Knowledge Circle podcasts

Embedded finance – friend or foe for the financial services sector?

As consumers demand more convenience, speed, and security from their online transactions, non-financial companies are seeing the opportunity to add to their service offering with white-labelled embedded financial services, tapping into the plethora of Banking as a Service (Baas) solutions that have emerged.

In this episode, our panel of experts discuss:

  • How do banks and FinTechs currently view BaaS? What is the current market sentiment toward BaaS platforms?
  • What are the weaknesses of current BaaS offerings?
  • What transpires when a business attempts to scale when its BaaS provider does not have the necessary banking licences?
  • How does being tied to a bank with legacy infrastructure impede on a business’s ability to implement embedded finance solutions? How does it impact the risk profile of a business?
  • What are the benefits of working with a single well-structured BaaS provider above working with several FinTechs?

Our guests for this episode include:

1/ Scott Hamilton – Global Payments & Liquidity Expert, Contributing Editor [Moderator]

2/ Anders la Cour – CEO, Banking Circle

3/ Anders Olofsson – Head of Payments, Finastra

4/ Tony McLaughlin – Managing Director, Transaction Banking, Citi

5/ Beat Bannwart – Digital Transformation & Ecosystems, WMPC Tech, UBS


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 webinar with Finextra that asked the question ‘Embedded finance – friend or foe for the financial services sector?’ Our guest panel included Anders la Cour, CEO at Banking Circle Group, Anders Olofsson, Head of Payments at Finastra, Tony McLaughlin, Managing Director, Transaction Banking at Citi, and Beat Bannwart – Digital Transformation & Ecosystems, WMPC Tech at UBS. And finally, the panel was hosted by Scott Hamilton – Global Payments & Liquidity Expert, Contributing Editor at Finextra who we’ll hear from first.

Scott Hamilton: [00:00:45] Today we’ll tackle a number of pertinent topics on embedded finance or Banking-as-a-Service, which some say are the same thing but we’re not really going to get into the differences or debate definitions today. Instead, we’ll talk about how the banks view the current situation and how they will almost certainly need to adapt quickly to an ever-evolving financial services sector and a landscape that’s changing all the time. But how best to do this?

So as for the FinTechs, every new application programming interface or API developed and shared by banks or by FinTechs themselves, they’re targeting either part or all of the customer’s transaction wallet or their banking wallet. But which customers, retail or business, corporate clients, those with typically more complex, much more complex and broad-based financial needs, or both?

We’re going to go right into things now, starting with Anders la Cour. Anders, we’ve all seen digital transformation progress in a much more rapid pace recently, and it’s basically all the rage talked about all the time, more than we’ve ever imagined. We also know it has forced traditional financial institutions to be faster, move more quickly, more nimbly than they ever had planned. Regulators as well. How do you think banks and other financial institutions have kept up with their FinTech counterparts in the Banking-as-a-Service realm? What are some of the success stories you can share regarding new API developments, new partnerships that have been developed to handle certain applications? What still needs to be done to keep the industry moving forward?

Anders la Cour: [00:03:03] Yes. I think like from my perspective, if you look at the FinTech industry today, they are the early adopters of embedded finance. And like whether you call it FinTech or it’s big tech, this is still, I think, in my view, where we see the best use cases in today’s financial industry. So, for example, our own partnership with eBay via our Embedded Finance Application Unit, whereby eBay offers working capital facilities to the merchant banks by leveraging the YouLend API is a good example of that. If you look at the banks, to me they have a massive opportunity here over time, like banks still have the benefit of having a brand that’s been there for ages.

They have a balance sheet and if they find the right way to leverage third parties, this Banking-as-a-Service application or embedded finance applications, they can make a really powerful cocktail. So, I think in my view, partnership is the way forward, whether you are a FinTech or you are a bank. And again, the FinTechs have been, as with many things, the first to adopt it. It’ll be very interesting to watch the space going forward because in my view, banks should move into it and really take advantage of the core competencies they have.

Scott: [00:04:17] Excellent. Thank you. We’ll move to the Beat Bannwart of UBS. Bayard, lots of new products and innovations coming down the pike. Some of them are very, very cool, very, very different. They bring new capabilities to the landscape. How do they truly hold up, though, from your view, as a banker, through the overall client experience, I know that’s important to you. How can it improve that client experience? Can you tell us a bit about the experience you’ve had and the challenges you might have had with some of those partnerships, maybe comparing retail versus corporate customers and the applications thereof?

