The first of three episodes recorded in partnership with Freemarket at FinTech Connect, which was held at the ExCeL in London from 30th November to 1st December 2022. We interviewed keynote speakers and attendees from the event to hear their insights into the latest trends in the FinTech space.
The guests cover topics such as deploying human expertise partnered with technology to meet customer needs, the consumer adoption of faster payments and how this is becoming a trend in the B2B payment space.
Joining Graham Barrett on the Freemarket stand for this episode was:
- Paul Staples, Global Head of Banking as a Service and Embedded Finance Proposition, HSBC
- Michael Whitehead, Chief Banking and Product Officer, Freemarket
- Lisa Frazier, Chief Operating Officer, Judo Bank
- Sophie Flynn, Co-Founder, Nucleus365
- Jason Hurwitz, Head of Strategic Initiatives, Aldermore Bank
- Conrad Ford, Chief Product Officer, Allica Bank
Paul Staples, HSBC
With Paul Staples, HSBC (left)
First on the episode is Paul Staples, Global Head of Banking as a Service and Embedded Finance Proposition at HSBC. Paul spoke on a panel about the future of embedded finance.
After Paul’s session, the panel were asked: ‘In ten years from now, will SMEs be getting their credit from a bank or from somewhere else in order to support their cash flow?’ The answer was unanimous from the panel despite the fact they all wanted to disagree. The agreement was that SMEs could still get their credit from a bank but the application process, the approach, and the simplicity of it all may be in their accounting system because that’s where the cash flow operates within their business.
HSBC has recently launched NetSuite in the US. The journey started a couple of years ago when they were thinking about the future of banking business models. They realised that as well as he relationship between HSBC and the end consumer, there is also on intermediary player. They, therefore, built an orchestration platform across the top of HSBC’s corporate banking business in a way that enables NetSuite to interact with all banking products. Paul gives the example of imagining you’re a CFO, in your ERP system and having to pay an invoice. To make this happen you have to leave the ERP system and go into the banking provider system to make the payment, get the transaction reference, bring it back into my ERP system. They decided to reinvent that whole process with NetSuite, using their tech platform so you never have to leave the NetSuite application.
Paul states ‘The eyes of the world are on us because I’ve had a number of SaaS companies of many billions in value kind of asking me, Paul, we’re keeping an eye on you directly.’ He sees this as the largest implementation of banking as a service contextualized through embedded banking, embedded finance, in a B2B environment. There’s no doubt about the success in B2C but with B2B there’s a lot more friction and challenges to overcome.
Banking as a service has changed drastically over the years and Paul comments that an ATM is the original form of embedded banking, where you had an ATM placed within a grocery store and you got your cash out to pay for your groceries. Now, it’s done with APIs and in the last five years he’s seen a massive explosion of use cases, with every imaginable banking component now having the tag ‘as a service’ added to it; cards as a service, payments as a service, deposit accounts as a service.
On the episode, Paul talks about B2B banking service being much harder than B2C. To understand it he lists what’s included in both. For B2B you need an ID card, passport or utility bill and KYC is done easily. With B2B it’s much more complicated – you have the company chart of accounts and then you also have to take the directors’ and shareholders’ accounts into consideration, along with any sub-entities around the world before you can complete KYB.
The ways around this include improving technologies and the tech stacks available. He thinks the future is in banking as a service and embedded banking on top of that in the B2B environment. Paul quotes Jeff Tijssen from the panel session who said that in 2026 he anticipates that $7 trillion worth of transactions will flow through embedded finance and embedded banking. Paul says we’ve got $2 trillion today so the $5 trillion of growth is going to come from B2B.
Michael Whitehead, Freemarket
With Michael Whitehead of Freemarket
Next from the FinTech Connect 2022 podcast is Michael Whitehead, Chief Banking and Product Officer, Freemarket. He spoke on a panel about how corporates can navigate the changing risk appetite of banks.
As Freemarket is a provider that focuses on small and medium-sized enterprises a lot of their client base finds it difficult to access some of the basic banking services. Michael states that this is not a new trend as it’s been relevant for a large part of the last decade. However, this trend is increasing. One of the reasons for this is that larger providers of payment and cash management services find it a big expense to service small clients with basic transactional needs. This is where Freemarket steps in because as Michael states ‘it’s the bread and butter of their business.’
Freemarket is in a fortunate position as they have built a technology platform that leverages cloud-based technology which is API driven. As a result of that, they successfully meet client requirements which are in fact evolving rapidly. Small and medium-sized enterprises are getting more sophisticated and demanding of their providers. Michael says that to satisfy needs, you’ve got to be quick to the market.
