Breaking down barriers to financial inclusion with interoperability

In this Knowledge Circle podcast, a panel of experts discuss how the barriers to financial inclusion can be broken down with interoperability.

As part of the discussion, the panellists explore how interoperability improves access to financial products, address the challenges businesses face in regard to regulation, and explain how platforms work together to weather the upcoming economic storm.

Our guests for this episode were:

Rogier Schoute, Chief Product Officer, Mollie
Søren Mogensen, Chief Growth Officer, Banking Circle Group
Jason Kumpf, Global Head of Channel & Ecosystem Partnerships for Enterprise to SME Users, Rapyd
Amy O’Brien, FinTech Reporter, Sifted [moderator]

Transcript

Russell Goldsmith [00:00:05] Welcome to the Knowledge Circle podcast from Banking Circle, my name is Russell Goldsmith, and, in this episode, we’ll hear the highlights from our recent webinar that we recorded with Sifted, which was titled ‘the network effect – breaking the barriers to financial inclusion with interoperability’. Our guests were Rogier Schoute of Mollie; Soren Skov Mogensen of Banking Circle; and Jason Kumpf of Rapyd. The session was hosted by Amy O’Brien who is a FinTech Report at Sifted, and Amy started by asking each of our guests to introduce themselves.

Rogier: [00:00:36] Hello, everybody. My name is Rogier. I’m the chief product officer at Mollie. Mollie is one of the leading online payment companies in Europe. We serve over 130,000 payments businesses, and they historically have been quite focused on the SMBs, their quite excluded group in the financial sector.

Soren: [00:00:55] Hi Guys, my name is Soren. I’m contributing to the growth agenda across the Banking Circle Group. Banking Circle Group consists of five companies. Banking Circle is at the core of it, the bank. But around that is a rich set of propositions, including Biller delivering B2B BNPL, YouLend delivering merchant lending, B4B delivering cards and business payments, and finally SEPAexpress delivering account-to-account payments. I’m very excited to be here today. Thank you.

Jason: [00:01:26] I’m Jason Kumpf from Rapyd. I head up our Global Partnerships and Ecosystem Initiative, so we’re working with other groups to help offer Rapyd services through them to their clients. So we started off as an enterprise opportunity for end clients, and we’ve walked down into the SMB space offering more and more of those enterprise-level features towards SMBs, which we think is a big help towards interoperability and opening up the democracy over the financial service sector.

Amy: [00:01:57] Brilliant. Thank you. So, moving on, let’s get stuck in. I’m first going to ask for a couple of definitions around the terms in the title of this talk so that we’re really clear about what area of the ecosystem we’re talking about. So Rogier, I was really interested in asking you about what exactly do we mean when we talk about interoperability in payments. I really have a bugbear with that word!

Rogier: [00:02:23] Great question and a terrible word indeed. Interoperability essentially means that when multiple payment schemes or networks work together and are compatible to create a holistic payments or financial experience. There must be a requirement that a financial or payment transaction is initiated in one network and then has an effect on another network. And to make it simple with an example, it could be, for example, a cross-border payment that we have seen for over a couple of decades, that’s initiated in a domestic scheme, then has an effect at the end of an international scheme. It could be a payments transaction that has a certain pay-in lag, for example, card payments, but then gets paid out through a different network like a banking scheme. I think the reason why this word has become so big in the past years in the public perception in payments is because there have been many new FinTechs coming up with different types of products, fuelling a lot of digital innovation. At the same time, I think we have as an industry realised that these schemes and services aren’t always compatible with each other. And the result of that, the negative result of that, is that that excludes certain groups from getting access to those services and that doesn’t lead to financial inclusion. So, interoperability essentially means connecting those different payment schemes. And I’m glad that different companies, including the ones in this call, are making an effort to make that happen.

Amy: [00:03:53] Thank you that was super useful. And I guess the other definition I really wanted to establish from the topic was what we mean by financial inclusion in this context, because it can really mean quite a few things. In FinTech, it can mean inclusion of customers with different socio-economic backgrounds from different countries, or it can mean financial inclusion on the business side. So, Jason, in reference to this topic, what are we talking about with financial inclusion? Is it different types of businesses, different types of customers, or is it in fact for both?