Beat Bannwart: [00:04:51] Sure. And yes, indeed, these new cool propositions they try and promise lean and intuitive ways how to serve clients’ desires more efficiently with a better experience. A goal which is generally achieved is the better, the simpler and more clear-cut the target offering is. For example, attractive FX spreads for card payments. Though to highlight now the challenges arising for more complex cases and consequently for choosing the right partners, let’s take one prominent example, which is open banking. This is a fairly standard concept for retail offerings, consolidating and managing accounts in a convenient way. However, when you now switch to corporate client use cases, the devil truly lies in the details and the variability of such use cases to deliver a consistent user experience. Just also think about different payment types, particularly global cross-border payments or even liquidity management with different instant payment amount limits or cut offs by country. The management of these more complex needs and with it the wider variety, variety of technical challenges to master, such as multiple API layers, different processes and also varying local flavours, as these are still not the same everywhere, makes the prospects for successful partnerships much more challenging.

So, concluding that, this makes choosing a reliable partner more difficult, particularly also if you aim to extend beyond the initial scope and the current capabilities to geographic expansion or else emerging developments, as not every FinTech or every other provider is actually equally equipped to scale from a clear focus at the start.

Scott: [00:06:30] Great. So not all FinTechs are the same. Not all banks are the same, certainly not all customers are the same. It’s not necessarily always an easy prospect, perhaps, to get into multiple APIs and multiple layers.

Tony Mclaughlin, we’ve heard about the progress made, the move to open banking, how it’s how it’s worked in Europe, but it sometimes works a little bit differently in different places where you go. Many have talked about the challenges banks have with legacy and in fact they talked it to death, legacy, infrastructure, compliance burdens and so forth. It’s not to say those aren’t important, those obstacles aren’t important, but as customers look to banks to really match up to their own expectations of web-based finance, web-based transactions, faster, better, stronger. One thing you’ve advocated for is, really open APIs for banks to really open their doors to say, this is what we can do here are ways to work with us and for all sorts of partners. And the question really is, we’ve made some progress now, what else is needed in the embedded finance arena, from your perspective, to really keep pushing the ball forward regarding APIs and open banking, what are some steps banks can take to ensure that they endure as a customer’s main financial relationship holders?

Tony McLaughlin: [00:07:48] Let’s take a step back and ask this question. Why did banks build branches on the high street? They built branches on the high street because that’s where the customers were. And where are the customers today? The customers are on digital platforms. So how does a bank show up to where the customers are? The only way of showing up to where the customers are, is through API, because that’s the way you get on to today’s high street, which is virtual.

And then we ask ourselves the question, which is if we’re going to have APIs to embed finance into digital platforms, what should be the nature of those APIs? And the brutal fact is that the digital platforms do not want to spend time coding the proprietary APIs. And therefore, the inescapable conclusion is that if the banks want to be where the customers are on digital platforms then the banks, number one, have to publish the APIs, the relevant retail banking and wholesale banking APIs. And number two, most, if not all of those APIs should be standard. Now I think that chain of logic is fairly clear cut. But in reality, many banks seem to believe that APIs are a layer for disintermediation. But until banks realise that they need to show up where the customers are and the customers are on digital platforms, and the only way of showing up on the digital platforms is through API, then I think the opportunity will be captured by much more nimble FinTech players, or maybe even the services will be provided by the big techs themselves.

Scott: [00:09:48] Anders Olofsson, our other panellists have talked about banks and how they evaluate select FinTech partners. We’ve kind of just touched on it. We’re going to touch a lot more on it here. What’s your view on this process of bringing partners together, your perspective on the major challenges that FinTechs and banks too or the decisions they must embrace, and the steps they must undertake to ensure their own success in this changing world? I mean, the question is, you’ve got regulators in each country looking at this a little bit differently. Tony is advocating open APIs and open standards, common standards; those difficulties of cross-border versus domestic transactions. What do you see as some of the other answers to making this really work for consumers and business users as well in this financial marketplace?

Anders Olofsson: [00:10:36] So first, I want to build a bit on what Tony just said, and I fully agree with what Tony said on the need to standardise those APIs and the need for banks to be appearing and be relevant on those digital platforms. We also need to keep in mind that these digital platforms are facilitating a customer journey. And that customer journey is really entirely centred around banking or financial services. It’s typically centred around as a consumer or as a corporate, our journey, meaning that around my bringing my children through schooling or the ownership of my car or actually purchasing tulips from the Netherlands. And in that customer journey, there is a need for banking services. Likewise, there is a need for insurance as a service. There is a need for shipments, there is a need for advisory services.

