Embedded banking: cutting through the noise

4x4 Virtual Salon with Christine Schmid, Eric Mouilleron, Scott Gordon and Tue Mortensen.

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Today, we have a special podcast episode, which is all about Embedded Banking. We hosted four excellent guests:


Main topics discussed:

1. What is embedded banking?
2. The mechanics of embedded finance
3. Making the business case for embedded finance
4. What creates differentiation in this space?

Read transcript ->

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Embedded Banking: Cutting Through The Noise


Full transcript:

[00:00:00] Ben: Hi, everybody. Welcome to today’s 4×4 Virtual Salon. The topic of today’s discussion is embedded banking. For this discussion, I’m joined by four esteemed practitioners of embedded banking. Just before I introduce you to the speakers, I just wanted to make sure everybody was familiar with the 4×4 format. The reason we call it a 4×4 is because we have four speakers, because we cover four different topics under the umbrella of embedded banking, because we have four polls, and because we’re going to take four of your questions.

The topics for today are on defining embedded banking, the mechanics of embedded banking, the business case from embedded banking, and what creates differentiation in this space. As I mentioned, we’re going to have a poll related to each of those topics, and we’re going to take one of your questions related to each of these topics. I would invite you to please get involved in and to submit questions, to post comments, and to also take part in the poll.

Let me now introduce our speakers. I’m going to start with Christine who’s in my top left. Christine Schmid, she’s a regular on these 4×4 Virtual Salons. She’s head of strategy, Additiv. Additiv is based in Zurich in Switzerland, and it’s focused on investment management. It has two business lines: software as a service and banking as a service. For the latter, it partners with a broad range of service partners, including regulated banks, such as Saxo Bank. Which brings me nicely to the next segue to talk about Tue Mortensen, who is regional head of institutional business at Saxo Bank Saxo Bank has been active in banking service long before it was called banking as a service, or long before it was as fashionable as it is today. Since 2015, Saxo Bank has been providing its investment and trading services via APIs to companies that want to build products on top of one; to embed those services into an existing offering. It serves banks or financial institutions directly, and also works with some intermediaries such as Additiv to reach a broader audience.

Next, we have Eric. Forgive me if I’m pronouncing your surname incorrectly, but Eric Mouilleron. He is the CEO and founder of Bankable. Eric was early to the space. Eric is a bit of a visionary who saw early on how banking distribution was splitting from banking distribution, and he created Bankable back in 2010. Bankable helps brands and financial institutions to bring innovative payment solutions to market more quickly and easily than would’ve been the case otherwise. One of his customers is Kard, which brings me to Scott Gordon, who is CEO of French Mobile Bank Kard, which is focused on the team market. A core part of the offering is a prepaid payment card, which allows parents to have some control and visibility over what their children are spending. As I mentioned, Scott chose Bankable as its platform on which to build that card offering.

I’m going to now move on to the first topic, which is, what is embedded banking? I’m going to start with Eric, by asking you that seemingly simple question, which is, what is embedded banking?

[00:03:44] Eric: Thank you Ben for the intro. I’ll try to make it very simple. If you remember Matt Harris from Bank Capital, what they said very simply that everybody understood that is the goal is to make every company a FinTech company. What that means is that we’re repackaging the bank into relevant B2B or B2C solution, instead of a product. It’s a way to put the bank in the backend with API, and we co-work with the financial institutions to build things that are innovative and real-time. Embedded finance has been around for quite some time, especially in e-commerce. By all definition, a bank is more to provide people with what, the brands that they’re missing to their clients. They don’t do that clients to sell the distribution to their clients. It’s a finance solution to create proximity with the client, so you can understand your clients a bit more and go direct. That’s for brands.

Bank as well are quite keen to all those embedded finance, because I think they are not as static as journalists think. I think they are somehow agile and retaliatory. For us, we have two categories applying to the FinTech. We’re going to provide embedded solutions to corporates or others. Then there’s the provider of the banks, who as well are not staying put for some of them, and they’re using the tools of FinTech to go to market quickly and to address all these markets. It’s more of a solution view of the world than a product view of the world, I would say.

To address the embedded finance market, you need banking as a service. That’s transitions from my friend Scott, that’s how those two are linked. You can’t go with a theory, that I’m going to go to embedded finance. You need tools; and tools that are modern, real-time, and that put together an offer. It’s more what you had in the past – before embedded finance you had the bank period. You’d go to the branch. The world has changed, and we can work with multiple banks, multiple solutions, and build a Bespoke solution. I don’t like Bespoke, but it’s customized more than Bespoke because Bespoke you can scale and do once at a time.

