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The first of two episodes recorded in partnership with Banking Circle Group at Money20/20 Europe, that took place in Amsterdam on 7-9th June 2022. We recorded a series of interviews on the Banking Circle booth with a number of the speakers from the conference.
Our first guest was Daniel Marovitz, Senior VP of Fintech at Booking.com who had give a keynote which addressed the question of whether embedded finance can deliver for e-commerce and retailers.
Daniel said that we had a period of time with this explosion of fintech product and fintech companies over the last decade or even more. And while there’s lots of features and powerful functions and powerful technologies that were generated during that period, what also is kind of true is that there’s a distance between merchants and their customers, because you have all these different payment methods, all these different user experiences, which came in to deliver those new financial products. And so, on the one hand, different ways to buy and ways to pay and timing of payment and foreign exchange and all sorts of things. But on the other hand, you also have other forces, other experiences, other user interfaces, which end up interpolated between a merchant and their customer.
In his session, he talked about his view that embedded finance is a way for us to have a futuristic version of the past. What he mean by that is, you take all of these incredible features and products which have been developed, but in an embedded finance world, what you are able to do is actually give that power to the merchant. So, it’s almost as if the e-commerce merchant is sitting on top of this stack of capabilities, most of which can be done sort of underneath the water, underneath the waterline. And so, you’re delivering more capability to your customer, and you’re powered by all of these other companies. But those companies are behind a cloak as opposed to being front and center. And so, he thinks what it does is it makes the experience better for the customer, and it makes that relationship between the merchant of whatever flavour merchant and their customer, it makes it more intimate and brings us back to an earlier stage of development when, merchants and customers, even in real life, in a physical marketplace, they knew each other’s names and they knew each other’s families. And so, Daniel thinks the power of embedded finance is so that we can get that intimacy back but at a distance.
Daniel sees embedded finance evolving quickly and dramatically. He said that we’re at a stage where there’s a lot of development and across many spheres, we’ve seen, for example, the whole explosion of buy now, pay later and instalment payments, which give a lot of power to consumers to figure out when they want to pay for things. We’ve had an explosion over a decade of alternative payment methods across the world. There are more than 1000 different alternative payment methods. It’s not just the PayPal’s and the Venmo’s in the U.S. or the Alipay’s in China. There are hundreds and hundreds of these across the world which have all have features and attributes which people like, which is why they exist. He added that nnature abhors a vacuum and they have features that consumers orient towards and that’s also, in a sense, a form of embedded finance. But Daniel thinks now what we’re starting to see happen is that on the merchant side and the B2B side, the early payment credit capabilities which we often think about as core banking that’s starting to enter into what merchants can do with their suppliers. And you don’t need to be just a gigantic Amazon.com to do it. There are loads of vendors even at Money20/20 that would love to plug some capability into your site and give you the ability to service your suppliers in interesting ways.
Daniel thinks cyber security in various forms is a topic that never dies. It’s the never-ending arms race. He said there’s an enormous number of companies at the event that are focused on various parts of decentralized finance, so-called de-fi. Blockchain and crypto, of course. He added whether quite all of these companies make it through the crypto downturn will be interesting. He thinks there’s going to be quite a lot of separating the wheat from the chaff in that space over the coming months and quarters.
Daniel explained that Booking.com has a traditional flywheel. They think about it in the Amazonian terms of a flywheel. They have fantastic hotel supply. Because they have fantastic supply better than anybody else they get lots of travellers who come to them because it is the place to buy it. Because they get lots of travellers, hotels want to give them more supply and thus it spins. When they set up fintech, they had two objectives.
1) help that traditional simple flywheel of booking, spin faster, cheaper, better
2) create novel sources of revenue using financial product
Daniel said that booking.com is an unusual company in the e-commerce space. Until six or so years ago, they actually really didn’t do any payments. They ran through what they call the agency model, where they essentially served as a giant marketing and distribution system. But the payment was taken off the traveller, and they invoice the hotel after the fact for their commission. That was how the business model worked. So, they have been going through a period of really dramatic business model retooling. Over the last four and a half years, they have gone from less than 3% of the business where they were involved in the payment to more than a third of the business, were involved in the payment and that’s on the back of a growing business. And that scale is going to continue to come. So, they are scaling pretty dramatically and scaling their products, and the team in fintech.