So banking is, yes, a part of the entire customer journey. I think that’s important to realise that banking is not in the centre of very few customer journeys. I would say that presumably only my retirement planning is where I centre around banking and that means as well, and I’ve been advocating for the last four or five years around that banks need to make the decision whether they want to focus on manufacturing or they want to focus on sales and distribution. And to me, in the context of what Tony said, by focusing on exposing standardised APIs to those digital platforms, banks are driven towards manufacturing. And the success of manufacturing can be driven around scale and cost efficiency because it’s going to be very difficult to differentiate your services compared to others. And that’s where I typically use the language around the difference between being an orchestrator in that ecosystem or being a service provider.

And that’s where I see the challenge as well, that when you choose your partnership, first of all, the bank needs to decide what’s going to be in my business and operating model in this embedded financing or this Banking-as-a-Service environment. And then and only then say that am I going to focus on being an advisor and am I going to be able and capable of offering my competitor’s services well to my end customers, or am I solely going to be promoting my own services? So, I think that that’s the first checkpoint banks and financial institutions needs to make and realise as well that they are not only a part of the entire customer journey.

Scott: [00:13:03] I’m going to move back to Anders la Cour. What, from your perspective, are the critical facets that FinTechs must take in mind if they want to lead in this emerging digital Banking-as-a-Service industry? How can a FinTech truly stand out from the pack while also strengthening its own place, its legitimacy, and taking care of its own business in the marketplace?

Anders la Cour: [00:13:26] I think if I can allude a bit to what Anders just said about providing one service and either manufacturer, distribute that, or providing this part of an ecosystem, I think it’s important that FinTechs stick to the core, go narrow and deep, and use the advantages they have as a business. And for many FinTechs, it’s the lack of technological legacy and its velocity. If you combine these two, FinTechs can move fast in a market that is being transformed the way the financial landscape is being now, and grab market share.

By grabbing market share they will grab end users and end users are critical, at least if you are a FinTech positioned in the upper part of the value chain. These tools will eventually go in constantly, both improving the user experience, but also enable the FinTechs to add more services by levels in these partnership and then get more stickiness and increase earnings and retention rates.

If you look into the banks, I think in the same way banks should focus on what they’re good at. So, whether you as let’s take again Anders’ example should you go the manufacturing, should you go the distribution way, it’s basically in my view, it depends on which kind of bank you are, but let’s say you are a mid-sized European bank with a good, solid brand in your local area. And in that aspect I would focus on what I was good at, keeping my brand, keeping my presence on the high street, getting to use, what Tony said, the digital high street now, the platforms, and then again leverage whatever I could to embed these applications into my own brand and then distribute them towards my client base and then actually apply my balance sheet into them to some extent to also combine the manufacturing into it. So, for both parties, stick to the core and then leverage partnerships and make sure that the core is, is really what you’re performing at.

Scott: [00:15:29] So if I understand you correctly, it’s pick and choose your partners based on your core strengths and your goals and your particular focus as a financial institution? For FinTechs also to really know what you do well and where you can plug it in easily. And between all of that, you’re going to achieve all these great, great objectives and improve user experience, greater profitability, greater efficiency, and stickiness. Clients are going to keep coming back for your services. Is that an accurate assessment of what you just said?

Anders la Cour: [00:15:57] Yes, it is definitely because I don’t believe there is a one-size-fits-all here. Like there’s a major difference whether you are Citigroup with Tony or UBS or you are a very small domestic bank in a small European country or from the FinTech side, whether you are a big marketplace or you are a mid-sized payment gateway. So, I would in my view, I’d rather apply the philosophy of stick to your core and then leverage partnerships that fit that core to make sure you get to your end user base.

Scott: [00:16:32] Let’s move on to Tony. Any nuggets to add to what Anders just shared? What arethe differences between a FinTech as a partner versus one as a threat in your eyes?

Tony: [00:16:45] I’d like to answer in a slightly different way by also suggesting another avenue in which we can work together as FinTechs, banks and also the digital marketplaces. And I just make the observation, the simple observation that, the digital marketplaces make it very easy for you to onboard as a consumer. And very easy for you to onboard as a merchant.