It’s all about customer experience. That’s where we are leading with embedded finance. I think the opportunities are enormous. When you talk to a client who’s got 1 million, that’s an opportunity to have a 1-million client. Nobody loses. In FinTech there is always a bank. For us, we’ve been at banking over the five years since inception, and we want to keep it this way. FinTech is going to market, but it’s the same for banks. They want to demonstrate the speed with the tools that the FinTechs are using, and not with their legacy advantage.

I think that puts the picture of embedded finance clearly. Matt Harris is right; his vision is materializing every day. More and more companies want to add additional revenue by embedding financial solutions, and they know their customers.

[00:07:42] Ben: Good. Scott, I think Eric has lined you up for the next question. The question for you would be, why didn’t you build all of these services yourself? Why did you choose to work with a partner to bring your services to market?

[00:07:57] Scott: To be honest with you, why are traditional banks being drastically disrupted and have been drastically disrupted the last past 10 years is probably because if you’re trying to do everything, chances are you’re not going to do everything well.

When you look at a bank, perhaps 75% of all their investment from the tech side are made on maintaining legacy systems – legacy systems that are built in the 1970s and the 1980s, which is incredibly hard to maintain, and simply de-focuses their main value proposition, which is driving customer satisfaction. For us, when you’re trying to create a banking product or a payment product, there’s two sides of the equations. One, what are you trying to solve for? Customer experience. We had identified a very clear pain that financial literacy is not happening in younger generations. We wanted to fill that gap by offering families a banking product that really solved that.

Either we have the opportunity to, one, say we’re going to try to recreate all the tech stack of a bank. That would probably take us maybe 36 months if we managed to do it, and we would have probably failed 20 times trying to do it, and ultimately down the line we would have never touched a single customer or gathered feedback. Our main DNA was: what we want to do is drive customer satisfaction. We want to be very, very close to our customers. We want to understand their needs and we want to better serve them. Let the experts do the rest. Down the line, I think it’s just about finding the right experts at the right positions and really build that product. At the end of the day, my teenagers and my parents don’t care if it’s bankable or if it’s XYZ behind. It’s really about driving the proper solution at the right time and delivering the right customer experience and the right services at the right time.

I think the area or opportunity guys like Eric and Bankable are driving is pretty phenomenal, because it gives the opportunity to broader actors in fintechs to drive satisfaction, drive customer engagement, and answer needs where customers had really tremendous pain in the past. I think it’s a great opportunity for traditional banks. Instead of maintaining legacy systems, they’re going to leverage solutions like Eric’s or others to drive customer satisfaction. At the end of the day, when you look at Banks NPS today, that’s where they need to be focusing on.

[00:11:10] Ben: If I were to attempt to summarize what you’re saying, it is about speed of market, it’s about specialization, and it’s about opening up innovation or wider pool of companies. Quick follow-up question if I may, how quickly were you able to take this service to market? You said this would’ve taken years if you tried to build everything yourself. How long did it take using somebody else’s platform?

[00:11:34] Scott: We were pretty much up and running in four and a half months, five months. We obviously worked day and night together with Eric’s team. But from kickoff to first better customer, about six months. Now, the  solution wasn’t amazing! We bootstrapped the product. But up and running, yeah, it was really efficient.

[00:12:00] Eric: I think there was a sense of urgency because you had thousands of clients waiting for the solution. We were all running to sell them.

[00:12:10] Ben: There’s nothing like creating a problem, to move quickly. Christina, I want to come to you because a lot of people say that banking as a service is just another name for white labeling. But it seems to me that there probably is quite a bit of difference between white labeling a banking service and building something which is much nimbler and agile. Can you tell us how you think about the difference between embedded banking and white labeling?

[00:12:40] Christine: Sure, thanks. White labeling literally is taking an existing solution end-to-end, and simple said, color-code it differently. Which, if the solution is changed, you need to adapt it as well, you have full dependency, you have no flexibility at all with the providers, how you run it, with the ad-ons. It’s really super static. It might be a cheaper and faster way to market, yes.

What we see currently, for example, take three regional banks, all of them want to launch a pension offering. One does it in blue, the other one in red, then the third one in green. The development might take them less long than the alignment they had to align on the solution. In the end, it is just static.

Embedded finance is completely different. You start with open sourcing, and that’s very important. You have flexible partners such as the Saxo on the banking side, that can serve as well a broader expansion, for example. An open sourcing is absolutely crucial. Then you have such as Additiv or Bankable – the orchestration layers, the service providers in the middle, that sewers your add-ons, whatever you want in an ad and provide to your end client. Then either you build yourself upon the APIs, which is a way to do, or you look into predefined value proposition on a predefined set of platform. Just to give you some examples, the first platform, and we soft launched that on the wealth management side in the Nordics a couple of weeks ago, we’re adding literally as we speak one IFA after the other. It is a pick and choose a solution to go into the market. You do not have a dependency. If you want to change, for example a data provider, let’s talk a bit ESG, do it, include it, and run ahead.