Jason: [00:04:27] Sure. And if I can just add on to what Rogier just mentioned as well, I’m viewing interoperability as also beyond the direct payment schemes, which we’re all part of, into other financial aspects. So lending, accounting, anything else that’s financial that’s part of the way I view it. So there’s sometimes where a group can use the payment scheme, but is it connected to the accounting scheme, is it connected to a lending program? Is it connected to all these things that helps include more and more people with that? So I think that rolls into what you just asked me. There are many things in financial inclusion, right? So it is the lending, the accounting, the payments, the ease of use as well. So, all those things can mean financial inclusion and that means anywhere from Enterprise businesses where we started all the way down to SMBs and to really start-up growth companies as well. And that includes a lot of people, individuals on the socioeconomic ladder may have different businesses that they’re part of. So they’re probably not part of a Fortune 500 company, but they might be part of a $100,000 a year e-commerce company. So, in that sense, helping that $100,000 a year e-Commerce company is helping more and more people.

Amy: [00:05:46] Great. I’m glad we’ve got those two definitions clear. So, I guess that I really wanted to start off by asking you Soren about what the main barriers businesses face when they want to launch banking services in new markets. Obviously, this is a very broad question. So maybe it will be most interesting to talk about, the most difficult areas of banking payments to launch abroad, especially within Europe, and why?

Soren: [00:06:12] I think I’ll point to two or three points that keep recurring when we speak to clients about their expansions. The first one is very basic. We speak to clients outside of Europe looking to come and do business in Europe, seeing that the effort of building themselves into the financial infrastructure, getting the required licenses are just extremely time-consuming. It can mean that it can take more than a year to actually have live flows and live operations. And what we in some cases are able to help with is to speed up that process. We are an ecosystem and one of our companies has its own licenses and is able to onboard companies that don’t yet have their own license and basically take the safeguarding in the company on our side, meaning that a company can go and test the waters and basically initiate their business in a given country while they build their own regulatory and business platform. It’s typical banking as a service proposition that enables the challenge of basically just testing the waters in a given market. I believe that would be a first point. Second, companies in Europe that are looking to expand to other markets very frequently have the question of IBAN discrimination. It’s a conversation that is frequently had in forums like this. And it basically means that they would like to expand to another market. Then do I need a local IBAN, or can I operate with an IBAN account from a different country? The answer is that in most of the cases, you can absolutely operate with an IBAN of a different country. And we, for example, are one provider that can enable that. But there are some perceptions as something I would call irrational perceptions about, in some cases the preferences for local IBANs, and that perception barrier can be something for a business to overcome and find different solutions for. So those are two examples of challenges when expanding business into other continents or other countries.

Amy: [00:08:53] And I guess that within the SME area, I’m really interested in what the main barriers are when a company actually wants to start offering more financial services and embedded payments, etc to their customer. I’m interested in what the biggest roadblocks for them are in that specific area. So, Rogier, I don’t know if that’s something that you’d be able to answer.

Rogier: [00:09:20] It’s a really good question. I think the barriers that SMBs face are multifold. So first of all, I think, and this is kind of a cliché, is that the SMBs are underserved. The reason why it’s a cliché is that people often talk about it, but it’s actually real. What you see is that great products that are being launched in the market, they’re often targeted towards larger businesses. And the reason for that is that there’s a perception, for example, that SMBs are not profitable or it’s very expensive to onboard them and to serve them relative to the benefit that is being out there. So yeah, that’s to a certain extent caused by regulatory burden, but also due to the nature that the industry and shareholders often look at SMBs and Mollie from day one has kind of taken a different approach. We’ve tried to use technology in order to basically make things more efficient and make sure that SMBs can, through the scale and technology advancements that we create and get access to great products. So I think technology really helps there in order to break down regulatory burdens. I think there’s also other barriers and that sometimes has to do with, for example, competitive dynamics and views. The fact that certain ecosystems in payments try to create closed-loop ecosystems and make sure that SMEs cannot use other services next to the other core services. And therefore, it’s so really important that there are companies out there that make sure that SMBs can get access to different types of services that they can use alongside each other. So, I think to a certain extent, again, it’s the regulatory piece that limits access. It’s technology, it’s shareholder perceptions, but it’s also policy from certain companies to try to create closed-loop ecosystems. And again, a company like Mollie and many other companies out there, but we try to change that by making the services available for everyone, but also making sure that companies can integrate other services on top of our services.

Amy: [00:11:26] I guess a follow-on question from that actually with the regulatory side of things is in terms of sort of sharing the resources. So obviously compliance teams can be hugely expensive and a really massive drain on resources for companies. So through this collaboration, do you ultimately save money for companies?

