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The MoneyPot Live: Raising the Standard of Embedded Financial Solutions
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What if you could streamline your financial transactions and cut costs at the same time? Join us as we uncover the transformative power of embedded finance and open banking, broadcasting live from Money 2020 USA in Las Vegas. With the expert insights of Tom Bianco from Fifth Third Bank's Newline and Eric Faust from Trustly, we explore how the seamless integration of payment capabilities into various platforms is reshaping the way we conduct our financial lives. Tom and Eric share the story behind their collaboration, detailing how they are pioneering innovative account-to-account payment solutions that enhance everyday transactions for businesses and consumers alike.
In our conversation, we delve into the dynamic between traditional banking and fintech agility, offering a strategic perspective on how NewLine is harnessing both worlds. We highlight how the partnership with Trustly is pushing the boundaries of what's possible in payment capabilities, while also addressing the challenges of adapting to the regulatory landscapes of different global markets. With strategic innovation at the forefront, we discuss how institutions are navigating these changes to ensure both scalability and stability in an evolving environment, emphasizing the importance of understanding core business and regulatory requirements when working with large companies.
Finally, we look to the future, examining the implications of rising consumer expectations and the growth of embedded payments. By exploring the potential of open banking as a cost-effective alternative to traditional transactions, we reveal how it enables merchants to reinvest savings into customer engagement. The conversation also touches on the challenges of re-authentication and tokenization, underscoring the necessity of education in this competitive space. With bold insights from Tom and Eric, we encourage creativity and innovation in elevating embedded financial solutions, leaving our listeners with actionable ideas to enhance their fintech offerings.
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Hello and welcome to the Money Pot. Coming in live from Las Vegas amidst the excitement of Money 2020 USA, we have an audience here in attendance, but we're also recording for the folks at home and we've got a very interesting conversation on the way. First, some introductions. I'm Ian Horne, european Head of Content at Money 2020, and I'm co-hosting this one with heryl Chen, our Head of Content for Asia. We're going to be talking about raising the standard of embedded financial solutions. heryl hi.
Sheryl Chen:Hello, it's a me, mario hey.
Ian Horne:It sure is. I didn't expect that, am I right? In thinking that this is a big topic for our attendees in Bangkok.
Sheryl Chen:It is actually. I feel like I'm having a little deja vu moment, because when I was in Bangkok doing our Money 2020 show for Asia, I had a podcast a live podcast with Rachel Morrissey on banking as a service with the Audax, which is the standard charted like basically, yeah, best right.
Ian Horne:So we're worldwide here. That's good, it's good. So, absolutely, mr Worldwide, mario, whatever we're doing, anyway, these episodes are 25 minutes long, so we better introduce our guests. Today we're joined by Tom Bianco, general Manager of Newline by Fifth Third Bank, and Eric Faust, vice President of Banking Partnerships at Trustly Guys. Welcome to the Money Pot. How are you doing? Thanks for having us. Great to be here.
Eric Foust:Yeah, great to be here, thank you.
Ian Horne:It is great to have you here, tom. Shame that your foot is in a boot. We were just talking about your soccer incident earlier, and how did that?
Eric Foust:happen, just the typical playing with the kids in the front yard.
Tom Bianco:You make a wrong move and you break your fifth left metatarsal.
Sheryl Chen:It's the you know age-old story, so the story's changed, though, from the high karate accident to same accident as well, same injury as david beckham.
Ian Horne:So you're in.
Eric Foust:You're in good footballing people confuse me for david beckham all the time. It's uh, it's the answer that you're doing all the time I can imagine um, anyway.
Ian Horne:uh, we have lots to talk about today, don't we? And guys, actually, how about I hand this over to you? Give us a flavor of the Trustly and New Line partnership.
Tom Bianco:Eric, if I can start with you, yeah, so my role at Trustly is I lead our bank partnerships group and that means that we go out and establish and maintain relationships with financial institutions to move money on behalf of our merchants and, on the OAuth 1033 side of the house, working with the banks who expose APIs to the marketplace to support consumer data sharing. So it's topical that I'm here with Tom, because Tom's one of the integral partners that we have at Fifth Third. That's going to enable the money movement process for us as well as doing a partnership for embedding trustee services.
Eric Foust:Yeah, for those who aren't aware. Fifth Third is a $200 billion institution headquartered out of Cincinnati, ohio, the Midwest of the United States. Our new line business is our embedded payments business, where we have innovative technologies for companies like Trustly to tap into to deliver modern capabilities like account-to-account payments. We also do our bin sponsorship for merchant acquirers and card issuers, so WorldPay, brax those are some of our clients as well, so it's a fun spot to be in. Embedded finance, embedded banking, is definitely a global topic and there's lots of different views across the globe and we're happy to kind of carve out a leadership position in the United States and work with companies like Trust Leader Power. You know what the next phase of that will be.
Ian Horne:Yeah, before I let Sheryl in, I just love. You might not have heard of us, but we're a $200 billion business. That's a great line. Sheryl, I'll let you get a word in.