But in the current conception of how digital marketplaces are built. They’ve got no conception of onboarding financial institutions, whether they be banks or regulated non-banks. In other words, FinTechs. And so, I’d like to use this opportunity to introduce maybe a novel concept, which is what’s better than a two-sided marketplace? A three-sided marketplace. Which means if you’re Facebook or Google or Apple or Amazon or any of the digital platforms and you want your flywheel to move faster, then make it easy for consumers to get onboarded. Make it easy for merchants to onboard. And also make it easy for financial institutions to onboard. That three-sided marketplace will be a much greater flywheel than a two-sided marketplace. So, I think this is a relatively novel concept, but what we want to see is finance embedded into the places where consumers are congregating. We want magical customer journeys. Another way to get there is not just asking the banks to produce the APIs, but for the big tech platforms to build three-sided marketplaces for consumers, merchants and financial institutions.

Scott: [00:18:40] Very interesting concept. Anyone who’s ever worked, especially on the corporate side of banking, knows that onboarding has always been the bugaboo, the challenge. Know your customer not only know your customer domestically, but especially internationally has become a real burden. Many banks have found ways to try to get around this. So now we introduce FinTechs trying to offer new products and services in a very regulated space. And the customer all throughout is saying, how do I make this work for me? How do I make this really a positive experience for me?

They probably have some very good examples from various companies, some of which you’ve mentioned, who’ve done it very, very well in terms of onboarding. It sounds like you’re saying if we get everybody involved and everybody at least understanding that this is a preeminent focus, that onboarding, it would be a much better world, it would be a much more effective. And you’d have that magical customer journey you described. So, Beat, what’s going to energise this whole partner vetting process? Maybe following on as what Tony said, how might FinTechs and banks play better together in the financial marketplace going forward?

Beat: [00:19:49] I can just support your statement that the view a few years back was actually much more balanced or clearly not that tilted to the one side. And I can also clearly say from our perspective, the mutual benefits for a corporation are clearly seen. And we also strongly believe that the complementary strengths of matching partners truly lead to a better outcome for everyone.

So just take, for example, a FinTech. As I mentioned before, they bring great ideas. They really have cool and intuitive solutions and they have focused on a very specific case they really have done to perfection. Whereas on the other hand, you have banks, they have a large client base, they also have proven financial services. They may actually bring more on a holistic part, but then that brings that together. And those two parties, they can deliver a common purpose. They can really marry those strengths of both and then combine them to the ultimate goal and to bring an attractive solution to life, but on top of it, to scale faster. And also, with the long-term profitability and maybe also to add to Anders’ point, there is indeed no one-size-fits-all model. It really depends very much on the very strengths of a bank and also its capabilities. So, take, for example, an advice heavy business which we trust, where a bank has a strong angle, that the bank will also be in the front and facing the one with the window to provide services, but then take on the other hand, securities trading or FX trading if you have super good technical execution capabilities and the scale, so really at the benefit to also feed those capabilities into external platforms and to even rack up more scale and produce more cheaply and get better through that.

Scott: [00:21:47] Thanks for sharing. And one of the things you said, and I know we talked about previously is that this whole process is going to vary every single time. And you mentioned it varies based on the applications involved, which banks and which FinTechs even want to want to play together at all. I mean, from that standpoint, then it’s how they’re arrayed. And I guess the question will be, how can we speed up that partnering process, that partnership development process, such as you can bring customers on board with these solutions more quickly than in the past? So, thank you for sharing that. Anders Olofsson, any variances in your experience, your own experience at your organisation? What else is important to mention here as well as part of this debate?

Anders Olofsson: [00:22:31] I agree with Beat on the question that, of course, there is an opportunity. But my not very optimistic perspective is that on an aggregate, I believe that banks eventually would lose out. And there will be a few very nimble banks in the industry that has sufficient scale that will take the lion’s share of the revenue opportunity. And it’s going to come down again to what I define as the division of distribution and manufacturing.

And I think that the clear winner from Banking-as-a-Service and embedded banking will be the corporates and the consumers. And I know that Tony as well has said that in previous events that he believes that the consumer at the end will win. But my concern is that I think that banks will actually lose, because the way as well, that when we talk about the API and exposing the API on the marketplace, is that how do you differentiate and how do you ensure and provide the ability to market your brand? And typically banks as well are advocating the strength of their trust and the importance of trust in doing banking. And I think that especially in retail banking, the importance of trust, especially for the younger generation, is in decline.

