Name: Fintech Insights – Embedded Finance & BaaS
Uploaded: 2024-08-07T10:09:23.626Z
Duration: 838.3
Description: Fintech Insights explores embedded finance and banking as a service with Dharmesh Mistry, CEO at Vision 20 20 Consulting Ltd during the Centre Stage.

Fintech Insights – Embedded Finance & BaaS.mp4

Fintech Insights – Embedded Finance & BaaS.vtt

ENGLISH

{{00:00:01}}
There are three things that have really
got us to the point where BaaS and

{{00:00:17}}
Embedded Finance can be a reality.

{{00:00:20}}
The first is Moore's Law.

{{00:00:21}}
Compute power has doubled every
year, with it as storage and

{{00:00:25}}
memory capacity increased.

{{00:00:27}}
So we're able to process and store
information like never before.

{{00:00:31}}
The second thing is the internet
has made it possible to deliver

{{00:00:35}}
services beyond the geographic reach.

{{00:00:38}}
Now, if you're as old as I am, when
the internet first came out, you

{{00:00:41}}
had to go to a computer and then
you had to dial up the internet and

{{00:00:44}}
the bandwidth was terribly poor.

{{00:00:47}}
So the second thing, coupled with
the internet, was the smartphone.

{{00:00:51}}
And that really gave us accessibility
of the internet anywhere we

{{00:00:55}}
were, and it allowed us to reach
services across the internet.

{{00:00:59}}
So that really popularized the internet.

{{00:01:03}}
And round about the time when smartphone
penetration hit over 50 percent in

{{00:01:07}}
the UK, we also got the third element
which is quite key to open to embedded

{{00:01:13}}
finance, and that's open banking.

{{00:01:15}}
So open banking brought about
by the regulators was to drive

{{00:01:19}}
innovation and competition in
financial services because banks

{{00:01:23}}
really had stagnated in that respect.

{{00:01:26}}
So those three things have drivers behind
Embedded Finance and Banking as a Service.

{{00:01:41}}
With Banking as a Service, we
will see a consolidation in banks.

{{00:01:45}}
We're already seeing that.

{{00:01:46}}
The number of banks has been
reducing, the number of building

{{00:01:49}}
sites has dramatically have reduced.

{{00:01:52}}
With Embedded Finance, we're seeing
the growth of distribution because now

{{00:01:58}}
it's not only banks that are providing
financial services, but other brands too.

{{00:02:02}}
Thank you.

{{00:02:03}}
Now, the real impact is
actually with the customer.

{{00:02:06}}
So for me, that's the more
interesting part of both of these.

{{00:02:10}}
First thing that Embedded Finance
has really proven to provide is

{{00:02:15}}
convenience for the customer.

{{00:02:18}}
Really, banking transactions
aren't a customer journey.

{{00:02:22}}
But getting from point A to point
B, or buying a house, or going on

{{00:02:28}}
holiday is a single customer journey.

{{00:02:31}}
Except before, we had to involve the
bank to invoke to pay for the transaction

{{00:02:36}}
in effect, or to get out the loan, etc.

{{00:02:39}}
Now with Embedded Finance, it can
be all part of a single journey to

{{00:02:43}}
complete one transaction end to end,
or one customer journey end to end.

{{00:02:48}}
So convenience is a big factor.

{{00:02:50}}
Second thing is value, because really the
bank's only interested in providing the

{{00:02:55}}
financial product, none of the other bits.

{{00:02:57}}
So a brand that is more convenient.

{{00:03:00}}
Trying to get closer to the customer will
smoothen those journeys, make your life

{{00:03:05}}
easier and provide much more value for the
customer than just a financial product.

{{00:03:12}}
The third thing I think is with
Banking as a Service, we can drive

{{00:03:17}}
financial inclusion because We know
that these platforms are now on the

{{00:03:22}}
latest technology, they're cloud
based, and they can massively scale.

{{00:03:27}}
Therefore, we can bring down the cost
of operating any of the financial

{{00:03:31}}
products and reach more customers.

{{00:03:35}}
Finally, I think the other thing
that's true of embedded finance is

{{00:03:40}}
that with a better understanding
of customers and their journeys, we

{{00:03:44}}
can provide even more personalized
services than banks could in the past.

{{00:03:56}}
For a financial company, it's a way
of being able to sell new products

{{00:04:00}}
and actually grow your income.

{{00:04:02}}
In the past you would've had to
buy a core a new banking system,

{{00:04:06}}
embed the processes, et cetera.

{{00:04:08}}
Now you literally at API away
from launching a new product.

