Making Money Move with Embedded Finance

[Music] May I have your attention please welcome To the stage Matthew [Music] Panzarino hello welcome everyone it is Wonderful to see you here this morning At our brand new expanded kind of Festival like atmosphere we have here at Disrupt uh welcome to the fch stage we Have a wonderful day of programming for You everything from consumer assass and Everything in between Solutions problems Um problems that We've got it all um we're happy to have Such a stacked um set of panelists and Moderators who have been preparing this For you um all year long it takes us a Very long time to put it together so We're gratified that you showed up for Us and we're happy to have you here um Remember that later on we also have a Meetup um after the event at 5:00 pm at House of shields that's our fintech Meetup for today so feel free to join us For um a little beverage uh and a little Bit more discussion about uh the world Of fintech so thank you very much and Enjoy the [Applause] Show may I have your attention please Welcome Tech crunch plus managing editor Kareem [Music] Levy hi everybody thank you so much and

Thank you to Matthew my name is Karine Levy and I'm the managing editor at Tech Crunch plus uh that's our subscription Site of the house so that means that Anytime you're reading a tech crunch Article and you hit a pay wall that's me So you can DM me if that annoys you and I'll tell you to sign up for a Subscription um so I've been doing Tech Journalism for a really long time like 20 years um and this is my first time at Disrupt so I'm very excited to be here It's crazy um it's crazy that they just Let me up here to host this um being Here for my first time so this is going To be a very exciting stage today we um It's been a really wild year for fintech You know we've been freaking out about a Recession Banks collapsed earlier this Year crypto is just going down all of a Sudden and it feels like the world of Fintech is changing and it's being Rewritten as we speak so how do we Navigate that today you'll hear from a Bunch of people who will explain that All to you um for example we have uh Zach parrot from plaid who will talk About uh open banking we also have Ariana Simpson from A6 Z who will tell Us about why she's still betting on web 3 and dumping crazy money into the space Uh and we'll also have Silicon Valley Bank president Mark cadger who will tell Us all about what went down back in

March um and please remember that you Don't have to take notes uh we have Otter here that's transcribing Everything for you all day there's uh QR Codes that you might have noticed that Will help you get started with otter um And uh as you're wandering around those Of you with a founder or an investor Badge can check out the deal flow Cafe Where you can make some deals hopefully Um and uh but remember that you need to Have a a investor or founder Badge so creating a bank was supposed to Be super easy right or sorry creating a Bank account not building a bank Creating a bank account is supposed to Be really easy as is storing money Getting a payment card it should all be As easy as signing up for LinkedIn of Course it's not quite there yet but That's what embedded Finance is supposed To promise to do and there's a new wave Of companies that are Reinventing the Space to make any company a fintech Company today we have Peter Hazelhurst From sintera we'll have leader uh Laura Speaker from alloy and Amanda sorland From unit and we will be moderated by my Colleague Raman DEET please welcome them All to the Stage [Music] [Music] Hello everyone and thank you for being

Here for the first panel of the day I'm Sure you had to wake up very early very Excited to be here with with you three We're going to talk about embedded Finance banking as a service some very Technical terms so maybe I'm going to Start by making it a bit more Understandable for everyone so I want to Play a role playing game I'm Roman I'm a Tech entrepreneur creating my company And this is I don't know an E-commerce business for instance and I Want to offer Financial Services to my Own customers and I'm thinking about Using a banking as a service company to Help me in this end over um so maybe I'm Going to ask um amenda first how can I Use a product like unit for this Ender yeah so so for unit we are a Infrastructure company that really helps A company uh like you described uh Partner with the bank to embed a Financial product into into whatever Software it is that that you use um and As a um building a bank uh as we Mentioned not not easy and uh it's very Complex there's a lot of regulatory um Rules and and different things that go Around that so really our our job is to Help simplify that for both our clients And and our bank partners by providing That infrastructure we firmly believe That um each party does what it does Best so you as a business owner uh you