Sheryl Chen:Oh well, wow, I thought you actually had a question lined up.
Ian Horne:Oh no, no, I was just observing on that wonderful comment.
Sheryl Chen:So actually, just to set the scene right for those listening in who don't know what are embedded payments and deposits, maybe you could either, if you take that yeah, I can take that one the way we define embedded payments and deposits.
Eric Foust:For fifth. Third is taking our core payment capabilities. So think payment processing, account, account opening things like that and having the technology to place them directly at the point of need for our clients to deliver and power their software and their digital experiences. So you think about the size, stability and strength of a $200 billion institution and then the modern technology of a fintech that New Line represents, and we bring those to our clients for them to build their proprietary value propositions, and then we work together to make sure that we've got all the boxes checked from tech, product compliance, risk management, you name it.
Tom Bianco:Yeah, and my wife and I were having a chat the other day and she saw the embedded finance term and she heard me saying you know what is embedded finance?
Tom Bianco:So fast forward to later on in the evening. We're sitting on the couch and we have three kids, and so they just got their yearbook pictures emailed to them, and a company called Jostens is the one that sent them to us. So we sat there on the couch and we put together the package that we're going to embarrass them for the next couple of years with right, and then, at the very end, we had to go through the checkout process, right. And then, at the very end, we had to go through the checkout process right. And so this was where I was like maybe this is the embedded finance portion of this. So Jostens is not a payment company, right, but part of their flow is integrating a nice smooth process in order to make sure that we can check out. And obviously we chose Trustly, because that's what Trustly does is the open banking payments, and that was just a nice little walk away from that. I love that.
Sheryl Chen:You know what? Sorry just to jump in here. It reminds me of this question I asked when we were doing the same thing in Asia. So, because you were talking about your three children, right? How would you explain embedded finance to a five-year-old?
Eric Foust:Oh, can I do this? Somebody asked me this one previously and I have a five-year-old daughter, so I spend a lot of time at five-year-old daughter. So I spend a lot of time at five-year-old birthday parties, and you tell them all about embedded finance All the time they love it.
Eric Foust:They're just like. This is amazing, but I use the cake analogy. So if you think about a layered cake, right, the icing is the digital experience. You have a layer of cake. That's kind of the technology. On the Trustly side, for example, you have another layer of icing. That's the integration between Trustly and Fifth. Third, and then the base of the cake is the capabilities we have through New Line and you can take a knife and slice it right through, and that's really what people are doing when they're interacting with the Jostens website to initiate a payment and to process it.
Sheryl Chen:So you can have your cake and eat it too. Oh, jeez, oh.
Eric Foust:I didn't know that it too. That's good.
Ian Horne:I love this idea of you at a party, tom, just talking the kids through embedded finance, and it's like that's nice, tom, but next year we're getting an entertainer. Anyway, embedded finance is one thing, but we're strapping open banking to that now, right, and obviously we had Rohit Chopra at the show and really interesting announcements that is moving open banking forward in the US. So what does that mean for you guys? And Eric, I assume you're the guy to go to here.
Tom Bianco:Yeah, I mean for Trustly. It's huge because before 1033, which is what you're referring to with Rohit Chopra he made the announcement last Tuesday they dropped the 1033 rule. Before that it was the wild wild west here in the United States. Right, we're years behind in the European market with PSD, psd2, and soon to be PSD3. And there's been a lot of uncertainty in the markets and what that rule was going to do for us.
Tom Bianco:And when it got ruled out this past Tuesday from an open banking payments and data standpoint, it legitimized our use case, right. So now it's required that the banks and financial institutions and the data providers and the third parties all need to play with these new set of rules and it removes kind of the uncertainty. So, from our viewpoint, we've had merchants express interest in open banking, but there was a little bit of discomfort there because of the wild wild west nature of it, right. And so now when we bring in this new legislation that everybody has to abide by, we've already had phone calls. You know they picked up the phone on Tuesday, wednesday, thursday last week and said all right, let's proceed and let's start integrating this into our payment platform because it's not going away.
Eric Foust:I'll share a perspective and I think you hit it banking as a service, embedded finance, embedded payments there's no real definition of what that means that the industry can rally around, and I think, with what's going on with 1033, bringing some structure to the market and providing clarity and then clearly articulating who's in control of what aspects I think that's just a good thing for people to get on the same page with regards to who's playing what role. How will these companies interact? How will consumers be in control of their data? So clarity is always a good thing, in my opinion, and making sure that consumers understand what they're doing, with whom they're engaging, what controls they have. I just think it's a good thing. More holistically, in my opinion, is it will unlock a lot of account to account use cases for payment flows and types and experiences that, like we might not have even envisioned yet. So I'm pretty excited about it.
Ian Horne:Yeah, I mean what's been the pushback to it? Because obviously we're a bit further ahead of this in the UK where it's been more regulator driven. I know in the US it's more of a market driven approach, right, what's been the kind of objection to rolling out open banking until now?