Dependency is a big topic. If I might add up to the debate, we had an embedded finance before in the end. It’s all of us who decide. Absolutely the key is the end customer. What embedded finance means for us is we get the solution at the point where it’s relevant for us. Payment. When I’m hungry, I order something. Mobility, holiday booking. Or I want to buy a house, and guess what, you might need indirect motorization and all that stuff. It brings more complex use cases together; not only single transitional radials, but really complex use cases at the point of contact. Maybe no longer at the banking channel. If I order a ride, I don’t want to open another app to pay. It is seamless. It is super convenient.

I completely agree with what was said before, convenience and the customer is what is driving embedded finance. It’s a paradigm shift what we have in front of us.

[00:16:12] Ben: Fantastic. If I were to summarize, more flexibility, fewer dependencies, lower switching costs, you’re able to build more complex use cases to meet the end customer needs.

Tue, I’m going to come to you next because I want to ask: what are the conditions that have come together that have made this step change from white labeling to embedded banking?

[00:16:39] Tue: My vantage point is that we today cover around 150 banks, so we see a lot of these, let’s say tendencies playing out. Working with Additiv as an example, we really see it up close. We have a course a lot of other client examples as well, but we see this really playing out.

A lot has been said already by Eric and Scott in terms of what are the drivers, time to market. For or the bank, the speed is a low complexity compared to building stuff internally. There is of course also a scale advantage, and they don’t need to invest CapEx, and they have a lot of running costs and so on. It’s a much nimbler. You pay as you go rather than setting aside a big team of developers and other people to build these services and then hope that it will go well at the end of the day.

One observation we haven’t talked as much about is that the banks now are starting to redefine themselves. They have seen the successes of Amazon and others, and they’re trying to mimic that to the extent that they are able to do that within the confinement of their business models. I’ve had several meetings with CEOs and others, where they start saying: if we can’t do it in a superior way ourselves, executing to better timelines and a lower cost and whatever we can like buy our source from the product ecosystem, then we shouldn’t do it. Which is a massive paradigm shift from just three to five years ago when we came out with the API, and where a lot of the bank were saying: that’s interesting, that API talk, about we need to control everything that goes into delivering a service.

Now they understand they want to be in control of the last mile and what the client sees, and be able to work with a more flexible third parties to deliver that user experience. But they don’t need to own the plumbing to deliver these services. I think that’s a major shift. The trust in working with the ecosystem has grown a lot in the last five years that I’ve been a witness to this.

[00:18:52] Ben: Would you argue that one of the things that’s made a difference, some of the tech stack is new? But would you argue the other thing that’s changed as the maturity of the ecosystem around banking as a service?

[00:19:08] Tue: Yeah, the whole concept has evolved a lot. But there was also just that basic thing called margin pressure that the banks are seeing. They’re seeing margin pressure. They want to increase the non-interest income, and they start looking at the different business lines. How can we scale this without adding a lot of costs? We have a lot of cases also where banks are coming to us, they want to improve the client experience and the last mile, but maybe the main driver for them is also getting rid of costly back office processes and the cost and other things. That’s a part of it, along with what we talked about before – the competitive pressure from new entrants and the ability to create a whole new different way of embedded experience for the client, which is very hard to do if you are siloed and working on mainframe systems, stuff like that.

[00:20:07] Ben: Fantastic. We’ve had our first audience question, and it’s addressed to you, Scott. This is a question from Mike O’Sullivan. He says: love the speed at which the team have established Kard. Could Scott comment on the appetite of French people for new, more clear banking solutions than the old banks?

[00:20:30] Scott: It’s a very good question. I think the appetite for good financial services is pretty much the same everywhere. Particularly in Southern Europe, certainly in France, where Banking NPS has been negative, negative, negative, and terrible customer experience. I think all in all banks have failed to address transparency to their customers, have taken margins where they shouldn’t have and without being transparent. Ultimately, since the subprime crisis, there’s a hatred from banks, in France particularly, or traditional banks. They’ve failed to be there for their customers when they needed to.

I just think people are looking for good, practical, driven UX, UI banking services. We’re seeing the appetite where, particularly in our market, if you look at the teen market, for instance, it’s still a very much untapped markets. Less than 15% of teenagers actually have a debit card or a credit card to their names. COVID has been a crazy accelerator for our markets.