The cost of operating the technology platform itself is coming down, so there are many new products and capabilities out there. From a FinTech perspective, Freemarket is very comfortable partnering with other Fintechs in terms of building a platform that flexes client requirements. So, in the future, Michael sees a lot of new ideas and capabilities out there for them to be able to move at the speed and integrate those into the platform.
Lisa Frazier, Judo Bank
With Lisa Frazier, Judo Bank
Lisa Frazier is the Chief Operating Officer at Judo Bank. She starts by giving an overview of what Judo Bank does and the markets for which they cater. Coming into existence in 2016, Judo Bank was founded by a group of experienced bankers who were passionate about the small and medium enterprise economy. Today, Judo Bank is a specialised SME lender that provides capital to SME customers in Australia. They’ve been profitable for two years and they IPO’d last year.
In such a short space of time the company has grown from setting up the business to IPO and then to a profitable organisation. Lisa explains some of the challenges in achieving this in such a short amount of time. It wasn’t her first start-up company and for Judo there have been four things which have made a real difference:
- Pick where you play. For the SME customer base they are underserved by major banks and as a result 40% of them can’t get capital when they need it. Lisa explained that two-thirds of them would say they don’t like their relationship with their existing bank. Pick where you play is an economic opportunity and a sizeable problem that you can solve as a start-up.
- Test the customer value proposition. It’s important to understand what resonates with customers and what they are willing to pay.
- Push for the business model achievement early. This is different from the start-ups she was part of in San Francisco.
- Manage your capital and how far you invest ahead of or alongside the business model. She confesses that she’s guilty of building too much tech and it is important to get the balance right between these elements.
Lisa’s session at FinTech Connect focuses on the power of technology and people. In the session, she speaks about why they exist. With digitization and innovation in financial services, the unintended consequence has been a lost relationships between banks and customers. For the SME customer, it’s important to have a highly people-based relationship because they’re all so different. Lisa uses the phrase ‘the butcher, the baker and the candlestick maker aren’t the same.’ They have different business models and different needs at different times. She focuses on the people part, which is relationship-led banking, character-based lending, relationship banking and high-tech high-touch partnerships. This is different from today’s status quo in the banking world, which is a minimal relationship, low, slow tech and computer-based lending.
Lisa is excited to learn about what’s been happening in Europe and the UK as it’s such a hub of FinTech activity and hope that more women are getting inspired to be a part of FinTech, technology and financial services.
The future of Judo Bank is full of excitement as there’s a lot more to do! One of her key messages is that, ‘just because you IPO, the job’s not done.’ So, there’s a lot to do in scaling the company and understanding how they drive scale to serve more customers. She states that the whole idea of getting to profitability is that you have some sustainability, which means you can help more SME customers. As we are going into uncertain economic times, so they want to be there for customers as they scale their bank and look to the future.
Sophie Flynn, Nucleus365
With Sophie Flynn, Nucleus365
Sophie Flynn, Co-Founder of Nucleus365, spoke on a panel at FinTech Connect about how corporates can best navigate the changing risk appetite of banks. In the discussion, reference was made to how fintech’s are navigating bank redundancy, how they can support the de-risking of traditional banks and how the customer’s expectations are changing. Other topics included how fintechs can step in and add value to their businesses and become a key part of their business. Sophie’s key takeaway was that SMEs have multi-faceted relationships with banking partners rather than just relying on one because they’re now offering so many more capabilities.
Nucleus365 is a payment institution, a fintech start-up. They have a sister company called Transact 365, which is a PSP that Sophie also co-founded around 5 years ago. They found their merchants not only wanted different payment methods and payment offerings, but they were also requiring banking services because they found it more difficult to obtain banking relationships with the traditional players. So Nucleus365 is a start-up that synergizes both into one user interface. This will give the merchant offering to payments into different regions and banking in the same ecosystem.
A major flaw in the international payment sector is the speed of delivery of payments. Sophie explains how customers are more demanding and expect payments to be instant, which, currently, they are not. Many banks are looking at digital currency and speeding up payments. If all the banking systems worldwide adopted digital currency, then we would start to see funds being moved a lot quicker via blockchains and all web3 technology.
For the future, Nucleus365 are focusing on what their clients want and how they can add to their proposition to be able to service them in the regions in which they’re not currently being supported. Sophie thinks they need to look at the market and adapt to what the market wants.
Jason Hurwitz, Aldermore Bank
With Jason Hurwitz, Aldermore Bank
Next on the episode is Jason Hurwtiz of Aldermore Bank. He spoke about the future of technology and innovation in banking along with business leaders from Bain and Lloyd’s. There was a lot of discussion around existing technology and how pragmatism was key in finding the best way to deliver the desired outcomes.
Jason explained the best way of doing that is selecting the right pieces that you want, working with your partners and building an ecosystem that suits your customer delivery model.