Rogier: [00:11:46] Yeah, I think at the end the collaboration on the compliance level is still quite limited, to be honest, if you look industry-wide. So it’s definitely something that I believe can be, and should be, encouraged. I think probably the bigger challenge is here is to convince regulators that technology can often help to create new kinds of, how do you call it, solutions, to solving very fair regulatory concerns. And of course, as an industry, you have a joint responsibility in order to do that, so companies should definitely work together there. And we’ve seen some really successful examples in the past years. For example, in payments, the onboarding experience of SMB customers has improved vastly over the past ten years, and it has, for example, become market standard nowadays that companies can start trading without having completed the full onboarding. And that’s something that the industry has jointly achieved. But there’s many other barriers still to resolve.

Amy: [00:12:50] Thank you. Super interesting. And I guess, Jason, that sort of leads me on we kind of slightly covered the answer to this question there, but I’m really interested in, in terms of like the actual individual end customer from all these B2B2C companies, how is that access to financial services improved by the different payment networks working together, other than the regulatory?

Jason: [00:13:14] Yeah, of course, the regulatory is one aspect of it. The payments angle is one aspect. Other financial services, like we mentioned before, another aspect of it. And I think anything that enables people to save time by having things bundled for them and probably in that bundling reduced overall cost of each service when groups come together and we partner with other groups, say all five of us are going to offer one service and we’re all going to have a lower cost because we’re getting more clients, because we’re offering more. That ends up helping the end client tremendously. In terms of time savings. They’ve got one solution that affects their payments, their global payments. So instead of working with just a European player or just a Latin American player, just an APAC player, just a US player, they can use one network that has all of those players put together, has lending in each of those areas, put together, has accounting, which is very different. Each of those areas all put together. They’re saving time and money with that. And so hopefully that time, gives them more time to grow their business other ways, too. So, it’s a multiplier effect with that. It’s just not a one-cost line item, it’s a multiplier on that. So, I think that’s always good. I think clients want more and more services bundled together. We hear that a lot because of that time element and because of the cost elements. And APIs definitely make that a big possibility. When you have the APIs that groups can use to expand their offering to their clients, it’s always a benefit.

Amy: [00:14:51] Yeah. I really wanted to press a little bit more on that because obviously, I asked about the cost savings for the companies themselves through collaboration. But how about the end consumer? Does the trend for more and more partnerships between B2B FinTechs mean that the products they want end up cheaper because the API is saving on resources? And I guess part of that, I was also quite interested in the financial inclusion definition of a consumer from their economic profile. Does their inclusion improve if the products ultimately get cheaper from more and more partnerships? It’s like a huge cycle.

Jason: [00:15:34] I think what Rogier was saying before about regulation, So that’s one aspect. And there’s also responsibility on the private companies to attain that regulation faster and cheaper. So a whole industry RegTech sprouted up maybe seven years ago, eight years ago that didn’t exist before. It’s not just FinTech, there’s RegTech, there’s secure tech. There are all these ‘dash’ techs in there that all of them come to the market and help manual systems that financial groups had to do 10 to 20 years ago, and now they’ve turned those into pennies a transaction. So that’s the baseline. And then with baseline transactions happening at a cheaper rate and faster and more accurate, many times. That enables us to all offer the end client discounts as well, which is quite important.

Amy: [00:16:24] It’s super interesting. I guess that I want to move back a little bit to regulation, actually. Obviously, as a FinTech reporter, it is one of my favourite topics. Soren, I’ve obviously seen that most of the FinTech regulations we talk about in Europe are focused on interactions with the end consumer and their data and obviously like protecting that. But what are the main regulatory talking points in terms of B2B FinTechs like the ones on this panel?

