FCA and Modulr agree on customer onboarding restrictions; Difference between Embedded Finance and Banking-as-a-Service; The rise of payment orchestration platforms;
In this edition:
1️⃣ FCA and Modulr agree on customer onboarding restrictions
2️⃣ Goldman Sachs exec reportedly regrets Apple savings account, wants out of ‘this f–king thing’
3️⃣ Armed with $40M in fresh capital, fintech Stash says it’s moving toward an IPO
4️⃣ Difference between Embedded Finance and Banking-as-a-Service
5️⃣ The opportunities: global fintech infrastructure
6️⃣ The rise of payment orchestration platforms
7️⃣ Understanding payment analytics
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Insights
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FCA and Modulr agree on customer onboarding restrictions
Britain’s Financial Conduct Authority (FCA) has told UK-based fintech Modulr to stop onboarding some new customers over regulatory concerns, Sifted has learned.
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Goldman Sachs exec reportedly regrets Apple savings account, wants out of ‘this f–king thing’
Apple launched a high-yield savings account in partnership with Goldman Sachs, but its buzzed-about 4.15% APY isn’t lauded by one executive at the investment bank who didn’t hold back when dissing the endeavor.
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Armed with $40M in fresh capital, fintech Stash says it’s moving toward an IPO
Stash, an investing app, is taking advantage of a tool that’s been around for some time — a convertible note. The company told TechCrunch exclusively that it just raised $40 million through one of these mechanisms, led by early and existing backer T. Rowe Price.
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Revolut rolls out the latest version of its app Revolut 10
Compared to the previous version, Revolut 10 features a new, simplified look that lets users view all their money on the home screen, according to the post. Users can also access all their main Revolut accounts, switching from one to another with a single tap.
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Insights
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Difference between Embedded Finance and Banking-as-a-Service
Embedded finance has existed for years and does not necessarily need to involve a computer, APIs, or anything technological. Embedding finance is an activity a company undertakes to add product depth by delivering financial services to their customers at their points of need.
An example of embedded finance is receiving financing when purchasing a car at a dealership. The consumer is there to view and buy the vehicle but dealers figured out that they could also sell loans exactly at the point when the customer needs financing. This is clearly an offline example of embedded finance; it does not happen just on platforms or in apps.
Uber is a great example of a company that has embedded finance within a technology platform. Their core business was a marketplace to match people who need a ride with those who can provide one.
Cleverly, Uber embedded finance into their product by automating payment from the rider to the driver at the precise point of need, improving the payment experience for everyone involved in the transaction. Uber’s Pro Debit Card product is powered by Branch, which is an American BaaS provider. Uber itself is not allowed to issue cards; they need a regulated banking partner.
Banking-as-a-Service is a delivery method for financial products from regulated entities to non-regulated ones. A BaaS provider is a company that sells access to its banking license and tech-enabled finance expertise (think APIs) to enable other companies to embed finance.
It’s also important to note that embedded banking, a term commonly used, represents a subset of the wider embedded finance world. Embedded banking usually refers to more traditional products offered by banking organizations, such as accounts, debit cards, and payment services. Embedded finance is broader, including things like insurance, investment accounts, and FX that are not always offered by typical banks.
BaaS came to life once certain regulatory and technological developments happened to make the B2B delivery of banking capabilities possible. Let’s dive a bit deeper into this now.
Source Swan
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The opportunities: global fintech infrastructure
Money moves clumsily across borders, but increased consumer and business demand for better experiences is attracting top entrepreneurs to solve these problems. There are many areas of opportunity here:
📌 Creating multi-country rails
It continues to be challenging to move money across a single border. Businesses are often left waiting for days for a payment to go through, without knowing the exact foreign exchange fee. Moving money between multiple countries multiplies this problem. Several existing companies have already integrated with various local rails to help companies orchestrate money movement, but opportunity still exists for new players to create seamless and transparent money movement experiences between countries.
📌 Building embeddable payment infrastructure
Increasingly, companies aim to monetize through financial services, but in many geographies, it is still difficult to find modern card-issuing partners or white label payment acceptance. Furthermore, global software companies are frequently compelled to partner with several different infrastructure providers to cover the necessary geographies, a complex process that requires maintaining multiple vendors.
📌 Enabling borderless business banking
Businesses operating in multiple countries often open several bank accounts per country — correspondent banks to facilitate international transfers, local banks to take advantage of the best local banking services, additional investment or treasury accounts, and more. This process is slow, hinders cash visibility across the company, incurs high expenses when moving money (even within a single company), and complicates end-of-month reconciliation. The increasing prevalence of open banking in many countries offers new companies the opportunity to create an application layer that offers multi-country account visibility and other services.
