OPEN BANKING: INVISIBLE FINANCE
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 Imagine going into a store, picking a product off the shelf and walking straight back out, knowing you won’t be fingered for shoplifting as you pass through the door. Or charging your electric vehicle at a service station and driving off without having to physically settle your bill. 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
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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.”
Embedded finance is the next evolution
Sophie Guibaud, OpenPayd
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
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 www.fintechf.com