Soren: [00:16:54] It’s a great question, Amy. And first of all, I think it’s good that there is so much protection around the consumer that we have focused on that, that gives us a framework to work within and that applies to everyone throughout the value chain. So that’s really great. But exactly as you say, there is also regulatory initiatives and frameworks in the business-to-business context. I’ll just touch the tip of the iceberg by talking a little bit about PSD2 and 3 and KYCC/KYT a lot of acronyms there. But if we start with PSD2 and 3 in the PSD2 regulation, we’ve actually seen a requirement towards banks, for example, Banking Circle, to treat other payment businesses with a lot of protection when it comes to offering them accounts. Just to give you an example. Businesses are protected by law from just being debanked with no reason. Consumers don’t have quite the same protection and it sets boundaries for how you just offboard, whether you can just offboard a business. And there are very strict regulations within that for us as a bank to adhere to. So that is one very specific point that we live and breathe. Looking to the future, we believe and nobody knows this, but we believe that PSD3 will enhance this further. We believe that PSD3 will not be a revolution. We believe it will be an evolution of the current PSD2 and we believe that one of the evolutions will be enhancing this exact point of protecting the businesses from being debanked. That’s the first point and example I’ll make. Secondly, many of us have heard about KYC, which means you need to know your customer very well when you do business with them. What is increasing is KYCC, knowing your customer’s customer, and indeed KYT, meaning knowing your actual transaction. Now, reading the newspapers, we could all see that the Trustly case from Sweden gave us an example. Trustly were told that they should, to an increased extent, know their clients’ clients better, even though they didn’t have a direct relationship with them. And that’s really an example of how everyone in the financial system are increasingly being told to seek more transparency and deliver a higher degree in certainty and comfort in the financial system. And Banking Circle, we try to address this by having targeted on sites aiming to understand our clients’ clients better, understand what they’re doing. And we highly acknowledge this push from regulators. So PSD2/3 and KYCC as examples are elements that are perhaps not as explicitly discussed in the media but are certainly protective elements securing trust in our financial system.

Amy: [00:19:53] Following on from that, I’m interested in when we’re talking about interoperability, I’m interested in the number of FinTechs and FinTech adjacent companies that have been popping up, like Jason said, like we’ve got loads of new RegTechs. What about the sort of fraud focus start-ups because obviously it’s becoming quite a crowded market in a way, but on the other hand, it’s such a huge problem, if you will, that, where do we reach sort of peak collaboration on all of that or is it sort of an endless market that we can just keep on like addressing you parts of this regulatory hurdle.

Soren: [00:20:31] I believe there is so much potential to be reaped from here. I think there’s a lot of great examples of fraud and transactions monitoring start-ups that are really showing to be very strong cases. One of my favourite examples is Sentinels, the Dutch based AI system for transactions monitoring. I believe they have fraud as well. That is real time. This has been delivered by a very strong team and they partnered up with PPRO and others to proliferate their solutions. This is an example of smart people coming out, delivering something that just makes the systems better and that just help the ecosystem. I think my general challenge with this and why I think there’s so much more to do is that sometimes these companies assume data to be in a good order in companies, and we’ll just have to face the facts and the realities. Data is not always in a good order. Data is not always in the cloud. Data is not always in the shape that you would want it to be. Sometimes it can be difficult to implement these strong systems into a legacy heavy bank, for example, because they are just not always in the cloud. They are just not always with very clear and simple architectural setups in their structures. So the challenge in some cases is in fact to take these brilliant systems and make them applicable also in organisations that are incumbents. And that’s sometimes what we in Banking Circle think we can help with, because we don’t just apply a piece of RegTech we actually operate the flow for our partners whether that is payment companies or banks and we are able to apply such advanced transactions monitoring that is AI enabled by taking it through our own filters. So I think we will see a matchup of the RegTech initiatives and us actually delivering the flow, which collectively will make the system safer and more resilient to fraud and money laundering.

Rogier: [00:22:49] I would say from my perspective, the collaboration on financial crime prevention in the industry is still fairly limited and fortunately there is definitely some good initiatives, including Sentinel, the company that you just mentioned, and other companies trying to play a role there. But what you see is also many companies still very much regard this as an organisation specific topic that they need to focus just for themselves, which is often already costly and hard enough, and that the common frameworks and there are more sanction lists and other mechanisms prescribed by regulators that are sometimes a little bit outdated. So I definitely think there is a lot of space for better and more collaboration by the private sector in financial crime prevention. And I really hope that organisations take their part of the responsibility there.

Amy: [00:23:43] How are you working to better support gig economy workers? Are there products on the horizon to support them better?

Jason: [00:23:50] We have some services that gig economy platforms use already, so we’ve integrated with them and offering multiple services from collect, disperse, card issuing to those groups, lowering those platforms costs. So, lowering those platforms costs enables those end gig workers to take more home at the end of the day. So that’s the main option we’re offering. And expanding the reach too, so you can be a gig worker in more and more countries as well. So, I think Uber started in the US, a bunch of things started in the Western world then go out now more and more starting at APAC and Asia too. So we’re just helping expand that into other groups such as Latin America and other places.