Can build a really amazing product and a Really amazing user experience the banks Are really good at compliance payments Moving money and we're the technology That can help facilitate that and make It simple to to be able to to partner With that bank and to to make the Technology paint a little bit a little Bit less in that um in that ecosystem so In that way I don't have to talk with Any financial institution myself I just Talk to units uh in our model you Actually do talk to the bank we do we do Actually think that it's important for Um for the for the the clients to get to Know their their Bank partners and for The bank Partners to get to know their Their clients and and have that um that Relationship and that oversight over the Product but we make that process more Seamless and make it easy um to make That connection and to to facilitate um Those conversations but in our model There is that that direct relationship And Peter at SRA you you talk a lot About your your your work with Community Banks and different financial Institutions is it important as well to Mention all the partner banks that you Have working with you for for your your Yeah service if if you're a founder and You came to us and said I don't want to Meet my bank partner we'd say go find Someone else to work with it's really

Really imperative that both the banks And the the tech companies is it the Case for some banking as a service Companies they say you don't have some Some banking as a service companies Don't let you meet the bank which is a Very weird dynamic for us and you have Names I do but I'm not telling them um But no I think it's it's really Important to distinguish between Partnership and relationship building Between the three parties that are Involved and just a service provider Relationship and we believe in building A partnership and helping the bankers And the fintech companies get to know Each other interesting so Laura you you Work for Alloy uh you focus more on risk Management yeah um and you work with Other Financial companies trying to Assess their risk uh do you work with Fintech companies like sytera or unit or More with traditional Banks or new bank Yeah all of the above so alloy works With over 500 clients and those would Include VTech companies non vintech Companies companes banking as a service Providers embedded Fint companies and Then a lot of banks too sort of across The whole um supply chain to help them Solve their identity risk problems so They have all sorts of identity Challenges from compliance kyc AML to Fraud and everything in between and we

Help them manage those problems um and So we embed ourselves wherever we need To be embedded we often view ourselves As like a little bit of a translation Layer whether that's sitting between the Fintech company and the you know Regulatory agency or the partner bank And the F company or the embedded Platform so we can kind of fit ourselves In wherever but we we think of ourselves As sort of the engine that makes all This identity stuff a little less Painful and how does it work like in in The the infrastructure stack do you Actually embed with these clients like On site or do they make calls to to they Make calls to our API yeah make calls to Our API that says you know is this Applicant legit and all sorts of ways Are they laundering money are they Likely to be fraudulent and we do a Bunch of Magic on the back end magic That we exposed to so you can have a Paper trail and understand exactly how We made our decision it's not a black Box but we return in real time something That says here's what we found here here Were your rules here's how you said you Wanted to make this decision you wanted To be able to match their address you Wanted to make sure they weren't on a Watch list of some kind here's the Response yes go ahead and open that Account or let that transaction happen

Interesting I want to give one more Example about uh embedded Finance with You Peter yeah because I think before Cinta you worked for Uber that's right I Did yeah yeah on on Uber money and can Can you tell us a bit about this project And how it actually worked and yeah so I Mean the the the learning we had at Uber Was we had to have drivers having bank Accounts and in many of our markets Drivers were unbanked or completely Never been banked at all and what we Used to do was have the local city Manager do a deal with the branch Manager of a bank downstairs in the same Office tower and they'd say show the app Walk downstairs and you'll get a bank Account and and that was bringing people Into the banking system what we thought We could do which would be much more uh Advantageous to everybody was put the Banking enrollment experience into the Uber app and we called that Uber money And we created bank accounts that were Fee free really optimized for the Driver's behavior and what they needed Including $100 overdraft if they needed To get gas in the morning and what this Did was it created a much extended Ecosystem so we we spent a lot of time Optimizing payments for writers most of You have probably experienced the Uber Experience of just walking in getting Out if you're in the rest of the world

You pay in cash and so the cash use case Was solved when we introduced Uber cash And the concept of a wall in in the Uber App now TSS that on to how do you pay The drivers and if you have 3 million 5 Million drivers you need to get money in Their hands what we did with Uber money Is we compressed time we used to pay Drivers once a week with a we then Introduced daily pay with 25 cent Payments we introduced same day payments So that people could push money to their Debit card massive business massive Opportunity but the real answer was pay Them in real time and so with Uber money We made it possible the moment your trip Ended that the money gets deposited in Your bank account and that created a Much stickier relationship with our Driver community and is the classic Definition of embedded Finance and at unit for instance how how Do you pitch embedded Finance to Potential clients do you say this is a New Revenue stream or is it a way to Keep customers engaged like in Uber Money's case so it's really both it it It's actually quite amazing um the Variety of use cases that we that we see Across the ecosystem um it can be Trucking companies that want to pay Their carriers or warehouse and um make Sure that there's more real-time Payments um with that or or it can just

