The case for becoming a bank; Klarna’s business model; Accelerating cross-border payments: The dawn of a new era;

Sam Boboev
5 min readSep 4, 2024

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In this edition of Fintech Wrap Up, I explore the expansion of real-time payment networks globally, the strategic importance of launching robust card programs, and the transformative impact of banking licenses on fintech companies.

Insights & Reports:

1️⃣ Accelerating Cross-Border Payments: The Dawn of a New Era

2️⃣ APIs Ecosystem and Economy Value Chain

3️⃣ Launching a card programme

4️⃣ How cross-border payments are processed through Nexus

5️⃣ The Case for Becoming a Bank

6️⃣ Banking (Ops) — The Four Pillars for a Programmable Back Office with Zero Ops

7️⃣ Klarna’s Business Model

8️⃣ 8 ways to optimize interchange and scheme fees

9️⃣ Zilch Surges to Profitability, Surpasses $130M in Revenue

TL;DR:

In this edition of Fintech Wrap Up, I explore several key trends and developments that are shaping the future of the fintech, payments, and banking industries. We begin with the rapid acceleration of cross-border payments, driven by the success of real-time payment (RTP) systems in over 80 countries. Initiatives like Project Nexus and cross-border links in ASEAN markets are revolutionizing international transactions by leveraging existing RTP infrastructures. These efforts are not just about speed — they’re fostering financial inclusion by bringing unbanked populations into the digital economy and reducing reliance on cash.

Next, I delve into the growing significance of APIs in the fintech ecosystem. APIs have become critical for businesses looking to innovate and expand their services. They are the digital connectors that allow enterprises to integrate their operations seamlessly into new applications, driving both local and global growth. Understanding the API economy’s value chain is crucial for enterprises to maximize the potential of these technologies, from developer engagement to the end-user experience.

The edition also covers the essentials of launching a card program, emphasizing the need for real-time controls and a robust technical onboarding process. Dynamic spend controls, like those implemented by Monzo and Santander, are becoming standard, allowing customers to manage their spending preferences directly, which enhances security and user experience.

I also discuss the strategic advantages of fintechs like Revolut obtaining banking licenses. For companies focused on financial services, becoming a bank is a game-changer. It improves lending economics, offers greater control over regulatory processes, and allows for more strategic market positioning. This trend is a clear signal of the maturation of the fintech sector, where the ability to offer banking services directly can set companies apart in a crowded market.

Klarna’s business model is another focus, particularly its ability to generate revenue through its Buy Now, Pay Later (BNPL) services. Klarna’s short-duration loans allow it to recycle capital quickly, driving profitability despite the high capital intensity of the model. This efficiency is a key reason why Klarna has managed to thrive in the competitive BNPL market.

Lastly, I highlight some significant news, including Zilch’s impressive milestone of reaching profitability with over $130 million in revenue, Revolut’s launch of crypto payment cards integrated with Apple Pay and Google Pay, and the explosive growth of UAE-based fintech Ziina. These stories reflect the dynamic nature of the fintech industry and the continuous innovation that keeps pushing the boundaries of what’s possible in digital finance.

Insights & Reports

Accelerating Cross-Border Payments: The Dawn of a New Era

The adoption of immediate, faster, or real-time payments (RTP) has witnessed remarkable progress over the past two decades. As of 2023, more than 80 countries have either implemented or are in the process of deploying domestic RTP infrastructures. While the degree of adoption, platform architecture, and user experience may vary across different markets, countries such as India, Thailand, and Brazil have embraced RTP systems as the new standard for peer-to-peer (P2P) transactions and are gaining popularity in peer-to-merchant (P2M) payments as well.

With RTP platforms maturing and introducing new functionalities, these payment solutions have become more user-friendly and have expanded to support a wide range of use-cases. They are now seamlessly integrated into a wide array of applications, ranging from banking apps and digital wallets to super-apps, online marketplaces, and payment automation platforms.

Crucially, RTP infrastructures have played a pivotal role in addressing the needs of previously unbanked or underbanked populations, facilitating transactions between bank accounts and digital wallets, and contributing to the gradual reduction in cash usage. Moreover, they have been catalysts for innovation, bringing transformative changes across the payments industry ecosystem and its value chain.

Insight continues…

The Case for Becoming a Bank

Last month, Revolut secured its UK banking license, joining the ranks of Nubank, SoFi, and Monzo, among others. For challenger banks aiming to compete with traditional financial giants, obtaining a banking license is a key step in their evolution.

Most fintechs begin by leveraging sponsor banks or BaaS providers, which allows them to launch quickly with minimal upfront costs. This model works well for companies where financial services are not the core offering.

However, for those whose primary business is financial services, obtaining a bank charter can be transformational. It enhances lending economics, offers greater control over regulatory processes, and allows for stronger market positioning.

👉 Better unit economics on lending

Being a bank can improve a fintech company’s lending unit economics by reducing the cost of funding and fees paid to third parties. Banks have the advantage of a core deposit base, particularly when interest rates rise and credit standards tighten. They can choose to expand their lending capacity by increasing their deposit base or tapping into other low-cost funding sources only available to banks, such as brokered deposits or FHLB borrowings (subject to regulatory requirements). Sofi, for example, has impressively scaled its deposit base to ~$22 billion less than three years after receiving its national bank charter, helping them lower their cost of funding. Fintech companies who offer lending but don’t have a bank charter can’t use customer deposits, which are held with their sponsor bank, to make loans (although they do usually earn interest income on these deposits). Instead, they’re forced to fund their lending book with more expensive alternatives.

Insight continues…

Curated News

Zilch Surges to Profitability, Surpasses $130M in Revenue

Zilch, today announced its first month of operating profit while surpassing a revenue run rate of more than $130m (£100m). The business has reached these milestones within just four years of launching its groundbreaking consumer payment platform. Zilch also announced the appointment to its Board of Mark Wilson, former CEO of Aviva and AIA and current member of BlackRock’s Board of Directors.

News Continues…

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Sam Boboev
Sam Boboev

Written by Sam Boboev

I am a fintech enthusiast and product leader passionate about crafting simple solutions for complex problems. Subscribe https://www.fintechwrapup.com/

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