Rogier: [00:24:34] What I can add on Mollie’s perspective is that we’re very, very focused on allowing any entrepreneur to start up basically their business with online payments within a number of hours. And that also means that, for example, accepting payments on the go and facilitating other use cases that are really important to different groups, including gig workers, are a big focus. And one area that we are really excited about, for example, is the evolution of point of sale systems, which used to be always hardware based. And we see that now more and more moving to a software based system, which essentially could mean that anyone with a mobile phone can start accepting payments with the latest technologies out there in the market. That’s a way how Mollie is starting that not only at gig workers but are definitely part of the target group of people who would like to enable.

Amy: [00:25:32] Thank you guys. There’s another question that I’m just going to go straight in with, another sort of industry specific one on the question of blockchain. So this is much more in the weeds on the payment side of things. Are blockchain solutions like Stablecoins or fiat tokens running on the Bitcoin Lightning Network a threat or opportunity to payments products like yours? Given they offer virtually no transaction cost, immediate settlement, interoperability and borderless reach.

Soren: [00:25:59] I think what we’re talking about here is innovation in the financial industry. We should all welcome that. That innovation is, I think, is still in its early days. I think we’ve seen it advanced significantly in the past couple of years, and we’re seeing more and more relevant use cases. I remember five years ago people called it a solution looking for a problem. I think we are seeing real use cases now. I think we are seeing how this wonderful piece of innovation is proliferating. But with that said, it is my strong belief that nations will hold on to the fiat way of paying. They will hold on to their currencies as one of their mechanisms to manage nations. And I don’t see any time soon this replacing anything. I see it as an augmentation. I see it as a supplement and a most welcomed supplement. And that means that we need a bridge between the two, a bridge that can combine fiat with crypto and that is, for example, what we amongst others, are delivering an ability to convert the two. So, I don’t think it is a replacement. I think it is a most welcomed addition.

Rogier: [00:27:19] I agree Soren, just one thing to add there. In general retail or online payments, crypto has just not become a major thing there. And people often talk, of course, around the potential benefits of zero cost or low cost. But if you look at reality right now, costs of actually exchanging crypto with regular currencies is still very, very high. So, costs will need to go down. Of course you can get the cost is actually a problem right now still crypto instead of a benefit and that would definitely need to change. But the second thing also Soren with his prediction that regulators and central banks will definitely hold to their own currencies. So I also see it as an addition to what we have today.

Amy: [00:28:02] Jason, did you have anything to add from Rapyd’s perspective?

Jason: [00:28:08] I think to Soren’s point, it’s innovation, right? We got deep into Bitcoin Lightning Network. There’s a lot of other solutions out there in the crypto world. So, it’s interesting. It’s like the Cambrian period where there’s literally thousands of different options out there. And then as this evolution goes forward, they’ll probably be a handful of services that end up being more and more useful. And I’m sure all of us on the call, our companies, our tech teams are always looking at new innovation and new services. Our companies, ten years ago or 20 years ago, would have been looked at in a similar vein. And so, I think as progress happens, change happens and at the end it’s a benefit for the end clients, to always have us and new to technology out there that could serve them better so.

Amy: [00:28:58] Definitely. I think this brings us nicely to talking a little bit about the future and what’s going to happen in the next few years. So obviously, we’ve been speaking quite a lot about this trend towards bundling and everybody working together rather than the unbundling that we saw a few years ago. Soren, I’m interested in your crystal ball predictions so in five years’ time, what do you think the B2B FinTech landscape will look like? Do you think it’s going to be far fewer players on the market because they will have consolidated maybe through this period in the next couple of years through M&A? Obviously, I’m keeping my eyes peeled for this at the moment. Or do you think the market will be just as busy, but everybody will be working together, so we’ll have quite a complex network of partnerships?