{{00:04:12}}
So allows you to sell a broader range
of financial products to your existing

{{00:04:17}}
client base for non-financial brand back
brands let's say a retailer or a telco.

{{00:04:23}}
Again, yes, you can increase
your revenue, but you can also

{{00:04:28}}
get closer to your customer by
fulfilling more of their needs.

{{00:04:32}}
So it's not just about providing
groceries and, or telephony services

{{00:04:38}}
or your data, et cetera, but it's also
about how you make those payments.

{{00:04:42}}
And in some cases that may be
just facilitating the transaction.

{{00:04:46}}
In other cases, it's actually
taking on board products that's

{{00:04:49}}
smoothing out the payments.

{{00:04:51}}
So for example, taking
out a loan to do that.

{{00:05:01}}
The poster child for Embedded
Finance has got to be Uber.

{{00:05:05}}
We've all experienced how much easier
it is to take to get a ride, not only to

{{00:05:11}}
get the ride, but then also to pay for
it and even decide on the tip later on.

{{00:05:16}}
That has actually massively improved
the experience of getting a taxi,

{{00:05:20}}
and that's probably the best example.

{{00:05:23}}
Behind the scenes, who knows
that Green Dot in the US is

{{00:05:27}}
enabling those payments for Uber.

{{00:05:29}}
It's allowed them to also finance their
drivers, so allow them to buy cars

{{00:05:35}}
or take out loans without actually
having to get a banking license.

{{00:05:39}}
That's a great example of a brand
leveraging embedded finance.

{{00:05:45}}
Another great example, I would
say, is Metro in Germany.

{{00:05:49}}
Now, Metro provide products
to restaurants and hotels.

{{00:05:54}}
And one of their issues
was that they didn't know.

{{00:05:59}}
what products were being bought
outside of their warehouses.

{{00:06:03}}
So although they provided a a great range
of services and products, things like

{{00:06:09}}
linen and cutlery and soaps and whatever
else, they didn't know where else their

{{00:06:14}}
customers were spending their money.

{{00:06:16}}
So they introduced a service via AonBank,
which was basically a debit card.

{{00:06:23}}
This enabled them to track the payments
that were going both to metro warehouses.

{{00:06:29}}
but also to any other third parties and
from this they started to be able to

{{00:06:36}}
understand what other products customers
might want to buy and therefore not

{{00:06:40}}
only get closer to their customers but
actually achieve greater wallet share.

{{00:06:46}}
A third example for me would
be Griffin and Let's Pay.

{{00:06:50}}
Now, Griffin and Let's Pay have a
partnership as a bank and an embedded

{{00:06:54}}
finance provider because Let's Pay enable
estate agents to provide client accounts.

{{00:07:00}}
Now, a client account is something that's
not really offered by many banks at all.

{{00:07:06}}
And that is because, essentially,
if you imagine there are, they

{{00:07:11}}
deal with hundreds of landlords
who may have a few properties each.

{{00:07:16}}
And each one has to have a
separate account for the rent

{{00:07:18}}
and the expenses that goes out.

{{00:07:21}}
Operating these products.

{{00:07:23}}
isn't very profitable at all, but
it does involve a number of products

{{00:07:29}}
if you provide an account to
every client and their properties.

{{00:07:33}}
By using innovative technology, Griffin
has enabled Let's Pay to provide

{{00:07:38}}
client accounts and to provide very
smart accounting for the estate agents

{{00:07:45}}
so that lightens their workloads.

{{00:07:47}}
I think this is a great
example of embedded finance.

{{00:07:50}}
Making life easier both for the
estate agents and for the landlords

{{00:07:54}}
when it comes to managing the
accounts of rental properties.

{{00:08:06}}
So when it comes to regulations banks
are used to this because they have

{{00:08:11}}
had white label relationships before.

{{00:08:14}}
Giving things like credit cards
and loans through other brands in

{{00:08:18}}
the past as a white label service.

{{00:08:21}}
Embedded Finance has similar issues.

{{00:08:24}}
The first is data sharing.

{{00:08:25}}
Obviously the brand is
taking onboard the customer.

{{00:08:31}}
So they're getting a lot of
customer information and then

{{00:08:33}}
they're having to provide this
financial product through the bank.

{{00:08:36}}
So each party has to make sure that
they are retaining the data and

{{00:08:41}}
making it clear for what purposes
they're retaining the data for.

{{00:08:45}}
That's one of the parts.

{{00:08:47}}
Second thing is making it clear and
what happens in situations like fraud.

{{00:08:53}}
Who takes responsibility for the customer
in the case that something has gone wrong?