Our second guest was Eimear Creaven, President of Western Europe at Mastercard.
Eimear said that what we’re seeing this year is really a hyper focus on how to support businesses and consumers to make payments to make them easily, really accelerating all things digital and looking forward to the new platforms and the new trends. The focus is on consumers, the focus is on businesses, how we help them digitize.
Eimearsaid thatwe’ve just come off the back of two years of the pandemic when, with lockdown, everyone was pushed online in a way that really, they hadn’t been previously. So, the technologies have been there for some time, whether it’s in the physical world, contactless technology or in the online world, supporting people to shop and e-commerce and m-commerce. And we’ve just seen a mass acceleration of all of these technologies. If you think about how you shop today, the physical world and the digital world are clashing, and retailers, big and small, have to be prepared for that. Consumers might start their experience in a shop, but they might finish it online or vice versa. And we have to be able to support this knocking of physical and digital together. And we’ve seen consumers really lean into these technologies, whether it’s e-commerce on your mobile device, we’re now talking about algorithm commerce. It’s really moving very quickly. She said that Mastercard’s ambition is to sit behind, support the payment experience, partner where appropriate, and sit at the centre of that and offer people a simple, easy to use, safe way to pay regardless of the channel that they’re in or the environment that they’re in, and make sure that they continue to have that confidence to do so and give them choice however they want to pay wherever they want to pay.
Eimear said that there’s no doubt in her mind that some of these trends that we’ve seen, they’re going to push into the future. They’re possibly going to change shape as they do, they’ll evolve as consumers needs evolve. But without question, consumers are really excited about some of these new things. There are multiple, multiple millions now being spent on cryptocurrencies. She think it’s really important that businesses together work together on that front, but consumers are there, and they love it and they’re testing it and they’re trying it. They might not always work, from a payment, a pure payment perspective, but the technology is there, and people are using it. She said that Buy now, pay later is a fascinating space, it’s a credit, credit cards have been around for an awfully long time. But this new form, this new user experience, people are really engaging with that and they are absolutely leaning into that as well. She said that Mastercard have their own solutions, that they are offering through their banking and fintech partners to offer to consumers.
Eimear said that the pandemic has been fascinating in many ways, but for Mastercard, they had a lot of the technologies available to deal with the crisis and to deal with this accelerated digital fashion. They are rolling them out faster now, and that’s really their focus and her focus. How do they accelerate the adoption of digital? How do they give consumers lots of choice whether they want to pay with their card? Consumers now aren’t just buying, but they’re also sellers. So, making sure that they can use their cards to buy and sell whether they want to pay with their bank account, whether they want to pay using an open banking feature, whether they want to pay with cryptocurrency, enabling that choice, that full breadth of choice for consumers is really important. But not forgetting that the principles of safe and secure, good user experience and applying the appropriate regulations. She said they have strong customer authentication now in Europe. It’s important that they adopt that, but that it’s frictionless for consumers. So, they are thinking about all of that and just accelerating it and pushing it through their partners so that consumers understand it and then use it and play with it a little bit more.
Eimear said that what we saw during the pandemic was that people were saving because they weren’t able to purchase and consume as much. So, they have built up a nice nest egg. And there is a real ambition to spend. People want to spend, and they want to particularly have experiences. So, getting back on the road, traveling with their families, traveling with business, that’s really back. So, we’re seeing things start to come back to pre-2019 levels in a great way. But she added that the crisis in Ukraine since February has definitely had an impact on consumer confidence. It’s low at the moment. People are very concerned about inflation, but they’re still spending. So, there’s a little bit of a disconnect between their concerns and the patterns that we’re seeing. And that will take some time until we see what happens with the situation and how things roll out. But for today, Eimear thinks people are confident, they’re back and enjoying being in physical spaces and being here together.