And I think that we’re going to see the importance of brands and banking brands deteriorate and the platforms or the digital customer journey will be the dominant brand, which we will trust. So, we will trust the big techs, or we will trust our ERP system as a corporate in doing part of our banking services. So, I think that I’m not overly optimistic on how banks can be changing their outlook with the implementation of the Banking-as-a-Service. And I think that clearly, as well, banks can claim that using their balance sheet can be a differentiator. But also given how cash-rich today the society is that there is less need of liquidity and I think that also an orchestrator would be able as well to facilitate and utilise excess balance sheet assets from other corporates to distribute and to disintermediate the banks what they typically have done. So, I think that this is going to be a huge change for the banks and the way banks are seeing their current profit levels.

Scott: [00:24:51] It’s almost like you’re saying it’s sink or swim time for the banks. And the banks have to take up the reins and really make a decision on how far they’re going to play that – that issue of trust is interesting. I’ve been reading a few articles recently on studies of trust and surveys of trust and consumers’ minds, and I know it has dropped a little.

However, banks are still listed as some of the most trusted providers of anyone else on the on the Internet per se. What do we say to executives of banks that are hung up on maintaining, I guess, hang up is this is their core business maintaining the customer touchpoint and maybe feel like embedded finance moves them too far away from the customer turns them into replaceable or dumb pipes, if you will, and a related question is given that given correspondent banking has existed a certain way for all this time, is that traditional correspondent banking relationship between, say, a small bank in one country or a large bank in one country and a bank in another country that could perhaps provide services for their customer mutually, you know, is it dead or can embedded finance revive it? I’d like to run this first one to Anders la Cour, and then we’ll see if we can get some more answers from you folks.

Anders la Cour: [00:26:05] I’ll try to respond broadly to the questions here. But in my view, I’m a bit more optimistic on behalf of the banks than the Anders. So, I guess if we look at it where I can agree with you to some extent, especially within the consumer-facing space, I think the new generation that comes there, there definitely is a shift in the way they deal with what you would call the low-value payments or the low-value transactions.

I would also say that when you’re looking at the corporate space, the B2B space, not necessarily the SME space, but the level above. So, the bit larger businesses, the trust that you get from an established banking brand and the balance sheet that banks come with simply I think it will be a while before you see the big tech players, or the marketplaces deliver stuff that really requires balance sheet. I can try to give some examples on our end from, from Banking Circle and I can maybe include the correspondent banking element as well. But if you look at the embedded finance and ourside, we would right now we see the payment gateways, we see the FinTechs, we see the marketplaces, embed our YouLend working capital facility application into them. We see them embed part of our virtual items into as a payment side. What they are what they are still servicing is the SME segment. And if you look into where it will be interesting to see the space over the next couple of years, is that the only one that will be able to service the Fortune 500 is here. You need a balance sheet. You need a different aspect. You need to convince a treasurer in the Fortune 500 business that they should not use a rated bank. And all these kinds of aspects will be quite interesting to watch.

If you look at the Correspondent Bank question, I would say here I see more, actually over time the traditional correspondent banking model where you have one bank in a counterpart in another small bank that I would slowly see fade somewhat, like if you plug into Banking Circle you can basically get everything. You can also do that with Citi. But Citi has a certain what you could call, like Citi’s counterparties tend to be rather big than if you get into many of the smaller banks. That was just my opinion.

Tony: [00:28:21] I’ve got a kind of humorous answer to the dumb pipes question, which is, you know, what’s worse than a dumb pipe? An empty pipe. You know, we have to realise that the customers are on digital platforms. That is undeniable. So, if you build a physical bank branch on the high street, because that’s where the customer is, where you need to build the APIs to be where your customers are now. But also, the pipes business isn’t necessarily dumb.

Maybe you’re aware that the big tech companies, for example, Google is building what’s called the Grace Hopper Cable, which is connecting together the US, the UK and Europe. That’s a smart pipe. The big tech companies are investing in undersea cables. So, the pipes business can be very interesting. You know, the Banking-as-a-Service, customised players like the specialists in Banking-as-a-Service are not seeking to lay dumb pipes, but smart pipes. But yeah, the only worse thing than a dump pipe is an empty pipe.

Scott: [00:29:27] Excellent point. It really dovetails with what we’ve heard. So, whether banks are going to survive or thrive in this in this current world is really going to depend on them embracing their role as the current relationship holder to the degree they can do that. Correspondent banking will survive or thrive. As someone seeking a correspondent, you’ll be able to survive or thrive. But more importantly, that user experience is what’s going to have to drive it all, is what I hear you all saying. Beat, any thoughts from you on that particular topic, those questions about what’s still in it for banks? How are they going to fit?