Put it that way, I think we’ve probably gained three to four years in the acceleration to digital payments, which is already the case in Northern countries where people in pay in cash. It’s pretty much, you’re not from the world. In France, it’s coming in a very high speed. It’s a serious lack. I’m 32 years old; when I was 14 years old, I could pay everything I wanted with cash. Today it’s really not the case anymore. Teenagers, 50% of their spending has to be made by a digital payment. Today there are they’re left by using cash, which doesn’t serve them; or using their parents’ credit card, which is not practical. We’re clearly seeing amazing adoption towards products like ours, and ultimately towards product that serve customers in a better way than traditional banks haven’t in the past. It’s great for the consumer, it’s great for the customer, it’s great for traditional banks as well, because they’re really redefining their model and the way they serve customers.

At the end of the day, we’re all trying to better serve the customer. It’s a very good way to do it,

[00:23:25] Ben: Fantastic.

[00:23:26] Christine: May I add to that? We had yesterday a long discussion at an event with a smartphone bank called Neon. It’s a Swiss example. Not even looking only at the teenagers, but the broad population; they are close to reaching 100,000 clients. It just gives you an idea; if you have the right value proposition, easy serve to the clients, providing an overview. Another example in Switzerland, I would say well-banked, it’s not overbanked, really well-banked. But if you reach clients and if it’s intuitive and attractive to use, not only from a pricing point of view, but the user experience, the market is there.

[00:24:14] Ben: A follow up question: do you think that in the new world of embedded banking, you get higher adoption because you don’t have to switch in the way that you had to in the past? You don’t actually have to close down a bank account to have a new bank account. Well, these services are complimentary and they can coexist. Does that make customer acquisition much easier? Anyone can take that, maybe you Scott, because you’re living this everyday.

[00:24:36] Scott: I’m a firm believer that primarily banking relationship wins. I am in awe and admiration of Revolut’s success and their ability to attract millions and millions of customers. However, when you look deep down into their customer base, about 15% are, I would say, daily or weekly active users, i.e., they get their salary and Revolut acts as their main bank account. Why is because churn in the banking industry is very low, simply because there’s an incredible stickiness to banks. When we look at our case, a teenager is going to inherit from the bank of their parents at 90% of cases. It’s just how it goes. The real churn happens when you get your first mortgage, where whatever bank is more generous will ask you to switch banks.

For me, the whole play is really get in there as soon as possible, which is amazing because by definition they have never been met in the past. What is great is you can invent a new banking product from a blank sheet of paper and from scratch. What is hard is these kids have been growing up with incredible business models, incredible apps, where if you tell them: we have instant notification for payments, they’re going to say: what else do you have? It’s just very uncommon. You’re going to have to drive your products, your UX, or UI in a very different way than in the way Revolut has. It is, we’re just prettier and much quicker, we can give you an error of freight or product.

I very often described Kard as if you know, Revolut had a baby with Snapshot and Venmo. That’s how we think of the product. Ultimately it is creating a real value proposition to a customer base that is in demand and in need of a product, and not a replacement product. I do think that by equipping and giving teenagers their first bank account early and serving them, hopefully they will never leave and we will be able to continue offering great services as they grow older.

[00:27:12] Ben: Fantastic. We’ve started to get more questions through from the audience. I’m going to move us on to the next topic, then we’ll work on some of these other questions. The next topic is more around the stack, the mechanics of embedded banking. Christine, I’m going to come to you, if you don’t mind. Can you break down that banking as a service stack for us, and the different players that you see within that value chain?

[00:27:40] Christine: Sure, we can look into that from the basic product to the end solution, to embedded on the channel side.

Clearly, the first layer is the supplied side, or how we call it – which are the finance as a service provider. It can be an account, it can be an e-wallet, it can be a Kard, it can be an execution service. That’s really the base upon which it is built. The second layer normally is how to run the operations. The operations can come from the supplier side, but they can come as well from an efficient third party, or it can as well be fully automated. Yes, if you talk a bit the wealth management space, rebalancing a portfolio can be done by an operations provider, but also it could be done fully automatically with certain supervision. That’s how we look at the second layer. Then comes the whole orchestration layer with the sourcing part to it, which brings the intelligence to it – the portfolio management tools, if needed the CRMs, with the data, the regulated part as well. We have more and more reporting regulated needs, in particular in wealth management, alongside ESG, but also MiFID or Filec. That’s the intelligence layer on that stack.

The we have on both sides, our APIs. Then you go into the front end solution. The front end solution, the beauty of it is it can really play around of what you want to build for your end clients. The front end is important. It’s no longer only a financial company. It’s wide open. It can be a search engine. It could be a super app. It can be a real estate provider. As we have learned mortgages and all that stuff might be related to it. Pension might be related. It can be any corporate providing financial wellbeing. That’s the last layer. How we look at it, it’s the demand side, i.e., the ones providing the solution to the end client.