Next up were Søren Skov Mogensen, Chief Growth Officer of Banking Circle Group, and Chris Pirkner, Chairman of EMPSA, the European Mobile Payment Systems Association.
Chris explained that EMPSA is an association of the 15 premier mobile payment solutions across the continent, such as Swish from Sweden, TWINT from Switzerland, MobilePay from Denmark or Vipps from Norway. There’s 15 of them all across Europe, comprising 90 million payers. What EMPSA has done is got them together to allow each other to use each other’s networks. It would mean a user from the scheme Twint a Swiss solution should be able to pay in the network of another scheme, i.e., Blue Code in Germany and Austria. He compared to SIM cards that roam in other territories, and so in the same way they want to enable payment roaming between these distinct and local European solutions. And at Money20/20 they announced the first group of solutions, Twint from Switzerland, Blue Code from Austria and Germany, have been putting this live into action with real people and real money moving.
Soren added that the Banking Circle Group is an ecosystem, and the Banking Circle Bank is at the core of that. Delivering payments, accounts and FX. Around that is a rich set of propositions within cards, payments, buy now pay later accounts to account payments and lending and much more. So, this ecosystem of payments and financing is something that they would want to deploy to as many use cases as they possibly can, demonstrating and testifying the strength of their platform, the strength of this independent platform that is integrated into the major currencies of the world and thereby able to deliver payments in a fast and cost-effective way.
He said that this opportunity brings together domestic mobile payment systems into what has got to happen, what has been inevitable that these would come together in a European solution. They have been waiting for that to happen ever since Barclay’s launched Ping It and Danske Bank launched Mobile Pay.
Chris said out of the 15 member schemes, two will start off, Blue Code and Twint, having several million users who go across the border, will be able to pay using this infrastructure. Banking Circle’s role is to provide the foreign exchange service for this or to settle the monies between the schemes. And so, the potential is that as we see more and more of their QR code users traveling into the other territory, that more and more volume for these cross scheme payments take place. And the bigger potential then is that a third member and it’s looking like this will be Banca Monte from Italy will be joining that framework, so that also Italians can use their domestic payment solution when they travel to Austria, Germany or Switzerland. And at the same token, that Swiss people or Germans or Austrians can travel to Milano and buy an espresso using their local wallets. The potential is that more and more and more of EMPSA members, either by joining to this setup or by doing it on their own, using the same APIs, that they get more and more interoperability in Europe. He said the end vision is that every European has a chance and a right to pay with their local app all across Europe without any borders.
Chris doesn’t feel that the likes of Google, Apple, Facebook, looking to also deliver financial services, will challenge them because we all see that mobile payment is growing across the board. It’s a huge market and end consumers can pick the solutions they want to pick. However, he said they see in many of the EMPSA countries that these local solutions have market shares of 70, 80, sometimes even more than 90% of the population using the domestic payment solution. And so, of course, the domestic solutions are mostly account based. So, there’s no card in between, you use your phone, and you access straight the checking account. And so, you can do many use cases that you cannot do with cash and cards. And so, they believe that the way forward is for Europeans to do more and more of account-based payments and to do them not just domestically but all across Europe by roaming through each other’s networks.
Vidya Peters, Chief Operating Officer of Marqeta started by explained that Marqeta is the first modern card issuing platform. They enable companies, whether they are large financial institutions like JPMorgan Chase, large enterprises like Western Union or Google or Uber and fintechs like Klarna issue cards to bring very innovative customer experiences to market.
Vidya was speaking at a session at the conference about the opportunities for customer engagement and innovation at the checkout. She thinks everyone has looked forward to the end of this pandemic and people are itching to go back into stores and have some real in-person interaction to be able to touch and feel and to have real world experiences again. And the point of sale has now become a wonderful place for people to return to. Except digitization has come to the point of sale where it’s not just the end of an experience now, it’s the start of a customer experience. And a lot of companies are grappling with the question of ‘how do I make this as seamless and delightful as possible?’ It’s not about the weight of the checkout line, but it’s about how seamless that payment experience is and the breadth of payment options that you can make available to your customer at that point of sale. So, lots of great innovation happening at what we thought is a very old form of an experience.
