure, and data‑sharing obligations. Here are the developments most likely to affect how you design and scale a vendor management system.

Regulatory Focus on Operational Resilience

Recent guidance emphasizes resilience as much as risk management. Instead of just vetting vendors at the start, firms are expected to show how they will continue operating if a critical vendor fails.

Bank supervisors in the US continue to push lifecycle third‑party risk management (planning, due diligence, contracting, monitoring, termination) as the baseline for banks and partner fintechs. Expect exam questions and board reporting to map to that lifecycle. 

In the UK, firms had to be within impact tolerances for important business services by March 31, 2025, which drives tighter vendor testing, dependency mapping, and exit planning.

Oversight of Critical Third Parties

The EU Digital Operational Resilience Act (DORA), effective January 2025, created binding requirements for vendor oversight in Europe. It goes further than previous guidance by directly regulating “critical” ICT providers such as major cloud platforms. Financial entities must:

• Keep a register of ICT arrangements

• Include mandatory resilience and exit clauses in contracts

• Report significant ICT incidents promptly

• Conduct regular resilience testing of third parties

Even US-based fintechs that partner with European banks or investors will feel pressure to align with DORA. This trend reflects regulators’ growing view that systemic vendors should be directly supervised.

AI Vendor Oversight and Ethical Considerations

Fintechs are adopting AI tools for fraud detection, lending, and customer engagement. Regulators are beginning to scrutinize the risks. FINRA, the SEC, and other bodies have raised concerns about data quality, bias, and explainability.

Vendor oversight now needs to extend to AI-driven services, including:

• Reviewing how training data is sourced

• Asking vendors about testing for accuracy and bias

• Setting contractual obligations for transparency and auditability

While rules are still developing, regulators increasingly expect firms to apply the same rigor to AI vendors as to traditional financial services providers.

ESG and Reputational Risk Factors

Vendor risk is no longer only about compliance and security. Investors and regulators are giving more attention to environmental, social, and governance (ESG) issues. For fintechs, this can mean reputational exposure if vendors engage in harmful labor practices, have weak environmental policies, or operate in sensitive industries.

Some institutional investors now require evidence of ESG considerations in vendor oversight programs. Building this into due diligence and monitoring not only reduces reputational exposure but also demonstrates forward-looking risk management to regulators and partners.

Best Practices for Scaling Vendor Oversight

Scaling a vendor management system is not just about adding more checklists. As fintechs grow, vendor oversight must become integrated into daily operations, supported by clear documentation, and approached in a way that builds vendor cooperation rather than resistance.

Embedding Vendor Management into Procurement and Product Processes

Vendor risk considerations work best when they are part of procurement and product development from the start. That means compliance teams need a seat at the table when new vendors are proposed, not after contracts are already drafted. Embedding vendor reviews into procurement workflows prevents rushed or incomplete oversight.

Leveraging External Expertise Cost-effectively

Many fintechs lack the resources for a large in-house compliance team. Outsourcing vendor management tasks to specialized compliance partners can provide a structured, process-driven approach without the cost of full-time staff. Firms like InnReg, for example, often act as an extension of internal teams, bringing fintech-specific expertise that is difficult to build quickly in-house.

Documentation Discipline for Exams and Audits

Regulators consistently stress that “if it isn’t documented, it didn’t happen.” This applies directly to vendor oversight. Scalable programs maintain:

• Centralized records of due diligence and monitoring

• Copies of vendor contracts and risk assessments

• Logs of communications and remediation efforts

Using tools such as Asana, Confluence, or dedicated vendor management platforms makes it easier to keep these materials organized and audit-ready as the vendor base expands.

Building Collaborative, Transparent Vendor Relationships

Vendor management works best when firms view oversight as a partnership. Instead of treating vendors as adversaries, fintechs should set expectations early, communicate openly, and provide structured feedback. 

This collaborative approach often leads vendors to proactively share updates on risks or compliance changes, making oversight more effective and less resource-intensive.

Final Thoughts

Building a scalable vendor management system is not optional in fintech. Vendors play a central role in payments, data handling, and customer onboarding, which makes them a direct focus of regulators. Firms that treat vendor oversight as part of their core compliance infrastructure, not an afterthought, position themselves for growth without friction.

Regly helps you build and maintain that framework. Our AI-powered compliance platform consolidates vendor profiles, docs, risk tracking, and audit logs into a single, streamlined system. Regly brings fintech-specific workflow design to your vendor management system while cutting manual work.

If you’re refining your vendor oversight, Regly can help you centralize vendor documentation and risk assessments, automate reminders, and generate activity logs to support future audits.

It’s compliance designed for fintech pace and complexity. Get in touch to see how Regly can help you strengthen your vendor management system.