[00:29:53] Ben: Fantastic. Eric, I’m going to come to you next. You sit in that chain between the regulated service and the brand. Why would somebody need to use Bankable when they could get directly to the underlying regulated license holder? Make the case for Bankable and for these bass intermediaries that are popping up all over the place.

[00:30:30] Eric: We work with banks as well. For a client, we need to own log values. First, the stack is very simple. It’s an account. Our system is an account management solution surrounded by a processor. We own all the stack. then we have an API orchestration layer that provides the option to clients to build a customized solution. If you want to go to a bank, it’s possible, but I think it’s going to take in most cases much longer; unless you go to Saxo, because they’ve been in this space for quite some time.

I think the forest is very important to provide a service with multiple regulated entities, as opposed to just one. If it’s a very big project, the risk appetite of the bank, there’s different views of the same risks. For us, we are the ambassador of our client to pitch the business case to the bank. Going to the bank you will not achieve time to market, you’re going to go for their compliance and all that. It’s going to take you a lot of time. plus, the tools that the bank uses are made for them. All the regulated banks that you find on the market, and there’s more and more, the purpose of their stack is to serve their own regulation; whereas the purpose of our stack is to serve multiple regulatory entities in multiple jurisdictions. That’s why we can address global brands or global clients like Paysafe. We’ve launched Paysafe in 17 countries, and there’s others to come. It’s not the same.

There’s a lot of different BaaS, and I think the bank might be the right solution if you’re a top 20 corporate client of the bank. We see that more and more. We are in discussion with very large banks to become their BaaS, so they can onboard quicker corporate clients. Otherwise the bank is a chat-chat. “Hey, would you like to do banking as a service?” Okay, that’s a nice chat, but banks should stop chatting and should stop proposing pilots to their clients. That’s what we will see on the market now.

I think when you’ve got 30 million clients, 50 million clients, that’s a huge opportunity to address. The bank adapting is not something you can do. I’ve got nothing against legacy, quite frankly. That’s what the banks have. Legacy shows history, and history is good. But to address embedded finance, you’ve got to use the systems they have, so you need to be a bank on the side to serve your multiple business cases. I hope I’ve replied to your question.

[00:33:31] Ben: I don’t want to position Saxo in any way as a legacy bank, but you are a bank and sometimes you do work with BaaS intermediaries. I suppose the question is: in that stack where you’ve got the brands, somebody like Kard or any consumer brand, then you’ve got the best intermediary and underneath you’ve got the bank, is the bank not being reduced to a utility over time? If you don’t have any access to the customer directly, it’s difficult to have pricing power, it’s difficult to be able to upsell or cross-sell. I suppose to make the case for the bank working with a bas intermediary.

[00:34:15] Tue: It was a bit special in this case because we both act as the BaaS intermediary sometimes. We have a lot of developers and so on. We are a mix of a bank and a tech company. But we also work as the custodian bank, for instance working with Additive, where they orchestrate the client experience and work with the financial institution to deliver what’s required there, and we work then in the back on the so-called boring things of execution, custody, and asset servicing and all of that stuff that needs to happen. Of course these things are to some extent a commodity, so there’s a lot of other banks that could provide. But even there, there is a lot of parameters for differentiation. You could say, like Eric talked about, being able to work across legal jurisdictions, understanding the compliance layer that comes now. All the regulatory changes being on top of that is a massive investment on our side, and also something that we can then leverage and help other providers with.

I think there’s plenty of room for differentiation even within something that is fairly commoditized, both on the reg side, but also in terms of the products. As you can see many of the new investment models coming through, for instance, they rely on fractional services, they rely on margin and segmenting, and other things to be able to bring good economics into those solutions. For me, there a lot of interesting innovation going on in that space as well.

As I mentioned earlier on, it is also very much a scale game. We can see on our side, when we started with the API about five years ago, we had around 15 billion of assets. Now we are around 80 billion euros of assets. Unfortunately, we haven’t seen this similar rise in revenue. You really need to bring scale to a platform like this.

[00:36:16] Ben: Fantastic. We’re going to take a couple of audience questions. the first one is: can the panel share with an example, what we mean by orchestration layer and what an orchestration layer might do?

I think it was Christine that used the term orchestration layer. What do we mean by an orchestration layer, and if we can, can we get a practical example?

[00:36:36] Christine: Well, I can share it certainly from a wealth management point of view and Eric can share it from the Kard’s point of view.

From a wealth management point of view, it is really the system that provides you the end solution. If you want a simple ETF savings plan or robo, someone has to orchestrate it; has to handle the design; has to do the link over then to what I explained, execution; has to make sure that it runs smoothly. This includes as well what we call role model, not role model by different client segments. An example that was made before by Kard, if you want to handle community features and real client features, with Kard you could take the prospect view and turn it upside down. Today’s clients are the teenagers and your prospects are the parents. But you could run on an orchestration layer to different segments and make a seamless solution to the end client.