Beat: [00:30:04] It’s of course, a very good question. But I also can just equally voice that these opportunities have to be actually taken as opportunities. And I would also say we really have to go along the customer journeys and the value with the banks lies actually really to service these customer journeys. And I think the understanding has also really shifted and in the prior years that, let’s say in the old times, the bank was delivering a specific product and another product, and the customer came to the bank for this product. But if you take a good example now in today’s time with the platforms, if, for example, a customer wants to buy a new house is going to the platform, he’s checking that he wants to get some guidance, maybe an evaluation and is basically narrowing down his search. And he would like to know, for example, can he afford the property.

So, there is also when a bank kicks in. You can give the valuation, you can give like an assessment on the financing capabilities, etc. And then when the customer journey goes on, you also end up in the end for, for financing part, just as an example. But previously the customer checked it all out himself, then he walked into the bank office at the high street and got the quote. I think we all have to be cognizant that this journey is shifting with the higher degree to digitisation, and it’s really up to the banks in the different positions to decide is it better for them to fit those capabilities into a platform because the platform has to reach, and they can gain scale? Or is it also that in other corporations which they find partners, banks can build up a joint platform and provide for their also more value around it if it can really bring additional services and values that the customer also perceives as such?

But it is really I think it has to fit the model of the bank and the position of the bank as well in these platforms. And you can actually replicate that to many other fields like the global payments business. Either can have the capabilities yourself or you partner with parties which have that global reach and then the channel through those networks.

Scott: [00:32:25] Again, it’s I find it interesting that there are very common messages I’m hearing between what you’ve said, what it frankly, everyone said something that Anders Olofsson led off with, which was, the customer journey isn’t necessarily centred on the bank. The bank is just a point along that journey. And I think you just said something very similar. And it comes back to whether the FinTechs are qualified to do certain things or all things, and the banks are qualified to do some or all things they have to choose their places on that high street so that they can be easily accessed no matter where that customer finds them along that journey. They can be one of the players in that journey.

Anders Olofsson, anything you’d like to add about things that must happen before FinTechs can develop successful partnerships with banks or with other providers in the financial marketplace? The idea being to serve a given client base, particular market-specific applications, probably back to those multiple APIs. But I’d like to hear your thoughts on this, Anders.

Anders Olofsson: [00:33:28] Well, I think that again, going back to the customer journey I think that what FinTechs needs to provide is that they need to be able to provide that end-to-end customer journey and then facilitate the needs of that customer, whether that is a retail or a corporate along that journey.

I mean, it’s also interesting. I’m working with a bank in the Middle East who is actually flipping the entire thing around where they are actually introducing what they define as a super app. They are bringing service providers and merchants onto their app and trying to have their banking platform as the portal for engaging in any e-commerce. I’m really excited to see how that develops and to see is there a way for banks actually to take the lead in providing a customer journey and be the facilitator and have the platform.

I don’t know if it refers to Tony’s three-sided platform or not, but I think that’s where I see where FinTechs also need to be playing a role and owning that customer. And I think that’s where whether that’s going to be a FinTech, a bank or an e-commerce provider. So, to take that ownership of the customer journey is going to be crucial. And then building the platform around the banking service is obviously going to be dependent upon how able banks and Banking-as-a-Service providers will be to provide these services to support that customer journey.

Scott: [00:34:51] You know, we just keep talking about that customer journey and how it’s all going to have to be tailored to that customer journey and to get a little complex where you’re talking about corporates, for example. But I like the idea and I’ve heard a lot about this idea of platforms or hubs, banking hubs or financial services hubs where many things can be done, and many players can take part. So interestingly enough, FinTechs prefer to partner more with Banking-as-a-Service providers like themselves or presumably like themselves, banks a little bit less. Any thoughts on that in particular, Anders la Cour?

Anders la Cour: [00:35:26] What we are doing in Banking Circle is we’re trying to form an ecosystem where you can have different entry points. So, if you want Banking-as-a-Service, you can connect with the applications that deliver Banking-as-a-Service. If you want bank services, you can connect to a bank. But I think you need both.

