Monzo raises $430 million in Alphabet-led round to relaunch in the U.S.; Financial APIs & Payroll data connectivity for SMBs; Payfac-as-a-Service;
The payfac and PFaaS trends exemplify the effect of software on financial services and other industries: it lowers fixed costs and enables new distribution channels.
In this edition:
1️⃣ Monzo raises $430 million in Alphabet-led round to relaunch in the U.S.
2️⃣ Synctera Announces $18.6M Funding Boost
3️⃣ Apple Card Savings Account’s Balance Limit Increased to $1 Million
4️⃣ Financial APIs & Payroll Data Connectivity for SMBs
5️⃣ Payfac-as-a-Service
6️⃣ Navigating Architectural Principles and Deployment Choices in Banking Technology
7️⃣ Open Banking’s benefits are vast and span across a range of financial applications
News
Monzo raises $430 million in Alphabet-led round to relaunch in the U.S.
British digital bank Monzo on Tuesday raised $430 million in fresh capital from investors to help it relaunch its services in the U.S.
***
Synctera Announces $18.6M Funding Boost
Synctera, a leader in embedded banking and finance, announced today that it has raised an $18.6 million extension to its 2021 Series A round, with Lightspeed and Fin Capital co-leading alongside participation from other previous investors NAventures and Diagram. New investors include Banco Popular and Mana Ventures.
***
Apple Card Savings Account’s Balance Limit Increased to $1 Million
Goldman Sachs today increased the Apple Card savings account’s balance limit to $1 million, with cardholders being notified by email.
Insights
Financial APIs & Payroll Data Connectivity for SMBs
SMBs, especially small businesses with fewer than 100 employees, have historically been underserved by large payroll processing companies, though that has begun to change since the advent of cloud-native services. Cost, implementation difficulties, and technical challenges are the primary reasons small business owners cite for running their own payroll.
A large market opportunity exists for payroll providers who can successfully serve the SMB space, considering SMBs employ nearly half of all U.S. workers, and many still run payroll manually. Cloud-native payroll systems can improve the accuracy, ease of use, and transparency of the payroll process.
Payroll APIs provide access to data that was previously locked in payroll providers’ and employers’ records, enabling employee-friendly services such as earned wage access and paycheck-linked lending, seamless direct deposit switching, and faster identity and income verification.
Codat is a FinTech company providing business data APIs for SMB lending and embedded accounting automation. With connections to major accounting platforms like QuickBooks, Xero, Sage, Dynamics 365, and more, Codat makes it easy to provide seamless payroll and accounting automation, letting SMBs post detailed HR and benefits information with the click of a button.
Automated Verification of Income and Employment (VOIE) drastically speeds up the process of verifying employment and income information for banks, lenders, background check providers, and others. VOIE providers leverage data from payroll providers and employers via payroll API connectivity in order to verify this information in a matter of minutes or hours, as opposed to weeks for manual verification.
Finch is a financial API provider designed to unlock organization, pay and benefits data from over 200 payroll and HRIS systems with one integration. Finch’s platform automates VOIE using the data from a user’s payroll account, switches direct deposit payments to new checking accounts, expedites the application process, and confirms a prospective employee’s previous employment as part of the background check process, enabling businesses to access a previously closed system and smoothen out the payroll process.
In short, efficient payroll systems can improve employee satisfaction and retention, while also easing the administrative burden on employers. Given these secular trends, we expect API providers to continue to develop new use cases for SMBs, and the payroll technology market is likely to continue growing and innovating rapidly.
Source Financial Technology Partners
Payfac-as-a-Service
The growth of the SaaS, e-commerce, and other software markets in the 2010s led many inside those businesses to realize how strategic and lucrative embedded payments could be. Platforms serving merchants, like Shopify in e-commerce or Mindbody in vertical SaaS, are called Independent Software Vendors (ISV). Many considered becoming payfacs themselves, but saw it as too burdensome for a non-fintech company.
This led to the Payfac-as-a-Service (PFaaS) model: existing payfacs allowed ISVs to offer payment acceptance to their end users, with the payfac managing much of the onboarding, risk, money movement, and more for the ISV. For example, Shopify (ISV), offers Shopify Payments, which is actually powered by Stripe (a payfac that offers PFaaS).
While ISVs share payment revenue with the PFaaS, the ISV will often monetize multiple services, like a SaaS offering or other financial products. Shopify, for example, charges all merchants a subscription fee, but earns more than half of its revenue from financial services like payments.