For us, a huge topic is the wealth transfer, the next generation wealth transfer. Therefore, you want prospect handling, for example, and current client handling, and you might want different end models. If you look into a search engine, they might have real estate on and they might need an offering that helps in direct amortization on the mortgage side. Sounds quite complex. Isn’t that complex? What do you need behind? You need what Tue has described, then you need the right icings and the right setup. You then can provide that as an embedded wealth model into the solution. This is what is meant by orchestrating – by bringing the supply and the demand side together seamlessly.

Maybe Eric you might want to add?

[00:38:45] Eric: I agree. For us it’s a technological layer to on board and unlimited number of partners. We don’t do everything. We do the accounts, the processing, the payments and all that. But we don’t own our own card manufacturing. We are connected to TELES and Idemia or Globalli. The purpose of this API orchestration layer is to add relevant partners on a long-term basis.

When I go see a Scott at Kard, I can provide him optionality. Would you like this or that? It goes from KYC, AML, account manufacturing, the list is pretty long. Some partners, like Visa or MasterCard. are global, some are regional, the majority are domestic. It’s regional or national. If it’s multiple countries, it’s multiple terms, multiple regulations. This is for us a key part of what we provide. It’s to make sure we can tailor a solution for customers based on all these things. That’s how we can achieve to market.

Otherwise we’d have to buy a puzzle ourselves. We’d go see 20 partners. But I think that’s more ambitious than building a puzzle. It’s building something bigger with real customers. When you have a good business case, your priority is not to become yourself regulated, it is to reach a certain level of customer satisfaction and volume. Without orchestration, we can’t satisfy demanding clients like Kard and others.

[00:40:40] Christine: The point you raised is super important. It is the flexibility that is added for the end client. On our side, it’s exactly the same. In terms of typically investment, barriers on the asset management side, the same with the data providers or the regulatory layers, there are various providers out there. We bring them together on one platform and the end client chooses. It is like using a puzzle, but instead the puzzle is completely white. We provide potential that it is an end solution, a beautiful picture on top.

[00:41:16] Ben: Yeah. Scott, anything you would like to add? You’ve been talked about quite a lot there on a third person, anything you would like to add? I just have another question for you from the audience.

[00:41:23] Scott: I totally agree. I think vice versa is, whenever we get the customer need for us it’s really important to go to bank and say, “I need this. However, I don’t have time to focus on one, benchmarking; two, implementation; three, I just need this for my customers.” Then it’s up to them to figure out which is the best provider, and leverage that provider, given the fact that they have much more scale and they have more customers.

For us, just about not defocusing our engineering teams on the front end bids, and let the experts do it on the back end bits. Just being much more efficient in order to accelerate time to market.

[00:42:13] Ben: Fantastic. The next section is more on making the business case from embedded banking. I think it might be good to focus on some of the more interesting use cases that we’re seeing. I’m going to take a question here from Parak. This is coming your way too, I think it is best if you kick us off here. Doe the panel have any examples in the wholesale banking or B2B banking space where BaaS has been successful? Which corporate banking use cases could you point to as working well for embedded banking?

[00:42:48] Tue: From my own neck of the woods, we service a lot of smaller hedge funds and wealth managers and others. That’s where you could say the wholesale bank is also involved. But where I’ve seen most innovation are cases we have already brought up, the likes of Revolut, Robinhood and others, where we see some of these mass marketplaces that have been extremely successful.

I’m really looking forward to see as the next step, and maybe that’s jumping a little bit ahead in the discussion, but we’ve seen a lot of plays for, as we talked about early, adopters and younger generations waiting for the wealth transfer to happen and all of that, and then banking on that, which I totally get that play. But what I think is really an interesting next wave is to also see some of the more affluent and wealthy clients, how they will be better serviced by embedded finance. We are seeing things come out of that again, where you can use what I talked about before with fractions and different ways. Some of the models you see playing out in the retail space will also be relevant for those more wealthy segments. But that’s really what I’m looking forward to see.

I’m also looking forward to see some of the models which today are very person-driven. Either you have a tied agent, and you have a banker, advisor, or whatever they’re called, but how do you blend that with technology to give clients relevant engagement and not waiting for a call from some guy? That blend of the client wanting to express their own views in terms of buying shares, stocks, whatever it is, but also having access to advice and to some discretionary services when that comes into play.

Some of the stuff that banks and private banks are doing today still has a huge need to be digitized. I think there’s a lot of potential there. That’s some of the stuff we work with Additive to make happen. That’s probably where I have had the highest expectations. As a bank, we’re not in the space of doing corporate banking, so I don’t have a lot of views on how that sector is working.