And it again, it’s just with varying degree, depending on who you are, some would need more banking services as a Banking-as-a-Service. Some would need it in a different way. But in reality, what the future would, or at least what we think will bring us back to Anders’ ecosystem thought, but bringing both together, but in a setup where you do not necessarily have to be onboarded with a bank and have that cumbersome journey to actually have an experience of getting one or more embedded financial services. So, I think that’s how we look at it.

Scott: [00:36:22] Beat Bannwart from your perspective at UBS, maybe I’ll just ask you, what is your experience been working with other banks or working with Banking-as-a-Service providers or FinTechs?

Beat Bannwart: [00:36:34] Like I said a little bit before, it really depends on the use case. And I think it also what you would have to look at what they want to deliver or what’s the outcome and like what’s the positions of the different parties in that setup.

I have to say from if you look at those partnerships that are really the most fruitful partnerships are the ones where both parties have a mutual understanding of the outcome. What was the key selling point and the end-to-end user journey that you want to deliver? But also, what we have experienced and really last but not least is it is key that the mentality fit in that relationship exists. It really starts from our perspective, being a very honest discussion on the joint goals and the delivery capabilities, and it also then continues, along with the transparency of both parties’ suitability as partners in that journey and at all levels across it to make that successful.

Because it’s really, if you look at it from a position of a bank, and if, for example, we take some services to us, it’s really important that the services match the quality that can be delivered so that we have a positive client experience and that clients go away with it and have that wow feeling. That was now a brilliant offering or the other way around. Equally, if you will talk about Banking-as-a-Service, let’s say for example, again, if I would bring execution services to an external party where for example, it’s a trading business, you want like fast execution, best execution. And it’s really key also for us, we can deliver that stream and it is very important for both parties to be really clear on what they want to deliver and what’s the outcome, and that they’re also very transparent with each other, whether you can live up to those expectations or not.

Scott: [00:38:29] The client experience continues to be the key focus here. And I’m glad to hear that. I think that the clients would love to hear that. I think perhaps and I’m just guessing the elephant in the room. We’ve discussed it already, but it’s still there, is compliance. It’s a bit of a concern, reputational risk. If something really goes wrong, who’s it going to fall back on? Who going to be blamed? And typically, that’s going to be the holder of the core relationship in such a situation.

But rather than focus on the negative, I think this shows where we can make up some ground, such as Tony McLaughlin mentioned, in terms of building that three-sided model, everybody really understanding each other’s onboarding processes and making sure they make them better. So, thank you for that. Let me ask this question. How can banks decide who they are going to partner with? How can banks make that decision? How do they make that decision? Perhaps if they’re faced with multiple options, I’d run that by you, Tony McLaughlin.

Tony: [00:39:28] Yeah, sure. We partner relentlessly with FinTechs as both customers and as partners. So, for example, we’ve partnered with High Radius for their reconciliation solution. We partner with PPRO for their alternative payment solution. And I could give you hundreds and hundreds of other examples of FinTech partners and also FinTech investments that we’ve made.

The world is big. And the digital world is even bigger. There is unlimited extent to which we can grow the digital economy. I really love this old story that Bill Gates used to see in the age of briefcases. He said that the thing he loved about his laptop compared to the briefcase is you can keep putting stuff into the laptop and it doesn’t get any heavier. And that’s the same with the digital economy. And as the digital economy grows unbounded by space, so digital finance can grow unbounded by space.

So, the rules of business that we may have learned in the physical world where people feel as if there is limited elbow room or you have to kind of mark your territory, in the digital space, there’s a great expanse and therefore massive opportunities for all parties, meaning banks and Banking-as-a-Service and FinTechs and big tech’s in fact, coming back to the point which is often been discussed here, we should be focused on the customer experience.

So, I think that there’s great opportunities for everyone to work together. The FinTechs approaching the banks. It’s not a case of the barbarians at the gate – that may have been the story to begin with this story of disruption but actually the FinTech barbarians and Anders Olofsson, I’m not looking at you in terms of when I think about barbarians, but the FinTech barbarians are not at the gates. We’re sitting around the table with the FinTech barbarians working on common problems.

Scott: [00:41:40] Excellent point. A very hopeful way to move us into our final question of the day. And really, it’s pretty straightforward here. I’m just going to ask each one of you a quick question, and I’d like you to give a brief answer if you’d like, and we can wrap things up. Anders Oloffson, I’m going to start with you. Turn things around a bit. Give us one tidbit of wisdom that you’d offer to banks now contemplating their place in the embedded finance marketplace.

