Next-Generation core systems and BaaS empower embedded finance; Buy Now, Pay(Pal) Later; Wallet apps: how do they work?;
In this edition:
1️⃣ Apple’s Ideal Credit Card Partner to Replace Goldman Sachs Is Chase
2️⃣ Checkout.com faces second round of exec departures this year and makes further staff cuts
3️⃣ Payments Firm SumUp Defies Fintech Slump With €285 Million Fundraising
4️⃣ Wallet apps: how do they work?
5️⃣ Buy Now, Pay(Pal) Later
6️⃣ Block’s growth strategy
7️⃣ Next-Generation Core Systems and BaaS Empower Embedded Finance
News
Apple’s Ideal Credit Card Partner to Replace Goldman Sachs Is Chase
Apple and Goldman Sachs are on the verge of splitting up, and the bank that probably makes more sense as Apple’s new partner is Chase, which already has a significant relationship with the iPhone maker.
***
Checkout.com faces second round of exec departures this year and makes further staff cuts
Checkout.com is facing its second round of executive departures this year and laying off around 80 employees, after making a series of “layoffs by stealth” earlier in 2023.
***
Payments Firm SumUp Defies Fintech Slump With €285 Million Fundraising
Payments firm SumUp has raised €285 million ($306 million) to fund international expansion and new products for businesses.
***
Insights
***
Wallet apps: how do they work?
There are three distinct groups of B2C wallet apps — pass-through, staged, and stored.
Pass-through wallets, commonly designed as mobile-first, keep tokens that link to your credit and debit cards instead of storing sensitive data or money directly. They don’t take part in moving funds. Once a transaction is initiated, such apps just pass encrypted information to a merchant — hence, the name.
In the course of further payment processing, the token travels to a payment network to be decrypted and checked against the actual card or account information in the issuing bank. After verification, the payment gets approved and sent to a merchant’s acquiring bank. So, only the network and an issuing bank will know the actual card or account details.
Known for high security, pass-through wallets act essentially as extensions of credit and debit cards, so they are more widespread in regions with high card adoption, such as Europe and North America.
Major examples: Apple Pay, Samsung Wallet, Chase Mobile app
Staged wallets also house tokenized payment details but don’t transmit them anywhere. Instead, they perform transactions in two stages. At the funding stage, the wallet acquires money from a customer’s bank account, credit line, or other source. Then, at the payment stage, it sends funds to a merchant.
In this scenario, a wallet provider can make additional fraud assessments. At the same time, a payment network or card issuer may know nothing about details of a particular transaction that are disclosed during operations with pass-through solutions.
Staged options often support peer-to-peer transfers and cryptocurrencies and allow for storing funds right in the wallet’s account.
Major examples: PayPal, Google Wallet (former Google Pay), Cash App (the US and UK only)
Stored digital wallets work as prepaid cards. Before making a transaction, a user must load money to a wallet’s balance from a bank account, debit or credit card, via peer-to-peer transfer, etc. The availability of funding sources differs across providers, depending on the location and targeted users. A merchant withdraws money directly from the wallet.
Stored wallets are especially popular in unbanked and underbanked countries since they enable people to deposit money without having a bank account.
Major examples: Apple Cash (US only), Alipay (China’s most popular e-wallet), WeChat Pay, Paytm Wallet (India’s largest platform for instant payments).
Which wallet type and which brands, in particular, should travel companies care about in the first place? It largely depends on where their target audiences are.
Source AltexSoft
***
Buy Now, Pay(Pal) Later
In times of high prices, high interest rates and high economic uncertainty, the “Buy Now, Pay Later” model has emerged as a popular alternative to credit cards or other digital payment methods. According to FIS’ Global Payments Report 2023, BNPL accounted for 5 percent of global e-commerce transaction volume last year and is expected to grow at a CAGR of 16 percent between 2022 and 2026.
According to FIS more than 200 global providers now offer installment loans at checkout, as specialized fintech companies such as Klarna and Afterpay are competing with established digital payment providers, banks, tech giants and credit card companies in the still nascent BNPL market.
According to Statista Consumer Insights, PayPal with its interest-free “Pay in 4” option is the most popular BNPL provider in the U.S. right now, with 68 percent of surveyed BNPL users saying they used PayPal’s Buy Now, Pay Later option in the past 12 months. Afterpay comes second with a reach of 25.9 percent, followed closely by Affirm and Klarna, which were used by 21.9 and 21.5 percent of BNPL users, respectively.
Source Statista
***
Next-Generation Core Systems and BaaS Empower Embedded Finance
Embedded finance is enabled by BaaS, which is the infrastructure and underlying pipes that provision a bank’s product and functional stack in a composable way through APIs and third parties. These pieces can then be assembled and curated to offer existing bank products, create new products, or collaborate with a wider variety of stakeholders.
There are significant potential benefits to banks. Embedded finance enables rapid customer acquisition and deposit growth by offering products to third party customers. This can be either in a home market to customers of a non-FS partner or as a new market entry strategy. Revenue grows through shared information interchange, deposit growth, or fees associated with services like permissioned data access.
Celent is even seeing financial institutions insourcing capabilities from other banks (e.g., ID verification, payments). However, many banks have glaring technology gaps in their core platforms, which make engaging in embedded finance either difficult or impossible. Capturing this opportunity will require core modernization. Celent sees a few areas where incumbent core platforms struggle to deliver BaaS or embedded finance.
Expensive to make changes or create new products: Legacy platforms have long timelines to create or release new products, and it’s often expensive. Even small changes can take months.
Limited composability or API support: Older technology will struggle to provide granular composability necessary for embedding new product propositions into third party channels. Many don’t provide enough public API support.
No access to real time data or support for payments: Third parties leveraging embedded finance will require real time event-based interactions with the core. Monolithic, batch-based systems of the past are unable to handle or support these requests.
Difficult to scale: Legacy cores can have a difficult time handling an influx of new customers or transactions. The time to scale with traditional infrastructure is a major barrier.
Banks looking to offer embedded finance need to begin exploring more modern core platforms that can support BaaS. Figure 3 shows that banks need a core that is deployed in the cloud (i.e., cloud native), can support SaaS-based platform delivery, can deploy capabilities (either from the core vendor or ecosystem providers) as discrete services, and can operate in real time.
Source Mambu
***
Block’s growth strategy
Square provides commerce solutions and business software for millions of brands and small businesses.
In December 2021, Square changed its corporate name to Block, separating the corporate entity from its subsidiary businesses that it calls its “building blocks.” Those include Square, Cash App, Spiral, Tidal, and TBD.
Over the last 2 years, Block’s expansion activity through acquisitions, investments, and partnerships point to 2 clear goals for the evolution of the company and its subsidiaries:
📌 Block and its “building blocks” want to be trailblazers at the intersection of consumer tech and finance
📌 Square seeks to be a one-stop-shop for small business software needs
📌 While these goals are focused on growing the company, they also align with its stated objective of “building blocks” that help more people around the world access the economy.
Source CB Insights
***
Reports
***