Be a pure the the fact that there's more Data analytics right it can be a Software company for small businesses or Payroll um that want to to help that end User that that business that they're Already helping with one thing they have All this data um that can give them Financial Insights right and so now that Business owner can start making better Decisions on their finances in addition To the help they're already getting from That software company um so it's a Really powerful tool that then makes That customer stickier um but then also Can can do things like same day payments Right and because it's all kind of in The same ecosystem there's more features That are there again making it stickier And then of course there there is the Revenue stream piece of it um so I think We see a lot of clients who come to us Really um looking for both the revenue And the the stickiness Factor that that Comes along with it and there's many Companies just across so many different Verticals that have been really Successful in doing that and among the Feature list that Peter listed do you Offer the same kind of features that you Need y like same day payments and things Like that yeah yep interesting and I Want to talk more about risk uh and Especially who carries the risk in this Equation of embedded finance and banking

As a service um maybe Laura you can Answer this one as the risk expert here When when you work with an ed embedded Finance Company who assumes the risk is It like the company the client or the Embedded finance company so there's Different kinds of risk right like you Can talk about everything from Reputational risk to go to jail you Violated some serious you know laws risk Um Amanda is better to app on the latter Um but there's a there's a lot of Different places where you can introduce Risk and so if you are are a fintech Company you certainly carry some risk And you are regulated you are generally More regulated if you're the partner Bank and that's where a lot of the the True sort of Burden lies and that's part Of the challenge is the partner Bank Isn't doing the customer acquisition They're they need access to the customer Data though they need to be able to see Sort of who are we who are we bringing In and giving them bank accounts we're On the hook for that we're being you Know you might have um the OCC or FDC or Whoever who's who's sort of looking over You but these aren't sort of your they Are your customers but you're not you're Not bringing them in the fintech company Is and so a lot of the risk management Lies in making sure that people are on The same page about the

Policies um and then there's fraud so Different type of Risk where generally uh the fintech Companies and again correct me if if you Guys have seen other models but Generally the fch companies are on the Hook less so the partner Banks yeah we The same so fraud risk the actual Financial losses is typically borne by The fintech themselves yeah um but the Kyc and compliance risk is A bank's Responsibility that they can't delegate They can ask people to participate in The process they can't just sort of say Hey I don't care who the customers are And so it's like a range of different Levels of oversight and ultimately the Bank is responsible to make sure that They're banking um legitimate people in The US or in Canada or wherever they're Operating and do you have rates that you Track like how many you know fraudulent Transactions are going through our Services at unit or SRA for instance uh For sure I think I mean there are some Absolute rates so the FED will say if You do too many bad ACs on the network Then you run the risk of the bank Getting shut down from connectivity to The Fed so those are the the the upper Bounds that no one ever wants to get Anywhere near and then there is you know Is the is the customer viable from a Financial performance perspective so if

They're losing tons of money every day From fraud then is the fintech actually Viable anymore there's also this Changing Market Dynamic I think where You're starting to see more um potential Regulatory oversight of fraud you see Folks like Elizabeth Warren talking About some of it zel scams right this is Like very much in the news where I think We're all trying to figure out at least The United States I think Europe is Further ahead they've sort of UK Especially has decided to regulate a lot Of this um but in the US we're still Figuring out what is our view on sort of Who Bears this burden A fraud and do we do we think we should Regulate it uh I think we're trending Towards yes I mean probably in a very Long cycle but certainly more than we Were two or three years ago where it was Sort of like Fraud's just you got to do It and then I think the other the other Thing we're seeing is that in a Challenging fintech environment which We're in um unit economics matter fraud Two years ago was sort of cost of doing Business now I think it's eating into Your margins it's a real cost uh we did A survey recently where 93% of um excuse Me I think it was was majority of f Companies had seen huge losses like over $250,000 of losses um And it's it's again maybe a few years