Anders Oloffson: [00:42:10] While the FinTech barbarian feedback on that question would clearly be that banks need to put themselves in a position where they are a true advisor to their partners, whether that is a FinTech or a big tech and actually as well, let go of the manufacturing business and stick to what is actually for me is core of banking – to be an advisor and provide that intelligence and support for the customers whether retail or corporates, and let go what actually where the product is manufactured and how it’s manufactured and provide that. Maybe that’s a smart pipe that would be provided, but bring that intelligence to the customers because there’s a wealth of knowledge in banks and a wealth of experience and a wealth of data that they have and they should utilise that and hence that go with the manufacturing will be key to bring it to customers. That’s the FinTech barbarian feedback.

Scott: [00:43:07] Love this FinTech barbarian. And this is probably going to be all over Google tomorrow. Beat Bannwart, from your standpoint, how about you share one key bit of advice for FinTechs wanting to partner with your bank or others?

Beat: [00:43:19] Yeah. It’s really for our ambition is to deliver the most attractive solutions for our clients, which we can target by white labelling external offerings, plus integrated partner solutions or developing our own BaaS solutions feeding external platforms. And then when evaluating and selecting partners, just going beyond the client proposition, the business case, the overall quality, and feasibility of the partnership, they constitute equally important decision factors.

And as financial services come with clients trust, but equally, with regulatory requirements, the feasibility, safety, and reputational factors shall not be forgotten in the equation. So, in a nutshell, cooperation, comfortability, and delivery against banks are the requirements or the hallmarks of FinTechs or other partners with which UBS successfully launched relationships and corporations.

Scott: [00:44:12] Thank you. Tony, how do you build that cooperation and comfortability quickly for both FinTechs and banks? Any one idea you’ve got?

Tony: [00:44:21] One idea is if you’re in bank management, one of the things you can think about is what do I do at the level of my bank? And the other level you can think about is what do we do at the level of the industry? What do we do at the level of the community? And therefore, there are a bunch of spaces where the regulated community can come together to provide answers for the digital economy. I see the potential for at least three schemes, three new schemes for the 21st century. In the 20th century, we built Visa, MasterCard, Swift.

We built all of these infrastructures, but in the 21st century, number one, there’s a potential for us to build a scheme for digital identity. Number two, there’s a potential for us to build a scheme for next-generation digital money built upon DLT. And number three, there is the possibility for us to come together to build a scheme for what I call balance sheet as a service or platform lending. So, my advice to banks is don’t just think the answers are at the level of the firm. Often the answers are at the level of the industry.

Scott: [00:45:32] And Anders, why don’t you wrap things up here fittingly back to you for a capstone comment on this session. What do you see as a preeminent standard that FinTechs, banks, non-bank partnerships are going to have to go by? How are they going to be measured?

Anders la Cour: [00:45:49] I think a lot of very insightful comments from Tony, Beat and Anders here. And I think maybe I’ll try to recap it with I think taking Tony’s point of looking at it at the industry level is definitely worth having here.

Then going on to the partnership side, probably the second theme and then the third one, I think Anders mentioned the ecosystem. If you look at all these components and you link them into one thing, I think you have, and you combine that actually with the fact that the digital economy is growing, and it can become tremendously huge over time and that the ability to embed whatever kind of service into the distribution channel is endless. Then you have the cocktail for some, I think, very, very interesting and exciting years to come over the next, whether it’s five, ten or 15 years. So, I think without giving any advice, I think that was probably my way of trying to recap the very insightful comments that we received.

Scott: [00:46:48] Thank you and indeed has been a very strong and interesting movement. And there’s a lot of movement still to come. A lot of progress still to come.

With that, I’d like to express my extreme gratitude to our panellists Anders Oloffson, Beat Bannwart, Tony McLaughlin and Anders la Cour for joining us today. If you have more questions that didn’t get answered or have others you’d like to get to, our panellists feel free to reach out to them directly or follow their respective organisations online as they continue progressing through the challenges of today’s financial marketplace and Banking-as-a-Service and embedded finance will be around for a while now and they’ll probably be growing. Goodbye for now.

Russell Goldsmith: [00:30:16] Well, that’s it for this episode of the Knowledge Circle podcast. Thanks once again to our guests, and to Scott Hamilton for hosting. I hope you enjoyed the conversation and, if you did, please follow, like and share on your podcast platform of choice. Hope you can join us for the next episode. Until then, thanks for listening and goodbye.

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