Everybody wants to be a bank

The desire to bury financial services in everyday life is being enabled by ‘smart pipes’, prompting a wave of quasi ‘banks’. Fintech commentator Chris Skinner and Sophie Guibaud, Chief Growth Officer at OpenPayd, consider what it means for real ones

In fact, you don’t have to imagine – in some parts of the world, including London suburbs, you can already experience some of these ‘invisible’ transactions.

Challenger banks and payments services providers kickstarted the frictionless revolution, but now businesses far removed from finance – ride hailing firms, delivery companies, even furniture giant Ikea – are moving into their space, literally unboxing financial services in order to construct a flatpack bank or something that looks very much like one. Will it be companies like these, rather than providers of the financial nuts and bolts that lead the next wave of innovation?

The financial services revolution began with the creation of new vertical fintech services reinventing each part of the bank, and by neobanks trying to satisfy specific customer segments, says Sophie Guibaud, chief growth officer at OpenPayd, a banking and payments-as-a-service platform, which is agnostic about which industries it serves.

“I think embedded finance is the next evolution,” she adds. “We have seen a massive acceleration at OpenPayd over the last 18 months of brands – fintechs and non-fintechs – all wanting to include our services as part of their offering.”

Fintech commentator Chris Skinner has a problem with the term ‘embedded’, preferring ‘invisible’, even ‘omniaccess’, as it increasingly refers to a financial encounter replace the things that banking does wrong, and the things that banking doesn’t do at all,” he says. “So serving the underserved and the unbanked – which is what Nubank is doing, and Alipay is doing, and WeBank is doing – or dealing with the frictions of the digital world that the banks don’t deal with well – such as the stuff that Stripe, Square, Adyen, Klarna and others are doing – are proving hugely successful.”

As Guibaud observes, these vertical service providers have, so far, mostly been the ones offering to integrate financial services for non-financial partners via a largely API-driven ecosystem of players who see an opportunity to fundamentally change the way things are done. They are ‘smart pipes’ – of which OpenPayd and Stripe are prime examples – as opposed to the ‘dumb pipes’ that characterise much of banking. And they’re being used increasingly to present consumers with a product that doesn’t feel like banking, but more of a financial lifestyle choice.

And who better to offer that than brands they know and trust? Like the world’s biggest furniture retailer, Ikea, which took a 49 per cent stake in its financial services partner Ikano Bank in February 2021 – a deal presented as making the retailer ‘more affordable, accessible and sustainable’ by enabling it to offer financial products and services online and in-store.

If you’ve never received a flatpack from Ikea, you’ve almost certainly received a delivery from Amazon, which has been rumoured for some time to be looking to establish its own bank. But it’s probably much too smart for that. Instead, it’s cherry picking what financial services it wants to offer and to whom – in the middle of COVID in 2020, for example, it struck a deal with Goldman Sachs’ digital bank Marcus to

that’s no longer consciously experienced. “Like electricity or water, it’s just there,” he says. Neither does he believe that (with some notable exceptions – Brazil’s Nubank and Russia’s Tinkoff Bank) neobanks have ever really challenged the banking system. Proof of that is in the customer numbers: getting on for a decade after the first completely independent neo threw down the gauntlet to incumbent banks, there still hasn’t been a fundamental shift away from traditional banks.

“Five million or so customers with Monzo, eight million with Revolut. Those are good numbers but what are those customers actually doing? Are they really moving their financial lives to those banks, or are they just supplementing their financial lives with those banks?” Skinner asks. “I think, in the majority of cases, it’s the latter.”

A little harsh, perhaps. Even Guibaud argues that Revolut’s multi-currency accounts were game-changing for their time and persuaded many of her contemporaries to join it. But Skinner questions whether most neobanks are really innovative or whether they’ve just repackaged the traditional bank in some shiny digital wrapping paper. He believes that where fintech innovation is at its most arch, its most disruptive, is generally where it is at its most focussed.

“My observation, over the last decade of the billions of dollars invested, is that the fintechs that are most successful are not trying to replace banking; they’re trying to

embed invitation-only lending to merchants on its marketplace, through the Amazon merchant portal. A CB Insights’ report observed recently that it was using financial services strategically to enable merchants to sell more, buyers to buy more and make the two things happen effortlessly.

“Apple, Amazon and Google are all in this space with Plex, Google Pay, etc,” says Skinner. “They’re not building banks; what they’re doing is building the ecosystem of bank APIs, through the platforms, to bring the customer the best experience ever.”

In 2019, Angela Strange, general partner at venture capital firm Andreessen Horowitz, predicted that ‘in the not-too-distant future… nearly every company will derive a significant portion of its revenue from financial services.’

That prophecy is being incrementally fulfilled. “And there will be a first-mover advantage for smart pipes,” says Guibaud.

In the case of OpenPayd, last year it decided to focus on using its banking platform to power embedded crypto services, including remittances. “And we have seen a massive acceleration of those conversations, from ‘maybe let’s start with card processing [offering crypto]’, to being able to buy the coins on their platform and do transfers,” says Guibaud. “The next evolution is wanting payment initiation through open banking.

“It’s a very powerful example of how embedded finance/invisible banking can really supercharge a business model, going from something pretty narrow, pretty niche, to deeper into the market.”

So far, so bad for legacy banks. Or is it? Guibaud and Skinner both argue that they don’t need to be left behind. They’ve proved themselves capable of doing intelligent finance in the past – but once they start innovating, they need to keep driving it forward. Skinner cites the example of Barclays mobile peer-to-peer payments app Pingit. Revolutionary when it launched in 2012, the service is now being shuttered having failed to keep up with innovation from rivals in the money transfer space.

“The opportunity for traditional banks, if they want to take it – and many banks haven’t made that decision strategically, they are just tactically dancing around the idea – is that you could be the utility of choice for the technology digital ecosystem of players,” says Skinner.

They are just as welcome as the next neo or payments services provider or, indeed, retailer to use platforms such as OpenPayd

and Stripe to remodel finance. Some are already taking tentative steps towards that and the pipes are flowing in both directions. Stripe has teamed up with Goldman Sachs and Evolve Bank & Trust to embed business banking and treasury management within payments, and with Citi and Barclays to distribute financial services. In Mexico, Spanish bank BBVA partnered with the Uber to create what was essentially an Uber-branded bank account for drivers, so they can withdraw their earnings as they go.

Guibaud points out that, however invisible finance is, it still needs to be structured and for that you need the big daddies of banking.

“Start-ups need the support of banks, essentially, to be able to provide the regulatory environment and the correspondent banking service,” she says. “Banks need to be comfortable with that. BBVA has been since 2018 or so, with Uber. Clearly, Goldman Sachs, Citi, Bank of America – powered by Stripe – are, too.”

With new providers now looking and acting, but not legally being a bank, perhaps one thing protecting legacy banks’ ongoing fundamental role in finance is their regulatory status – an asset they can monetise. The intelligent ones, as Skinner says, will see that as an opportunity to become part of the network of ‘smart utilities’ instead of ending up ‘dumb pipes.’

And the consumer? Ultimately, they won’t have to think too much about any of this. And that’s the point.

“As I interact with that bank-as-a-service, it learns more and more about my life, needs and wants,” says Skinner. “I wake up thinking, ‘I need to eat today. I need to go to town to buy some food, and therefore I need some petrol.’ And I expect the service to tell me ‘you can’t afford to go to town’, or ‘you can only afford a McDonald’s not a Michelin-starred meal’. It’s about the things that I’m doing. It’s not payments and transactions and finance; it’s living a life.”

And living your life without thinking about money, is a future enabled by invisible finance.