[00:45:13] Ben: You didn’t mention crypto; I suppose the question to you Christine: is crypto a big area for growth for embedded banking? Or is that still a bit an edge case, do you think?

[00:45:24] Tue: We are offering cryptos, but so far it’s been a bit more of a marketing gimmick, I will say. There’s always demand for that, people want to be able to access it in their portfolios, but it’s a very small percentage of the investible assets right now. Even though some banks are warming to it, like you have the Goldman Sachs and others taking it more seriously now, but it’s still a fairly small part of at least the portfolios that we see. But as a provider of access to markets, we need to also have that in our armor.

[00:46:05] Christine: I completely agree. You need to be able to combine what is called digital assets and today’s traditional assets into one portfolio. It really reminds me of the early 1990s, for example, structure products, or when we had the debate about adding alternatives into a portfolio.

The first are warming up, looking at strategic asset allocation, and guess what, a 5% percent addition could be a diversifier. I think it will start to broaden. As Tue has said, you need providers that can deliver both.

[00:46:43] Ben: Eric or Scott, what use additional use cases are you guys seeing or thinking about within the whole payments card area? What other use cases are working well?

[00:46:59] Eric: Well, there’s tons! What I always say, we’re as good as the business case we support. The average business case is not going to be a great solution. But if you look at Spendesk, for example, they grew in multiple countries from scratch. They are changing the way a team can buy or purchase a subscription or a trip or whatever. It’s team finance.

You usually used to go to the pool treasurer, you had to do a cash advance and all that. That’s what Spendesk is displacing, to make sure you have a budget for your team and your team approves the budget that the team can use to buy Amazon license or going to assure all that. It’s what Scott said before, it’s new. It’s a very new way and a very powerful niche.

We’ve had success as well with Deutsche Bank. We’ve done a corporate product completely outsourced, with them in the past, corporate product that was sold to Airbus and Emirates and others. The majority of what we do is B2B. Kard is probably the exception. We also do B2C, but B2B is where we are focused initially, because it’s predictable whereas B2C is not. You never know if that customer is going to buy an iTunes Belmont’s, or are going to buy a motorcycle, or whatever. That’s why we’re on B2B.

I think the success is on B2B. With Emirates, we’re in 160 airports doing real time cash disbursements. That’s something they could not do with their bank. But it’s something that we could do with the bank. There is a lot of together with the bank that we can enable.

I’ve never liked this story that FinTech are better than banks or banks are losers and we’re winners. That’s completely stupid. There is no FinTech without banks, why not complement each other? What’s the business logic? There is no business logic, it’s just ego. We have no place for ego at the bank at all5, it’s not good for business.

[00:49:33] Ben: I’m going to move on to the final topic, which is, what creates differentiation? I’m going to take this from multiple vantage points if I can. I’m going to start with you two. When you work with a BaaS intermediary, how discerning are you about who that partner is, and what are you looking for when you look for a bass intermediary? When we think from the source supply side up, what do you look for in a bass intermediary?

[00:50:00] Tue: I almost wanted to quote my good colleague, Eric, on this call. Even the best solution without the right business plan is not really going to go anywhere.

Reflecting on the six years we’ve had a full API solution in the market, we’ve worked with maybe 50 different entities on API solutions and we’ve been in talks with probably tenfold that number. From the outset, we were so keen to get our APIs into market and have them tested and so on. If there were two guys in a garage rocking up with a cool app, we would just start integrating it day one. We learned pretty soon that one thing is having a great UI or smashing idea, but if it’s not backed up by access to a client franchise of some sort or ability to go viral in some way, then it was very hard for some of these early players to have a sustained business. Quite a few of them went out of business or got bought, which was their other option.

We realize we’re not in private equity, trying to pick the winners. If we were super good at that, then you shouldn’t be doing banking and the things, but we should just be investing in our own fund and making fortunes out of that. We are looking much more at some of the established players who have the client franchises at their disposal and who are now looking to see how they can offer more relevant, contextual, and so on, service to their clients. That’s what we talked about before, where the orchestration layer comes into play.

The agenda for us has changed quite dramatically, but we still have a lot of discussions with newer banks and others. But we also, each I would say each week, turn down if some new robo that wants to do something for a niche segment of whatever white men above 50 who like to play chess, would like to have their own little investment circle and then they would bring an app out on. Even though I’m a white man around 50, I don’t think there’s a market for that. Again, we’ve been a lot more discerning than we used to be in the past.

[00:52:37] Ben: Fantastic. Same question to you, Scott. When you were looking for a bass partner, what criteria where you taking into account? Was it the breadth of services that that partner could give you access to? Was that geographical coverage? What things were important to you when you chose a bass provider?