{{00:09:00}}
That's a key concern.

{{00:09:01}}
In terms of consumer protection, we
also need to make sure that the people

{{00:09:07}}
that are providing the products are
able to provide that specific product.

{{00:09:12}}
It's fine providing an account
because it may be that the

{{00:09:15}}
account is just a debit card.

{{00:09:18}}
In which case there's very little
risk, but if you're trying to provide

{{00:09:22}}
something more complex, then there are
very strict regulations around what

{{00:09:26}}
financial advice needs to go along
with the product, or what precautions

{{00:09:30}}
need to be taken in terms of things
like credit checks and KYC checks, etc.

{{00:09:35}}
behind the scenes.

{{00:09:36}}
Again, that's another aspect of the
regulatory requirements that has to

{{00:09:40}}
have clear responsibilities as to who's
going to do what behind the scenes.

{{00:09:53}}
For a Banking as a Service
provider, the skills requirement

{{00:09:56}}
is largely on the technology side.

{{00:09:58}}
Whether that's a build or buy decision
to take a call, you still need to

{{00:10:02}}
have skills in APIs, understand
how cloud native technologies can

{{00:10:06}}
help you to scale, provide the
relevant security, performance, etc.

{{00:10:12}}
Now, Banking as a Service is not
Software as a Service, so you still

{{00:10:16}}
have to have strong compliance
and regulatory frameworks behind

{{00:10:20}}
the scenes and operate as a bank.

{{00:10:23}}
To be clear, from my perspective,
Banking as a Service, you have to

{{00:10:27}}
have a banking license to provide
financial products and that dictates

{{00:10:31}}
the requirements around compliance.

{{00:10:34}}
In terms of strategies, the key
things to decide when you're providing

{{00:10:38}}
Banking as a Service are, what
are the products and services that

{{00:10:42}}
you're going to make available to
these third parties via your APIs?

{{00:10:47}}
Is it Just current accounts, is it loans?

{{00:10:50}}
What product what other products?

{{00:10:53}}
And then also what services these might
not be tied to a product But they could

{{00:10:57}}
enable the third party to do their own
credit checks, to do KYC checks And

{{00:11:05}}
any other things like collections etc.

{{00:11:07}}
So there's a wide range of things that
the bank can provide and part of the

{{00:11:11}}
strategy is to decide What thing, what
products and services you provide.

{{00:11:16}}
The next thing is obviously where are
you going to provide these because

{{00:11:20}}
every country has a different set
of regulations and if you're not in

{{00:11:23}}
that country then you need to provide
those products and services for

{{00:11:27}}
that country's specific regulations.

{{00:11:30}}
And then finally, it's about which markets
you want to address or which verticals.

{{00:11:38}}
You can go and see who wants to provide
embedded finance and it might be a

{{00:11:43}}
retailer one day, another telco, etc.

{{00:11:46}}
But I would advocate that.

{{00:11:48}}
The successful companies really
have a strong sales strategy in

{{00:11:51}}
place that identifies their go to
market in terms of providing BaaS.

{{00:11:58}}
Because it's not just a sales strategy,
it's also about a long term partnership.

{{00:12:03}}
The relationship between a Banking
as a Service provider and Embedded

{{00:12:06}}
Finance has to be one which is
much more like a close partnership.

{{00:12:12}}
because both parties want the proposition
to work and both parties should make

{{00:12:16}}
sure that the due diligence has been
done to ensure that their service

{{00:12:20}}
is going to last for a long time.

{{00:12:24}}
For embedded finance provider,
the skills are similar, but

{{00:12:29}}
actually much more front end focus.

{{00:12:30}}
You don't have, because you're
not providing the banking product

{{00:12:34}}
yourself, what you're doing is
integrating it into a front end

{{00:12:37}}
and providing a customer journey.

{{00:12:39}}
So much of the technical
skillset requirements comes

{{00:12:43}}
from front end development.

{{00:12:46}}
And that's not just, JavaScript and
HTML, et cetera, but also user experience

{{00:12:53}}
design and getting close to the customer
to understand their real customer

{{00:12:58}}
pain points in the customer journey.

{{00:13:01}}
The second thing I guess is really
understanding how this fits within

{{00:13:07}}
your overall proposition, because
You're not really, as a brand, you

{{00:13:12}}
may not have been providing any
other financial products before.

{{00:13:17}}
And how does this play within
your overall customer strategy?

{{00:13:21}}
The goal here is to drive customer
loyalty as a distributor of financial

{{00:13:26}}
products and of your own products.

