“Embedded finance is expanding beyond the financial services ecosystem”
In our latest interview, Business Leader spoke to Tom Bentley, the Chief Commercial Officer at Vodeno, who told us all about the future of embedded finance.
What is your background and what were you doing before joining Vodeno?
I spent more than a decade plying my trade across the banking and financial services sector before joining Vodeno. During my time at Thought Machine, I was responsible for growing the business across Europe. Prior to that, I held executive roles at banking software company Temenos, across Asia and Australia, collaborating with some of the most disruptive fintechs in the world.
It has been an exciting journey that has led me here. As Vodeno’s Chief Commercial Officer, I can focus on two of my main passions – banking-as-a-service (BaaS) and digital transformation. I’m proud to be responsible for Vodeno’s commercial and marketing strategy. Most importantly, I get to enjoy the opportunity to introduce new markets to embedded banking solutions and witness the role they play in empowering businesses and their customers.
How has collaboration changed between fintechs and retailers in recent years?
Fintech has always been a fundamental part of the eCommerce infrastructure – you can’t pay for products online without digital payment solutions at checkout.
However, the bond between fintechs and retailers is continuing to strengthen, fuelled largely by the aftermath of the Covid-19 pandemic and the accelerated shift to digital. With so many daily activities now conducted digitally, convenient payment solutions are just one piece of the puzzle where the customer journey is concerned.
With customers spending more and more of their time online, retailers are increasingly exploring how fintechs can help them create an integrated and value-added experience that will entice prospective customers and keep the existing ones coming back to their store.
The most prominent example of this recently has been the rise of Buy Now, Pay Later (BNPL), which has quickly swept the globe and offers an alternative to credit cards. The benefit for retailers is evident: with payment interactions kept in-house, they can sell products more easily and understand their customers better. Digital wallets, too, are examples of closer partnerships between retailers and fintechs. Its convenience is driving users away from traditional card and banking interfaces, offering an alternative that is better for both sides.
None of these innovations could have been achieved without fintechs and retailers working together to remove friction from the customer journey. However, this is just the beginning: as merchants explore partnerships with fintechs, they will realise that they can offer more value-added experiences without needing to build the technical infrastructure in order to deliver these products.
What is embedded finance and what are its potential benefits for retailers?
Customers today want a convenient, efficient and secure online shopping experience. They also want to see the right products being offered when they need them. Those looking for insurance for a new laptop, for instance, would benefit from securing this at checkout directly from the retailer, rather than needing to find a third-party provider later down the line.
Retailers have, therefore, started thinking about how to build much more integrated relationships with their shoppers, whereby they can deliver a broader range of services to keep them engaged.
This is where embedded finance steps in. Embedded finance enables non-financial brands to integrate financial services directly into their offering, with banking-as-a-service (BaaS) providers like us taking care of the technical infrastructure, regulatory obligations and balance sheet needed to make this model viable.
Brands benefit because they can tap into financial products without huge upfront costs, giving them the opportunity to create new commercial models, build a better customer journey and enter new markets. With embedded banking, retailers can invest in reimagining their customer journey and add value at different touch points. For some, this might be offering tailored loans at the point of sale, while for others this could be incentives like discounts, points or cash back that are linked to a customer’s shopping habits and delivered through branded debit cards.
Retailers stand to benefit from increased customer loyalty, bigger shopping baskets and better conversion.
What trends are you currently seeing within the embedded finance sector?
Embedded finance is expanding beyond the financial services ecosystem. While fintechs were naturally the first cohort to jump on the trend and leverage ready-made banking solutions, this option is now being extended to businesses that are perhaps less financially-savvy, but just as ambitious.
Retail is just one vertical that will reap the rewards of embedded finance; every sector that interacts with customers could potentially start offering convenient and genuinely useful financial solutions that address the specific challenges their customers face.
What legal and compliance aspects should retailers be aware of when trying to integrate embedded finance into their retail offering?
Strong compliance is key to getting embedded finance right. That’s why any brand that is looking to enter this space must do their due diligence on a BaaS partner to ensure it can offer them – and the end-users – the right guarantees.
Luckily, the rise of BaaS means that retailers themselves don’t have to worry about the checks and balances that go along with delivering financial services. They must, however, ensure their BaaS partner is capable of doing this effectively for them.
Not all BaaS providers are created equal, and it can be difficult to navigate this maze with new players entering the market almost every day. Ideally, a BaaS partner should be capable of managing all the compliance obligations to give the brands the freedom to work with peace of mind. Those that hold a full banking licence (“pure” providers) are generally the best bet – not only will they provide the balance sheet, but they have the expertise to abide by strict compliance standards. For those operating outside of the UK, a provider with a full European banking licence will ensure that regulatory obligations are being met in each market.
What trends are you predicting for the sector in 2022 and beyond?
Decoupled debit cards are an example of a product that is slowly gaining traction across Europe. By tapping into the opportunities created by the EU’s PSD2 regulations, some BaaS providers can now empower non-financial brands – from retailers to sports clubs and airlines – to offer white-labelled debit cards that are wholly owned by them and linked to the user’s primary bank account to process payments.
We should also expect an imminent boom in B2B applications. Consumer BNPL has enjoyed its well-deserved time in the spotlight, but embedded finance can bring advantages to businesses as well as consumers. Over the coming months, we will no doubt see a rise in merchant financing – a model that offers access to upfront funding that retailers can use to produce, buy and sell goods. The capital that was secured is then used to pay off the loan once these goods are sold and profits are realised: a far more convenient option for SMEs looking to escape the constraints of traditional borrowing criteria.
Along similar lines, we will also see more retailers and other businesses exploring B2B BNPL options that enable them to stagger repayments instead of forking out significant amounts of capital upfront.
How is 2022 shaping up for Vodeno? Any exciting partnerships or developments on the horizon?
2022 will be another year of positive growth here at Vodeno, with significant milestones already achieved in just the first few months. We have taken many of our first clients live in payments, decoupled debit and lending propositions, with many more on the horizon.
We are excited to launch into new territories in the coming year and bring our BaaS proposition to new clients as Vodeno expands.