This shows the power of the PFaaS model. Wells Fargo (MA) or Stripe (PFaaS) are unlikely to have individually the resources or expertise to serve millions of e-commerce merchants. But by partnering with an ISV like Shopify, they can provide card payments to those merchants while eliminating the need to acquire them and minimizing the burden of serving them directly. Cardholders have more places to use cards, merchants can accept payments easily, and the ISV, payfac, MA, and network all see greater transaction volume and revenue. The power of network effects in action.
The future of payments
The payfac and PFaaS trends exemplify the effect of software on financial services and other industries: it lowers fixed costs and enables new distribution channels, pushing the service closer to the end user in a more integrated, user friendly, and cost effective way.
These trends also reiterate how much payments is fundamentally a network effect business. More acceptance = more cardholders = more payment volume = more network value. The broader trend from ISOs to payfacs to PFaaS is one of networks and MAs delegating control and responsibility in exchange for more merchants, more payment volume, and a more valuable network.
Source Matt Brown / Matt’s Notes
Navigating Architectural Principles and Deployment Choices in Banking Technology
The banking industry is undergoing a significant technological evolution, transitioning from legacy systems built in languages like Cobol and Assembler to modern, third-generation platforms. These contemporary platforms offer a range of advanced features such as real-time processing, seamless system integration, omnichannel support, and sophisticated analytics capabilities. One of the key features of these modern platforms is their open API architecture, enabling banks to easily integrate with various systems and services and foster innovation in product and service offerings.
However, as banks strive to modernize their core systems and adopt cutting-edge technologies and architectural principles, including domain-driven design and public cloud utilization, they often encounter a balancing act between feature functionality and architectural principles or deployment options. A case in point is corporate lending solutions like LoanIQ from Finastra, which, despite its robust feature set and functional superiority, operates on legacy technology with a thick-client architecture. Such scenarios compel banks to make strategic choices: should they prioritize a product’s alignment with business needs over adherence to their architectural principles?
This decision-making process is critical and should be aligned with the bank’s business objectives and long-term strategies. While the allure of advanced features is undeniable, banks must also weigh the long-term ramifications of their technology choices. The core focus should be on finding a balance that not only delivers an exceptional customer experience but also ensures system stability and reliability.
In making these decisions, banks should consider factors such as:
Integration Capability: How well does the solution integrate with existing systems and future technological advancements?
Scalability and Flexibility: Does the solution provide the scalability and flexibility required to adapt to changing market needs?
Long-Term Vision: How does the choice of technology align with the bank’s long-term strategic vision and objectives?
Customer Experience: Will the technology enhance the customer experience in meaningful and sustainable ways?
By carefully evaluating these aspects and making informed decisions based on their specific needs and priorities, banks can successfully navigate the competitive landscape and position themselves for future success in the rapidly evolving world of banking technology.
Source Samlink
Open Banking’s benefits are vast and span across a range of financial applications
Open Banking innovation around the world is driven by regulators and market participants.
• The EU and the UK have been trailblazers in Open Banking innovation through the introduction of PSD2 by the EU in 2015 and Open Banking regulation by the UK CMA in 2018
• Driven by the early success of Open Banking solutions in the EU and the UK, various other countries and regions have seen the emergence of Open Banking offerings
• Globally, the emergence of Open Banking has been driven by regulators in most countries, while market participants were the drivers in countries such as the US, India, China and South Africa
Open Banking’s benefits are vast and span across a range of financial applications
✅ Improved financial decision-making — Personal and business finance management platforms that aggregate transaction data across bank accounts can provide tailored money management insights, based on spending patterns and savings capacity
✅ Faster, easier and cheaper payments — Account-to-account (A2A) payments leverage Open Banking APIs to provide real-time payments solutions and benefit from increased convenience, reduced costs and enhanced security
✅ Increased savings and investments tools — Open Banking connectivity makes saving and investing easier through offerings such as automated micro savings, non-advised savings / investments and account sweeping into the most appropriate savings and investment products
✅ Enhanced borrowing solutions — Improved credit decisioning and scoring capabilities as well as direct access to clients’ accounts for debt advice and repayments settlement. Open Banking technology provides lenders with ongoing monitoring and end-to-end loan lifecycle management capabilities
✅ Lower switching costs — Leveraging access to transaction data enables subscription management and comparison services for financial, utility and other products, thereby offering personalised savings and money management insights
✅ Increased speed of service and accuracy — Seamless access to user data across transactional accounts reduces time and risk of human error from manual data inputs, and enables an efficient identity verification and authentication process across applications.
Source Royal Park Partners
Reports
Open Finance — What can an enabling framework look like?
Technology and the new challenges for financial regulation