📌 Satisfying global compliance
Know Your Customer or Know Your Business (KYC/KYB) compliance in a single country is often complicated. It not only requires integrating the right data sources, but also creating a process that feels frictionless to the customer while satisfying all compliance requirements. Outside of customer onboarding, complying with local regulations around aspects such as data storage or reporting requirements can be challenging, especially when operating in multiple countries.
📌 Combatting fraud
The advent of real-time payments in many countries will solve some frustrating payment delays. However, this magnifies another problem: fraud. As generative AI tools become more widespread, the cost to fraudsters of iterating malicious content drops to near zero: they can write and test thousands of phishing attack emails in minutes and continuously tweak the ones that work best. In this new landscape, effective fraud solutions for cross-border payments will become increasingly important
Source a16z
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The rise of payment orchestration platforms
The challenges associated with in-house payments orchestration have given birth to a category known as payment orchestration platforms. Vendors in this space have dozens, if not hundreds, of payment integrations (e.g., gateways, alternative payment methods, acquirers) that merchants can connect to, supported by a cloud-based platform for managing and optimizing payments across multiple partners. As the chief technology officer of a beauty retailer deploying a payments orchestration platform vendor put it, “The partner is well integrated with a variety of payment providers and therefore provides a feature-rich series of options that we are too small to develop ourselves.”
The value proposition of payment orchestration platforms rooted in the following:
📌 Streamline operations. Third-party orchestration platforms can reduce engineering requirements and operational overhead associated with onboarding and managing multiple payment integrations, as well as optimize their use. This can allow payment teams to shift their focus away from maintenance of an in-house platform and back to value-added tasks like A/B testing and strategy development.
📌 Centralize payments data and intelligence. A key value proposition of any orchestration platform is in centralizing reporting and reconciliation, delivering analytics, and tracking performance across key metrics and individual partners. This insight is often delivered via a comprehensive dashboard, which can result in faster and better-informed business decisions and optimization strategies.
📌 Maximize financial performance. Orchestration platforms streamline and expedite the ability to connect to multiple payment partners, provide a simplified interface to manage and apply transaction routing rules/logic, and offer access to various transaction optimizers (e.g., network tokens, account updater). This can enhance the speed at which a multi-processor strategy delivers financial results.
The head of finance at a meal delivery startup summarized the value of payment orchestration platforms to us as being able to help businesses, “drive efficiencies by being more agile and able to scale more rapidly.” For a payments orchestration platform to truly deliver, merchants should seek out vendors with product and service attributes aligned with their specific business needs. While emphasis on core factors like uptime and scalability should be a universal priority, others, such as platform modularity, will vary in importance depending on a merchant’s requirements and use cases.
Source Spglobal
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Understanding payment analytics
So, what is payment analytics? Simply put, it’s the practice of sifting through and examining the data from payment transactions.
Payment authorization rate: This metric reflects the percentage of transactions that are successfully authorized. Rather than being a standalone statistic, it is a real-time tracking tool to ensure successful order completion. For a more comprehensive insight, merchants should monitor the authorization rate at both the transaction attempt level and the order level, revealing the correlation between payment attempts and orders.
Payment failures: Payment failures serve as indicators of the overall user experience. This metric shows the percentage of attempted transactions that fail for various reasons, like insufficient funds, expired cards, or technical issues. In this context, taking immediate and appropriate action is crucial. If a card lacks sufficient balance, the customer should be informed via an accurate error message, suggesting using another card. If a transaction is declined due to a 3DS requirement, it’s worth enforcing all payments from the specific BIN to go through 3DS from the start.
Fraud decline rates: this metric helps businesses monitor and manage potentially fraudulent transactions. A high fraud decline rate might suggest the need for enhanced risk management strategies and preventive measures. Alongside this, merchants need to track false positives — legitimate transactions incorrectly declined due to suspected fraud. Defining what counts as a false positive for their business and closely monitoring this metric helps prevent revenue loss from valid transactions that are wrongly declined.
Refunded payments: These numbers give businesses insight into the number of payments refunded to customers. A high refund rate might indicate issues with a product or service quality. By identifying the reasons behind the refunds, businesses can take corrective measures to improve their product or service offerings, which in turn can boost customer satisfaction and retention. High refund rates might sometimes also include fraudulent behavior due to internal and external factors.
Recovery rates: This shows the percentage of transactions that are successfully completed after initially failing. By analyzing the common reasons for initial failure and successful recovery methods, businesses can refine their payment systems to improve the overall payment success rate.
Chargeback rates: This key metric reflects the percentage of transactions that result in a chargeback, which occurs when a customer disputes a transaction, and the bank forces a refund. A high chargeback rate may suggest issues with product quality, customer service, or often fraudulent activity. This metric can be analyzed in conjunction with a payment method, issuer, and PSP to detect any correlations.
Source Payrails