When asked how much they can actually give by way of tangible benefits to the customers, Jason thought technology only goes so far in meeting customer needs. He compared both sides of customer needs in banking. If your pockets are lined with gold and your borrowing requirements are small, then a warm, loving and human-based experience is probably not the model to be delivered. In comparison, for everyone else when they’re going through financial challenges the balance between technology and human expertise is important. He emphasises that it’s the interface between technology and deploying human expertise that resonates with customers and where the magic ingredient lies.
After COVID-19 it’s important to rebuild those physical relationships with customers. Jason says the first thing is being able to continue to support your customer base. To do that, you have to be an adequately profitable organisation so you don’t run into any financial challenges. Also, to run as a sustainable organisation, for example earning enough profit to continue to run the bank, continue to be able to lend to your customers in times of need through the cycle. He thinks a lot of customers want, particularly through challenging times, to deal with someone who understands them and their needs.
The next session Jason spoke on was all about enhancing customer experience. He explains that a lot of the technology that came online over the last years has accelerated the speed in dealing with customers. Going forward, he’s thinking of what extent can they specialise and personalise for customers so they deliver a unique experience. Additionally, identifying pockets of customer segments in which to specialise to deliver value to them in a way which connects them positively. Especially in banking the need for authenticity is high therefore it’s important to understand your customer and their segments.
Aldermore Bank are a specialist lender who identify areas where they can add value and support to customer segments. Supporting their dreams such as buying their first house or making a buy-to-let investment on a property or a business wanting to scale up. They don’t have current accounts and have no appetite to do so. They support their customers and ask themselves where they can add value.
Jason sees a lot more room for growth at Aldermore. The large incumbent banks still have the lion’s share of the market and they tend to be the first choice for a lot of organisations. He understands there is still work to do to become not a specialist challenger bank, but mainstream. To do this he recognises the need to deliver more value within the segments and invest in those areas of specialism to stand out from the crowd.
Conrad Ford, Allica Bank
with Conrad Ford, Allica Bank
The final guest on the podcast is Conrad Ford, Chief Product Officer at Allica Bank. His session at FinTech Connect delved into building a personalised user experience. His main focus was around incumbent financial institutions and the end-user experience when building a cool or slick user journey. He thinks if the incumbents spent time fixing the basics, then they would have happier customers. Much of the focus for Allica Bank is on workarounds for customers to improve their overall service. Also, there’s a modern framework that fintech’s have adopted called ‘Jobs-to-be-done’, which is about understanding what the customer is really trying to achieve. He explained, they’re not buying the products of your financial services, nobody buys a mortgage – they want to buy a home and the mortgage is a necessary and painful step to achieving this. His main point in the session was to think about the job to be done and rethink the whole customer experience.
Conrad was posed the question ‘what does the emergence of open banking mean for the traditional banks?’ With traditional banks, they want to do everything for everyone so they serve all the way from little consumers to the largest corporates and governments. As a result of open banking, they’re going to see the model break down because somebody can have a customer relationship and do the distribution and someone else can serve one segment dramatically better than a big bank that tries to be the jack of all trades but master of none. To round up, Conrad states what we’ll start seeing, because of open banking and also digitalisation, is a big question mark over the model that has dominated banking as we have known it on our lifetimes.
Banks struggle with digital transformation and Conrad said big banks love their terminology of change the bank and run the bank, or BAU and change. However, this is the wrong way to think about it. The best way to think about change is how do you make yourself slightly better every couple of weeks. This is what they do at Allica Bank and Conrad asks his product managers how they have moved things forward for customers in the last two weeks. There’s an entire ecosystem of people whose entire living is based on convincing large financial institutions about transformation programmes. To get started you need to find a high-quality team and let them get on with their job.
For the niche banks like Allica, there are many opportunities out there. For example, with the potential death of universal banks they are focused on one segment which the big banks struggle with: the SMEs. These are organisations which are unloved by the big banks as they are stuck in the middle of large corporations and the millions of small consumers. The customers Allica Bank serve are the awkward ones which are neither. They are using modern technology to bring back relationship banking and to have a local relationship with customers again.
Conrad explains it’s an existential crisis for the big banks that don’t move quickly enough. He thinks they’ve probably got an extra five years to play with. Moving back to normal interest rates is where we are heading and fintechs don’t understand that 3% interest rates aren’t scary as it is the norm. Rising interest rates suit banks for very complex technical reasons. There’s a whole generation of fintechs that are predicated on this low-interest rate environment, either in terms of having raised too much equity or lenders that don’t understand how interest rates work. Fundamentally, the big incumbents have got to start changing now and stop putting a few people in a WeWork and saying, ‘build some cool stuff.’