Ago when VC money was free and floating Around at this conference um you now Have to care a lot more about that half A million dollars I I think there's a Lot of good news that can come from what We're learning today though in terms of This and and where um you know a company Like unit can can help give insights Into that because we have such a broad Perspective on what we're seeing and so An embedded Finance versus a company That maybe is pure a pure Financial play Right where banking product is all that They offer and it's kind of open to be Able to do that um we know the levers Right that a company with embedded Finance can start to to dial up or dial Down to be able to um say okay there's a Pay wall or there's another a captive Audience sort of you have a captive Audience right and so they have to sign Up for another service before they get Access to a financial product and then Then we know more right in between the Client and the bank about that Particular user base so we can say maybe These are the limits we should offer Maybe these are the features and maybe Once we know we have a history with them We can start to offer them a debit right To be able to do that and so I think That the ability for us to to take the Learnings from this and and actually Productize that and put that into our

Products to offer that to other um Clients that come on board is a really Powerful tool and actually should help Reduce fraud over over time um by by Being able to to do that so as long as We we keep learning uh from from that And and productize I think the the Future is really exciting and in your Role at unit you talk a lot with banks In particular um do you have difficult Conversations with them saying okay You're sending us too many bad clients We don't want to work with unit anymore We cutting you off um no I mean we we Have we we have our own internal Standards um before we even like as we Go through and we we talk to people um a Lot of our sales team is here this week And you know we have our internal um Processes that we do but then we listen To the banks and we say what's your risk Appetite you know what what kind what Kind of clients do you want us to bring You where where should we be looking um And when we find those we introduce the Client in the bank and they have a Conversation about that and and decide If they want move to full full due Diligence and go through the the process Of that so it's actually a really um Easy way to to manage what that what That deal flow looks like and the banks Are in complete control of that and you At CA do you have what kind of

Relationship do you have with banks is It always Positive uh I I think so um we just Signed a new one today stance bank and They seem lovely uh but I would say like In general the way our approach works is Somewhat similar to unit in that what we Do is we do a whole bunch of homework Ourselves on our potential customers and Understand who they are and what they do And what the risk they're taking and and The economics of the deal and then we Send out a note to our sponsor Banks Saying here comes this amazing deal are You interested so we let them opt into Being part of the process of learning More then we introduced the fintech to Two or three Banks and say which one do You like the most because there's always Going to be some sort of um Prioritization or perspective that you Get from both sides Ideally the fintech says they like two Or three so then we can help load Balance so no Bank gets too many Customers at any one time um and then we Go through the final St each customer Only has one banking partner right Usually they start with one post svb Most of our our larger customers have Come to us and said can you give us two Or three each end customer I think each Oh each human no each each of your Clients each one of our fexs could have

Two or three Under the covers uh and they've all Become more um thoughtful about that Given the risks that they have all of Their eggs are in one basket is it more Complicated for you like in the back end No for us it's just give them a second API key it's really simple um and we Have a whole bunch of analytics that sit Sort of cross programed so that the Fintech can see what's happening across Multiple uh Bank domains if you will so Fintech is sort of evolving in this sort Of layered approach with the there are Companies there are embedded finance Companies there are banks behind the Scenes and with alloy for instance are You another brick and do you think there Going to be more fintech bricks Contributing to this fintech yeah I go Back and forth I think there will be More bricks and I think that's been a Really good thing for the industry to Give redundancy right when one when There's one problem with some bank or or Some vendor you have the ability to to Quickly s you don't want to shut Everyone's bank accounts overnight You're messing with people's money you Want to be able to to to make sure There's sort of resiliency in the Infrastructure and so the competition in The market and the number of vendors has Been really positive on the other hand