Soren: [00:29:44] It’s a great question and I think you should keep your eyes peeled. That’s probably the short answer. But the more leverage of one is that I believe that the landscape in five years will be impacted by what we are going to go through in the coming time. There is no doubt that valuations have changed. Capital is more scarce, and we are seeing that impact the sector. We can see it from interactions with clients and we can see it in the media. Dozens of well-known FinTechs are reducing their FT base typically between ten and 20%, and I believe that will launch three key trends. First of all, a focus on what each company does at its core and just to do that well. So perhaps we’ll see less innovation from those companies, but maybe stronger delivery on their core focus. That’s the first trend I believe will see. Second, as a result of that, each FinTech will continuously seek to offer a rich and sticky proposition to their clients. And that means that the second trend, in my view, is partnerships. We will see that as each company focuses on its core, delivering that very well, they will come together to deliver very strong solutions through partnerships. Back in COVID, we did an interview of 300 C-suite decision makers in banks. They already back then said that they saw an increasing need for partnerships, and we believe that will proliferate and that will happen even more across banks, payment companies, marketplaces and much more. And then thirdly, the final trend, I believe, is going to be that of consolidation, the M&A re-bundling that you were referring to, Amy. I believe that in some cases we will see the partnerships being so obvious and so strong that it will call for combining equities as well. And in other cases, it will be because companies are seeking to pull strength and just become more solvent, more resilient by teaming up. So focus, partnerships and consolidation are three trends I would expect from current circumstances.

Amy: [00:31:58] I really wanted to ask a follow on maybe one of the other two, but also I love your crystal ball predictions as well they vary to Soren’s. But I’m also really interested, just anecdotally, I’ve seen that in my pitches inbox this year so many partnerships in a way that I’m like, is this a cheaper way of doing things than M&A? Like why are all these partnerships happening right now within this market? And so I don’t know if somebody wants to comment on that as well, this sort of trend, especially this year.

Jason: [00:32:28] I can jump in on that one. I’ve been in partnerships for over a decade, and I think before it was looked at as a simple add-on. And a lot of times, oh, let’s make a partnership with this group. And you’d get in-house people saying, No we’re going to develop that in-house already, so we don’t need to work with them. I think that attitude, as Soren and Rogier said, has shrunk and now it’s like, let’s focus on our core. Let’s do that really well and add-on functions can be done with other groups that focus on a different core. Even it’s very similar. Sometimes there’s overlap, but that’s there. So I think definitely the partnerships angle is a way to enhance your services, sometimes immediately with simple partnerships, maybe months, a year later with more elaborate integrated partnerships, and the cost is very minimal to start these up usually. And the benefits can be massive. So, the positive jaws on a partnership are huge. The amplification effect is massive. You don’t need to do a massive acquisition to do that where there’s a lot of other risks involved. You can have multiple partnerships with multiple groups. You wouldn’t go by five groups in the same sector you’re looking at, but you can go partner with five groups in the same sector and you can see how they all work out. And maybe they all offer different variations, different geography coverage, different service provided, where buying all those would be not feasible, basically. And so it keeps your costs down to for your end client as well. So sometimes can be cheaper than that. So it’s a great space and I think the general environment now is more collaborative. Business is competitive. It’s a competitive landscape we’re all in. But there’s more and more views of collaboration, even with groups that have an overlap of 50 plus percent. You want to add that extra 10% to your business and you’re willing to collaborate with other groups and everyone’s very friendly in the space. So, it’s great.

Rogier: [00:34:24] Really well said by both Soren and Jason. The only thing I would like to add there is that the last years have also proven that basically the notion of doing it all yourself like five years ago, everybody trying to create Europe’s WeChat ecosystem or basically the single operating ecosystem, both in payments and also in commerce. It just doesn’t work, particularly in Europe, where there’s so much complexity, differences between countries. And I think organisations have learned the hard way that first of all, building it all yourself is tremendously difficult. Having the engineering resource to spin it all up is really, really impossible. And then secondly, it’s also not succeeding. So, I think many companies have learned that doing so many bets at the same time, it really distracts you, as I Soren also said, from the core. And I think the financial situation now forces companies and the FinTech industry to basically collaborate and really rethink about what everybody is good at. So, it’s kind of a bit of a reverse trend of five years ago where everybody was talking about creating Europe’s WeChat ecosystem. So yeah, I think that’s good to see, even though are still some examples of ecosystems that try to do it all themselves. So I’m very curious to see how that will go. Shopify is an example. From a commerce perspective, that’s still very much as the closing of the ecosystem as a core part of their strategy.

Amy: [00:35:54] Definitely. I recently wrote on whether you will get a super app soon, and this was a big part of the conversation was the trend was unbundling versus bundling and what’s worked in Asia hasn’t really worked in America and Europe in terms of that. One last question connected to the current economic situation and this increasing partnerships trend. Is it less commitment? Can you just drop a partnership when it isn’t working? Is it like a bit of a sandbox, a testing pad for what’s going to work with your business as well?