She said that Marqeta just launched, in partnership with Klarna, a product called the Klarna Card, which enables any consumer to walk into a store with a card that looks no different from the cards we have in our wallets, except we can swipe it and immediately choose to pay in instalments over time. There’s no friction, there’s no permission, there’s no pre-approval that has to happen in that checkout line. No embarrassing forms that need to be filled out.
Vidya said we’re already seeing some of this happen in person where you scan your app to enter a self-checkout shop and then they’re using a combination of biometrics and facial recognition data to watch you as you’re going through the store and adding items to your basket to make that checkout seamless. She said imagine if we didn’t even have to have an app. Imagine if you could wave your palm as a very unique identity and that biometric information is tied to your most favoured payment method on the back end. Think about, then, the level of friction you’ve moved. You and I could walk out of our home without anything on ourselves. No wallet, no phone, nothing necessary. Our identity becomes the way to pay.
Vidya said that crypto is here to stay. And while the valuation of crypto may swing, consumers are clearly telling us that they want crypto to be a part of their everyday lives, not just a novelty investment. She said that one of their recent surveys said that 80% of responses showed that there was a deep interest in wanting to use crypto as a way to pay for their everyday purchases. And that is actually something that Marqeta powers with Coinbase. So, the Coinbase card is a card that you could go into a Starbucks, swipe the card and use some of your cryptocurrency holdings to pay for the coffee that morning. And so that way you are really bringing crypto into your everyday purchases.
Trends that are going to apply in the take up and application of digital wallets.
Vidya thinks there is a reckoning where it’s the technology is a means to an end. What matters and what has always mattered for time immemorial is the customer experience. The technology just helps you solve for that customer experience in a whole new way. Her biggest takeaway is whenever in doubt about the technology, come back to what the problem is that you’re looking to solve for the customer and then ask what is the right technology to help you do that in the best way possible?
James Allum, SVP, Europe at Payoneer was next up. His colleague and Managing Director, Jody Perla was speaking on a panel about what SMEs need to do to serve their customers better. He said she was going to be talking about some of the more recent developments during and since the pandemic with SMEs. There’s been a huge amount of growth. What they have seen is more and more people start-up businesses, more and more people list across multiple platforms. And then a lot of what they call D2C. So, people going off the big marketplaces and setting up their own websites and serving customers directly.
James said it’s all about growth and that the challenge for payment companies like Payoneer is how do they best assist their customers to grow? Pre-pandemic, in some ways it was quite simple. You would probably list on one marketplace and that would be your business. And because of supply chain issues, because of just the explosion of opportunity, people are now just thinking about multiple marketplaces, multiple countries and doing it directly. So, there’s a lot of variety there.
Challenges for SMEs and eCommerce sellers
James said that setting up the business is the easy part but there’s a lot to navigate when going global. Whether it be regulation, whether it be tax, whether it be cultural specific. Payoneer try and partner with a lot of firms that can remove some of that heavy lifting that are doing it for others on quite a large scale. He added that there is a huge amount of innovation coming from the emerging markets that probably the developed world is learning from. When you think about in simple terms, if you’re an e-commerce seller or an SME based in the US, you’ve got a huge domestic market to serve before you think about going internationally. Whereas if you’re in a smaller country like Serbia, it’s international first. So, there’s more innovation probably coming out of the developing world than the developed world in this area.
We were then joined by Tui Allen, Product Director at Shopify. She explained that Shopify is a commerce platform for small and medium entrepreneurs. They like to think of themselves as an entrepreneurial platform and really building the infrastructure for commerce. They tend to play a behind the scenes role, but many of your favourite independent entrepreneurs, creators out there that you’re purchasing from typically are using the Shopify platform to actually to use to push their brand and promote their brand.