The more layers you have or vendors you Have the more important it is that we be Able to sort of work with each other and Talk to each other like I have to be Able to make sure that you Amanda have Access to all this data about the Customers that you can then share or Share in certain parts with your partner Bank and may with the regulator and with The fintech compan And so those translation layers have to Exist both from a policy perspective Like let's make sure we're all on the Same page about who we're giving bank Accounts to um but also uh from sort of Like a technology perspective how how Can you make that process as close to Instant as possible when we're sort of Calling each other and going like hey Can I let this customer in you know so So I think that's the challenge for the Industry so I don't know I think there Will be more bricks but we're also in This weird moment of like consolidation In the fch Market because everything Sort of been yeah exactly you talked About the tough environment right now And if you add more companies uh in the Process does it mean like there are less Margins as well for Everyone yes um the unit economics when You add in all these layers get you know It does get constrained however in a World without like these two doesn't

Really this doesn't exist because Partner the banks weren't doing this Themselves before they weren't Building um you know digital banks for The lgbtq community it just wasn't Happening So I think the hard part is if you're a A company big or small and you want to Do banking as a service and you say I'm Going to go do it by myself you're Spending 6 to n months if not more on BD And legal just doing contracts with Every vendor in the ecosystem and you'll Start with 100,000 bucks a month in Minimums because every one of the these Vendors is going to say I'm 5 grand I'm 10 grand you also have to be a Compliance expert and then you have to Become a compliance person then you have To do legal then you have to do on Boarding and then you start coding and Then after that you say hey I built all This stuff can I find a bank and the Problem is the banks are all sold out so You get finished and the banks say well That's awesome but I'm going to go work With this company over here that's Already on my platform and has 250 Million in funding so the value that Companies like ca and unit bring is all Of that stuff all that integration work All of that partnering it comes with one Single deal one agreement between us and You and we bring you a Marketplace of

Banks that you can work with which have Different risk appetites it's a much Easier relationship at unit who is your Biggest client for Instance well uh we have a we have a Number of different clients across uh One of them let's say a handful of them Um so um honeybook is a is a great Client of ours uh relay Finance Um I could continue continue on with a Listing of those and so those are two Examples of of when they grw at some Point do they come to you and say we Want to build a team internally and Start our own fintech stack and leave You no you know we get that question a Lot um about about if if banks want to Go quote unot or if clients want to go Quote unquote direct um but really when But but when you when you think about it We actually are direct Right in our models like our clients do Get to talk to to the banks and they get To they get to have that so um we we Don't hear that conversation um because Again in the model that we have we're Really just trying to allow everybody to Do what they do best um in that Ecosystem and provide those um those Lanes for that piece of it so it's not Something that we've seen to date There's also I think like this um we We've seen this on our end too where Folks think that you know they might

Come into this going like yay yeah and Two I'm going to use guys for two years And then I'm going to move off of it People don't because they realize how Much of a pain this is to build at sort Of every layer and how much they're Going to spend if they do any sort of Math it's it becomes really crazy so They get into it thinking all right I'm Going to abstract way but they don't Typically do it I think it kind of Depends on what their Core Business is If their Core Business is also being a Fintech to their ecosystem think a Payments company or a toast or someone Like that you might argue that they have People in house that are doing many of These functions and at some point they Could say hey I'm going to build that Myself at Uber we had a really large Team on the payments Corporation because We were doing payments in 70 countries In every different possible way and form And so it was relatively straightforward Notwithstanding budget constraints to Carve off a team to say hey we can go Launch a Neo bank for our driver Community and we had all those Relationships so we had relationships With MasterCard and unit and everybody Else under the covers so as we then went Forward we were in a proposition Spinning up S Tera was basically a Reflection of not everyone has hundreds

Of Engineers working on payments how can I commoditize all of that functionality So you can focus on your business be a Payments company if you want to but in Reality most of our customers today come To us from different use cases that Aren't with their own engineering teams And product teams focused on payments Themselves interesting and I'm sure we Have many entrepreneurs in the audience Maybe one last question what sort of Advice would you give them to get Started with embedded Finance if they Want to offer Financial Services should They go to syn's or units Website definitely shine up my emails P Sync.com hit me up uh but no look I Think the the biggest advice I would Give you is don't underestimate the Compliance and uh the focus on getting It right from the start it's really Really easy to go down a bad path and Make your kyc funnel really sloppy and Then run the risk of getting The Regulators all over you be Straightforward be transparent with your Customers on who you want and make it Really easy for them to on board but Don't cut any Corners all right thank You very much everyone and have a good Disrup thank [Music] You