[00:52:57] Scott: The first thing was the quality of the tech stack, by far the main driver. Ultimately, due diligence, the tech stack gives you answers to a couple answers. The first is the quality of the team to implement new products at a very efficient rate. That was definitely the first and main driver.

The second was array of products or offered solutions. Lastly, I don’t remember exactly who said it, but the distinction between the licensing and the technology for us was a no-brainer, simply because I don’t think the two fit together. Either you’re trying to be a technology company or you’re trying to be a bank. For us, it was very important to partner with a tech company for the reasons I just mentioned.

Lastly was international; the ability to go really fast in other countries. For a very young and ambitious startup, it was one of our main drivers.

[00:54:11] Ben: Great. Can we infer from that that Kard is coming to other countries?

[00:54:17] Scott: Fingers crossed.

[00:54:19] Ben: Fantastic. Then Christine, you’re head of strategy at Additiv. With your strategy hat on, what are you thinking of in terms of how you’re going to build increasing differentiation for Additive, versus whatever the competitive landscape looks like for investment management as a service?

[00:54:43] Christine: I’ve lost you, Ben, briefly.

[00:54:46] Ben: When you think about Additive and the competitive environment, how do you think that you’ll create more and more differentiation over time? What things are you thinking about beyond the tech stack, the breadth of products, international coverage, if anything else?

[00:55:03] Christine: In the end it is who you can serve as not end clients, but as your clients. One of the main differentiations, what we see in the wealth management, embedded wealth space, we can bring financial planning to any employer out there for his or her employees. It’s really opening up the way the channels the services are provided.

If I might add to one of the discussions before, in the past in the wealth development management side, various tried to cooperate with the banks. But then it was rather captive, i.e., if you get the execution and the custody, please as well get our views and our products. That’s opening up completely.

You can source in terms of the investment products, in terms of the end solution, literally anything you’re like. Differentiation and development management side will be with the end clients to be served, as said, corporates, search engines, retailers, but as well as what you serve there. There important point is the aggregation.

Like on the Kard side, we want to know what we have spent. The same on the wealth management side today, we have to build it, quite cumbersome. We want to know what our pension looks like, to be able to simply dissimulate it, from a mortgage our amortization and over into long-term planning. I think this services are coming our way and provided through channels that do not need to be traditional channels, but it can be partially provided by financial companies.

It was said FinTechs and banks always go hand in hand, and I completely subscribe to that. It is opening up new ways of distribution, serving all of us best IU and clients.

[00:57:09] Ben: Fantastic. Eric, anything you would add in terms of when you look at your competitors, where you see areas of differentiation?

[00:57:20] Eric: As you find in the report that appear, for us there’s one thing we need to do right. We need to connect our platform to as many banks as we can in different countries. Why? Because we are now meeting clients, they want to start, and that’s what we’ve done. They say they are in dozens of countries., they want to open in a new country. Instead of being led by the client, we push our network to the client, saying: we are now opening Brazil, are you interested?

If I come to Scott with, we are live with IBAN accounts, everything in 20 countries, why don’t you raise 50 million to address that? Why don’t you get marketing budget? The world has changed. I think 20 years ago to be on an international company was much more difficult. Now you’ve got a lot of tools. We want to facilitate this network of global bass for global clients, either fintechs or corporates, or even banks. There are some banks who are overpaying services in companies outside their native country. For us, one agenda is to change the way custody bank is set up. If we have an account in all of these banks to power corporates, then we’ve got something powerful for the bank as well as for the premium flow we could bring to the bank.

[00:58:54] Ben: Fantastic. Sadly, I think we’re out of time. I just want to thank the four of you for what I thought was a really wide range and interesting discussion. I’m going to conclude with something you said, Eric, which is, I think embedded in banking is really about giving every company the possibility to be a FinTech company. I think that was a pretty pithy comment from me right at the start.

I can’t resist, Eric, what you mentioned there, we just published a report about the embedded banking market in which we evaluated 45 banking as a service providers. Both Bankable and Additive are considered by us to be best in class as transformers capable of transforming both business models and technology of the companies that they work with. We are lucky to have the two companies on this discussion as part of this panel.

Thank you also to you Scott, for your insights.

We have more questions that we didn’t have time to ask, but that sadly was the case. Hopefully you guys will agree to come on another 4×4 in the future. Last thing to do is thank everybody for attending. Thank you for your questions. We’ll make the replay of this available if you want to watch it again or share it with any of your colleagues. But thanks very much everybody for participation and your attendance at this discussion. Much appreciated, and see you at the next step 4×4.

[01:00:19] Eric: Thanks.

[01:00:23] Tue: Thanks.

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