Tui said this is an interesting debate. She likes to say Shopify is actually really far down that fintech journey in that you get to a place where when people don’t realize you’re a fintech, but you actually have all these deep, embedded fintech capabilities across your platform, you’re the best possible type of fintech. She talked about it through the lens of a merchant, our customer running a business. Many people think of Shopify as it relates to running a shop or running a commerce presence and being a commerce company. But the reality is to run a business, you actually have to manage finances and you have to manage operations. And for the average entrepreneur or business owner, those are not the things that they wake up every day saying like, ‘yay, I’m going to go reconcile the books or yay, I’m going to figure out how to manage my cash flow’. But those are the things that ultimately make them survive and ultimately are the critical must do. And so, at Shopify, what they are really focused on is actually making those challenging experiences invisible. And that’s why sometimes many folks don’t realize how deep their fintech capabilities are because they are actually working to make them invisible, and that just works. She said to think of it as like magic. ‘Oh, wow. I just got my money. Oh, wow. I don’t even need a bank. Oh, wow. I can actually, right at the point in context or right at the point of doing a specific job, I need some additional funding. Amazing. There’s now this offer from Shopify Capital for me to take advantage of this. Oh, they know that I’m going to need additional inventory. And so, at that point in time, they’re going to offer me some additional cash flow to help me manage that period in time’. So, Shopify have a ton of very deep embedded fintech and financial capabilities, really dating back to when they started where their Founder and CEO, Tobi Lütke, was really looking to figure out how to sell snowboards on the internet. And the thing that was the biggest pain was trying to actually manage the payment transaction to complete the sale. And so early on, they actually tried to figure out how to solve that problem, which is making frictionless transactions on the Internet and embedding deep payment capabilities and embedding a very user centric, we’re focused on high, high quality user experience, but a high-quality user experience for checkout. So that’s where she said they got their start as it relates to fintech. And then as they have been growing and expanding their presence and trying to help merchants not only run their shop on Shopify, but run their entire business on Shopify, they have been embedding financial capabilities across the suite of what is required to run a business.
Tui said that one of the things that’s interesting about Shopify is that they, different than other commerce players out there, try to play a very background role and she thinks that comes through in everything they do. She thinks most don’t realize that they are a fintech because they
Tui thinks Multichannel is huge. They are hyper focused on making sure that their merchants and their buyers can access good services capabilities from wherever they are. And so that’s deep partnerships with Google, that’s figuring out how to get very innovative with the partnerships they have with TikTok. So, they know that that’s the future of buying. It’s all through social channels, it’s through relationships with influencers, building capabilities to actually support brands, entrepreneurs and influencers is a really cool area that they are focused on and leveraging all these different channels which across the globe are becoming more and more critical. Another interesting thing that they are really excited about is the work they are doing around NFTs and so blockchain and NFTs, especially loyalty brands where there’s a ton of affiliation or, in the world of retail is very much like this, if you’re in Europe, take it back to the Chanel, etc. It’s all about this brand loyalty and NFTs give you this ability to create these brand experiences, membership experiences and loyalty experiences.
Next was Didier Lallemand, CEO of Treezor. He explained that Treezor is one of the European leaders in the bank as a service. They offer a platform for both corporate and fintechs in order for them to develop their business models all across Europe.
Didier thinks it’s really linked to the way the end consumers, would they be people or corporations, want to embed finance in their daily life in the user processes. The bank as a service model is really allowing fintechs, but corporates also to embed finance in their processes. So, it’s allowing people not to have to go to a dedicated office or dedicated branch in order to do the financial part of what they’re going to be doing, which is, buying stuff, it’s really putting that in the middle of the process. And that’s really becoming the normal way of doing things.