Jason: [00:36:31] It can be. So that’s the way we offer it is there’s multiple phases of a partnership. So you can start with something very low risk, easy to set up. We’re talking days, so the commitment and the overall risk is easy. And then as they grow and as they mature, as they prove out, then you can have a more integrated partnership. So I think that’s one of the big benefits, versus building it yourself and spending a ton of resources. And then after six months it works or it doesn’t work. You’re relying on someone else’s hard work and you’re leveraging that for your group and offering that. So, 100%.

Rogier: [00:37:09] Yeah, I think it definitely allows for sandboxing and it allows a go-to-market is a lot faster than if you would build it yourself. I think many companies have the notion of like eventually we will build this in-house. I think also it really depends on like the economics in the partnership. How much is there to share and then secondly, how well the partner is adjusting to basically the reality of growing volumes and change of circumstances. So yeah, there is a notion of a sandbox, but what you also see is that some of those partnerships are simply lasting forever because these partners kind of adjust with each other.

Amy: [00:37:47] I don’t know, just because I don’t work in partnerships, I’m really curious, like, can you just sort of quit the partnership at any point if it’s not working? Like, how does that work?

Jason: [00:37:57] It depends on how the commercials are written up, right? If there’s other commitments, there’s co-marketing and other things. Maybe it’s a little bit longer lasting, but it’s a lot easier to unwind than if you purchase a company or if you’ve developed a bunch of stuff in-house and there’s internal commitments to it that may or may not be right. So, there’s definitely less constraints on that.

Rogier: [00:38:18] Yeah, I think there’s a trend towards flexibility in partnerships too. I think five years ago when partnerships happen, you tended to see more five-year exclusivity, big volume commitment type of partnerships, than you see nowadays. I think many FinTechs, they operate from a mindset perspective that you need to be fast and flexible. So of course there are some mutual commitments in many of the contracts out there. But yeah, the trend is really going towards like, Hey, the best party will prove itself and there’s fairly little mutual commitments in those partnerships and it’s more value based than contract based. At least that’s what I’m seeing in modern FinTechs nowadays. I don’t know if Jason and Soren share my view.

Jason: [00:39:02] 100%.

Soren: [00:39:03] I agree. I think that some of the strongest partnerships we’ve seen are the commercial partnerships where we team up with a partner on delivering, for example, our solutions to their merchant base. YouLend, a Banking Circle Group company, has teamed up with a multitude of partners, including Shopify and eBay and through those relationships, delivered solutions to the underpinning SMEs and merchants. And ask those exactly as you say, Jason, as those then ramp up commercially and prove themselves, they become attractive and very sticky in nature. And that’s the most healthy way to structure them to basically see them succeed and see them become attractive to hold on to.

Amy: [00:39:57] Super interesting. Thanks guys. I feel like I’m learning so much about the nature of partnerships here. Hopefully it’s as interesting for the audience as it is me. But I’m now super interested in asking, yeah, more about sort of the landscape and what these increased partnerships mean. The flip side of this sort of trend towards bundling is like some would argue that with these increased partnerships, are we going to see less competition? And does it mean that one single company can’t do it all and have enough market share that it becomes like the multi-billion dollar company that the European FinTech ecosystem needs to grow and get on a par with the US? So big existential question, but how can we strike the right balance between collaboration and competition? Soren, do you want to start?

Soren: [00:40:48] I think in the old days of strategy, people were taught to watch out for channel conflict. You target a segment and you make sure you don’t conflict with that in any kind of way. If there’s anything I’ve learned from banking and FinTech over the past ten years is that that just cannot last. And that is not acknowledged by our industry because we see FinTechs target all sorts of channels and all sorts of ways. Just take how strong companies deliver a feature to a client and let themselves partner up with someone who has a strong platform, whether it is Betterment and Wealthfront delivering wealth management solutions, but also acknowledging the partnerships of being re-bundled onto another interface. We see companies like N26 and Revolut, but also in the Nordics, Luminar, team up with different FinTechs and different features, take their solutions onto their interface, which means that you will have a consumer-friendly platform where all these other FinTechs are shown, and that will be perhaps a step towards a re-bundled platform. But these features are in fact also solutions on their own, which the consumer can reach directly by going to these propositions. And in that way, the anarchy of that just means that the best solution and the best connection wins and the consumer wins because the consumer has the freedom of choice whether to have these solutions packaged in a nice interface or whether to go directly to the features that they prefer. And I believe that democratisation and that setup allows for a continued high degree of competition.

Amy: [00:42:51] And Rogier, what’s your take?