{{00:13:28}}
So how does it play within that role?

{{00:13:31}}
Financial products can provide a rich set
of information to drive customer loyalty.

{{00:13:36}}
So one of the other skill set requirements
around embedded finance I would advocate

{{00:13:41}}
is a strong understanding of how to
leverage this additional data that will

{{00:13:45}}
help you to drive engagement, which
will bring about customer loyalty.

There are three things that have really
got us to the point where BaaS and

Compute power has doubled every
year, with it as storage and

So we're able to process and store
information like never before.

The second thing is the internet
has made it possible to deliver

Now, if you're as old as I am, when
the internet first came out, you

had to go to a computer and then
you had to dial up the internet and

So the second thing, coupled with
the internet, was the smartphone.

And that really gave us accessibility
of the internet anywhere we

were, and it allowed us to reach
services across the internet.

And round about the time when smartphone
penetration hit over 50 percent in

the UK, we also got the third element
which is quite key to open to embedded

So open banking brought about
by the regulators was to drive

innovation and competition in
financial services because banks

So those three things have drivers behind
Embedded Finance and Banking as a Service.

With Banking as a Service, we
will see a consolidation in banks.

The number of banks has been
reducing, the number of building

With Embedded Finance, we're seeing
the growth of distribution because now

it's not only banks that are providing
financial services, but other brands too.

Now, the real impact is
actually with the customer.

So for me, that's the more
interesting part of both of these.

First thing that Embedded Finance
has really proven to provide is

Really, banking transactions
aren't a customer journey.

But getting from point A to point
B, or buying a house, or going on

Except before, we had to involve the
bank to invoke to pay for the transaction

Now with Embedded Finance, it can
be all part of a single journey to

complete one transaction end to end,
or one customer journey end to end.

Second thing is value, because really the
bank's only interested in providing the

financial product, none of the other bits.

Trying to get closer to the customer will
smoothen those journeys, make your life

easier and provide much more value for the
customer than just a financial product.

The third thing I think is with
Banking as a Service, we can drive

financial inclusion because We know
that these platforms are now on the

latest technology, they're cloud
based, and they can massively scale.

Therefore, we can bring down the cost
of operating any of the financial

Finally, I think the other thing
that's true of embedded finance is

that with a better understanding
of customers and their journeys, we

can provide even more personalized
services than banks could in the past.

For a financial company, it's a way
of being able to sell new products

In the past you would've had to
buy a core a new banking system,

Now you literally at API away
from launching a new product.

So allows you to sell a broader range
of financial products to your existing

client base for non-financial brand back
brands let's say a retailer or a telco.

Again, yes, you can increase
your revenue, but you can also

get closer to your customer by
fulfilling more of their needs.

So it's not just about providing
groceries and, or telephony services

or your data, et cetera, but it's also
about how you make those payments.

And in some cases that may be
just facilitating the transaction.

In other cases, it's actually
taking on board products that's

So for example, taking
out a loan to do that.

The poster child for Embedded
Finance has got to be Uber.

We've all experienced how much easier
it is to take to get a ride, not only to

get the ride, but then also to pay for
it and even decide on the tip later on.

That has actually massively improved
the experience of getting a taxi,

Behind the scenes, who knows
that Green Dot in the US is

It's allowed them to also finance their
drivers, so allow them to buy cars

or take out loans without actually
having to get a banking license.

That's a great example of a brand
leveraging embedded finance.

Another great example, I would
say, is Metro in Germany.

Now, Metro provide products
to restaurants and hotels.

And one of their issues
was that they didn't know.

what products were being bought
outside of their warehouses.

So although they provided a a great range
of services and products, things like

linen and cutlery and soaps and whatever
else, they didn't know where else their

So they introduced a service via AonBank,
which was basically a debit card.

This enabled them to track the payments
that were going both to metro warehouses.

but also to any other third parties and
from this they started to be able to

understand what other products customers
might want to buy and therefore not

only get closer to their customers but
actually achieve greater wallet share.

A third example for me would
be Griffin and Let's Pay.

Now, Griffin and Let's Pay have a
partnership as a bank and an embedded

finance provider because Let's Pay enable
estate agents to provide client accounts.

Now, a client account is something that's
not really offered by many banks at all.

And that is because, essentially,
if you imagine there are, they

deal with hundreds of landlords
who may have a few properties each.

And each one has to have a
separate account for the rent

Fintech Insights

Expert Insight

Fintech Insights explores embedded finance and banking as a service with Dharmesh Mistry, CEO at Vision 20 20 Consulting Ltd during the Centre
Stage.