He said Treezor offer a very nice tech platform, but they are also a regulated entity. And what they offer our clients, especially their fintechs, is the ability to launch their products and launch their offer without having to go through this process of, being themselves regulated. So, they’re relying on their license. And they are in the end responsible for the KYC. They are responsible for all the compliance processes, the filtering of a flows and that kind of thing. So, it’s really a complete offer, the technology, but also regulation and compliance that they offer to our clients. He explained their model is really in giving their customers, which are corporates, the ability to offer their own services to either individuals or other corporations. So, it’s a B2B2B or a, B2B2C. Their clients are fintechs first, NEOBANKS. But also, in the different lines of service mobility, for example, with the new mobility cards that are emerging a lot, but also corporates, big corporates want to facilitate, for example, emergence, facilitate the processes. They are allowing them to issue cards, so, for example, big corporates who want to have their own cards branded on their name. So, it’s really a mix of fintechs on one side, corporates on the other.
Didier said that embedded finance is getting into more and more processes and having more and more corporates getting in. Fintechs are already big, and they have been Treezor’s first clients historically when they started. And now they are evolving, they are expanding in Europe, so serving more fintechs and also the fintechs that theywe have allowed to grow, and scale are expanding in Europe. So, they are accompanying them there but also getting into a lot of corporates who want to create those financial portions of their processes.
Didier said that therationale of the acquisition was really two sided. On one side, Treezor wanted to expand its offering, for example, in credit or in insurance, which are products that Treezor cannot produce by themselves. They cannot hold on their balance sheet some credit lines. So having Société Générale and all the businesses of Société Générale allows them to offer their clients through their platform, through their API, those services. So, it’s really brand well, strengthening their offer and having a one stop shop for their clients. And on the other side, Société Générale is also launching new products that require bank as a service. For example, the Société Générale Network in France wanted to launch an offer for teenagers, which is, something that you see in Neobanks today. But they wanted to do it. And in order to do it in the way that is suitable for those clients, they had to go with the bank as a service model. So, Treezor are powering the offer for the retail network for those teenagers.
Our final guest of this first episode from Money20/20 Europe was Louise Hill, co-founder and COO of GoHenry, which she explained is a prepaid debit card and financial education app for kids aged 6 to 18. They operate across the UK and the US and have over 2 million customers.
Louise spoke at the event in a session called ‘What Can You Teach Me?’ and it was about the lessons that challenger banks can learn from the more established ones. She said that it was a good conversation, a slightly unusual angle. She thinks the question that’s more often asked is what can the incumbent banks learn from the challengers? So, it was good to invert that. She said some of the topics covered were looking at some of the challenges that some of the Neobanks have had recently in terms of compliance regimes and compliance controls was looking at how the established banks have nailed that and built that into their infrastructure from day one. Whereas perhaps some of the challenger banks and fintechs have not done that so much, and as they scale and grow, that has to become an inherent part of how they build their structure. And then she thinks also the lessons that can be learned from scaling a business and how you have to change your infrastructure and change your organizational structure as you grow and move from that terribly lean level playing field to having more layers in the organization, but without falling into the trap that perhaps we think the incumbent banks have done, where that leads to a loss of agility and speed of decision making.
Louise thinks absolutely the most important thing is talk to them, talk to your kids about money. It’s not something English people tend to be terribly comfortable doing. And a lot of other cultures do it better. But talk to them, involve them, let them understand, whether it’s making a game of it in the supermarket when you’re hunting for bargains or looking at how much a meal might cost or for a teenager, it’s slightly more to do with budgeting, which brand of jeans they’re going to choose because of the cost. But talk to them, involve them. And secondly, give them a little bit of money. And again, it doesn’t matter how much, even if it’s twenty pence, give them some money, let them make the decisions about it. And if they spend it and then regret what they’ve spent it on, that’s the lesson. And maybe next time they have twenty pence, they’ll think a little bit more wisely about it.
She said there’s an amazing piece of research that was done probably 15 years ago by Cambridge University that shows without question that financial behaviours start to be set from the age of seven, which is incredible that at that age it’s already setting the stage for lifetime decisions about money. So, GoHenry offer services from age 6 to 18 and it’s never too early. Obviously, they’re very different tools and different decisions you give a six-year-old than you do a 16 year old.