Rogier: [00:42:54] So the balance between competition and collaboration. Well, I believe what you see, interestingly, is that competition has become more transparent in a way. Like five years ago, as Soren said, maybe strategy was kind of perceived differently if people were more secretive around a strategy and what’s going on. I think, you nowadays see a trend where companies essentially publish their product roadmaps on the Internet. And things are pretty public out there. We know what our competitors are doing. Our competitors know what we are doing, and people are less afraid of that. And I think it really has to do with the fact that we all realise it’s a lot about execution capabilities and of course, also more subtle competitive advantages that companies like Mollie have that are very hard to duplicate. So I think that balance and then adding partnerships on top of that, that in your result makes partnerships easier because the thing is kind of more transparent. Companies will still be very clear about which areas they’re willing to partner on and which not. But I think the striking the balance, I think that has kind of shifted. I think it has become more open. The competition is again, it’s more about execution than about strategy in that sense.

Amy: [00:44:17] Thank you. Super interesting. And Jason, lastly, your take on this existential question.

Jason: [00:44:24] I think I’d like to start with the numbers. It’s the last McKinsey study I saw, payments globally was 1.9 trillion. So, let’s say 2 trillion globally. So that allows for a lot of multi-billion-dollar companies out there. And because you’re partnering together, there’s a multiplier effect. That $1 is split up amongst multiple different groups, each of them touching it and funnelling it through those groups. So, it even makes it even more than that. So there’s a lot of opportunities for different companies. And I think, instead of repeating what Rogier and Soren have said, which is very accurate, I’d say we’d even gone to the step of enabling groups to compete directly with us by building apps on top of the system. So I think a lot of groups are doing that as well, saying that never would have happened before. I think there’s a model that was pioneered maybe a decade or two ago, allowing groups to sit on top of your application, build applications that might compete directly with something that you’re offering. But the end client now has choices and if you’re the underlying FinTech offering, the regulation we spoke about and the network effect, then those smaller groups can now take that and add value to their niche segments as well. Instead of you trying to go after all these niche segments. So, I think that’s great. I think when there’s a balance of collaboration and competition, the word was co-opertition. That’s real now. I don’t think three years ago I never heard of co-opertition. So it’s a factor now that’s in the market. It’s in the mindset of people. And I think when it’s the mindset, then it starts penetrating into the market and everyone benefits from that. That’s how innovation is driven.

Amy: [00:46:06] Okay, we’ve got one last question, and it’s another industry-specific one, which is quite fun. So I’ll ask that and then maybe we can wrap up. Are you seeing more movement in the insurance FinTech space in terms of collaboration?

Jason: [00:46:21] Yeah, this is another one of the hyphenated-tech. So, InsurTech is growing. Now you’re seeing more and more InsurTech companies out there and offering different advantages to businesses. From easy ways to ensure existing cargo around the world, to ensure payments get delivered, payments get refunded or fulfilled. So, it’s very interesting what’s out there and insurance tech. So I think that’s another example of RegTech, and InsurTech, LendTech, FinTech. It’s just it’s interesting what’s going to be the next hyphenated tech that’s out there.

Amy: [00:46:58] Thanks Jason. Thanks for taking that. Ok, I think I’m going to wrap this up because we’ve covered so much.

Rogier: [00:47:04] Amy, there was another question I think that we didn’t cover is why don’t neobanks do more underwriting and lending? First of all, lending requires deep capabilities of data science and many neobanks are focused on actually getting customers first and then basically further monetising that. And secondly, it also has the regulatory requirements and capabilities in the organisation.

Soren: [00:47:28] Well, thanks a lot Rogier. think they will. In some cases, they will originate this themselves. In other cases, they were partner. The YouLend business that sits in the Banking Circle Group enables both payment companies as well as neobanks to offer lending to merchants. So, I think, Rogier, you’re making a great point that neobanks are maturing. They are building their commercial platform and as they do as they build critical mass, they will be adding on additional products and solutions. Undoubtedly, lending will be a part of it to an increased extent and we’ll see it happen. I think it’s a great question, and I think the answer is that it’ll come more and more, no doubt.

Russell Goldsmith: [00:48:18] Well, that’s it for this episode of the Knowledge Circle podcast. Thanks once again to our guests, Rogier, Soren and Jason Kumpf, and to Amy for hosting. If you enjoyed the conversation, please follow, like and share on your podcast platform of choice. You can find out more at bankingcircle.com. Hope you can join us on the next episode but until then, thanks for listening and goodbye.