Tom Bianco:I don't know if it's so much an objection. I mean, there is a cat and mouse game, right, Because in some instances, the data holders, the data providers, the financial institutions, they may view some sets of data proprietary right, so account number, router number, for example, may be something that they feel like they want to hold on to. And then, from a fintech standpoint, we're being told by consumers, right, that they want to be able to share their information with fintech for a broad range of use cases and we want to be able to provide that service to our shared customer right. And so, over the last decade or so well, let me take a step back About three years ago, before we had OAuth connections in the US it was a total cat-and-mouse game.
Tom Bianco:So the financial institutions did what they could to stop the fintechs from being able to supply the services to those consumers. And then the writing was on the wall, with Europe leading with PST2, that okay, this is going to be something that the financial institutions are going to have to abide by at some point, so they better get ahead of the curve before regulation comes out. So we saw in 2022 in the US market. That's when those OOF connections started to really pop up and it's done a lot for us to solidify just the certainty, the stability in the market, because without those direct connections with the large financial institutions there's a little bit of uneasiness there for the merchants that are relying on the service to have their consumers pay with.
Sheryl Chen:So actually I just wanted to take a little pivot and to talk about differentiation. So how is New Line different from other bank solutions?
Eric Foust:Yeah, when we spun up the New Line business, our goal was to build a company that focuses in on powering other software companies. And I said well, to do market, dedicated product, dedicated engineering and dedicated client success. Where we do onboarding, servicing, risk management, oversight, program management, reviews, things like that. That's all we do all day long within New Line. And when we look at the market and we talk to companies like Trustly, we hear wow, you have a team of experts, what else do you focus on? We're like this is it Like? This is all we do, this is what we build to, this is what we sell, this is what we support. So we go into the market with a very specific purpose and a unique set of technology capabilities that we don't think other people have. And so that combination, you know, we say you've got the strength and stability again of a $200 billion institution and then the agility and speed of a fintech. So if you like Silicon Valley and you like stable banking partners, look up NewLine.
Tom Bianco:But you guys come at it a little bit differently too, because you're more innovative forward than I would say some of your competitors are, because you have the platform where you can learn fast, fail fast, but also just throw things against the wall. And the way that you guys approach it isn't no, we can't do that, and you move on. It's why would you want to do that, Right? So we've seen it firsthand from Trustly's perspective that you know, working with a new line platform, it's kind of greenfield right now because we don't know what we can do until we actually try to do something with it, and there's a lot of different payment capabilities that we have that we're willing to explore and looking forward to rolling out in chunks here.
Eric Foust:Yeah, no, it's great and we look at it just to put a finer point on it. It's strategic product development with our partners and for our partners. So, yeah, it's a bit different, of like, here's our roadmap, here's what you can have, and it's like, okay, that's an interesting use case, let's figure out how to make that happen. And then that's where we bring our technology, product and engineering teams together to figure it out.
Ian Horne:Yeah, well, let's look at your. You've made the Silicon Valley but also established bank kind of blend. We were talking about stability and scalability when we last spoke about this. How do you actually achieve that?
Eric Foust:It's not easy, and so you have to bring in people who understand these spaces. So when you are providing acquiring sponsorship for a company like WorldPay, you have to understand WorldPay's core business almost as well as they understand it, and you have to understand the regulatory aspects as well what needs to be in place and so you build it over time, you build the muscle memory, you build the knowledge base and you just continue to invest in the talent and the team to pull it off. So it doesn't come easy. It sounds like okay, you just spin up an API and get somebody boarded to it, but then there's a lot of other work that goes into it, and finding partners that bring scale to the platform as well is super helpful, because then we continue to invest in the relationship and the products and the capabilities.
Tom Bianco:I would say that the stability piece from a technology perspective is a little bit easier to achieve because of where we're at in today's marketplace with APIs and the platforms. The scalability piece is. That's where, from a fintech perspective, it's a lot more difficult to prove out, especially in the payments. You walk around the conference here today and there's hundreds of different payment companies being represented. It's how do you actually gain traction and Trust has been operating at scale now for the last eight years and it started off with a lot of learnings right, because when you're doing payments and you're doing a guarantee for you know we're protecting against ACH returns, learning what happens with different merchants and their consumer base and how that impacts our risk engine. It's a process. So we started out small and we've grown its leaps and bounds over the last eight years to be at scale, operating fully at scale right now. Not many fintechs get to do that.
Sheryl Chen:So I just wanted to jump in here. So we're talking about changes, right? So banks here they have the challenge to constantly be on their toes, be nimble and respond to possibilities provided by open banking. So in the UK and also in Asia, where open banking is put into action by regulators, so it's very regulator-led, oh my.
Tom Bianco:God Don't touch me.
Ian Horne:Easy for you to say yeah.
Sheryl Chen:So the US is going for a more market-driven approach where banks have to take it upon themselves to profit from open banking. So my question is then what are banks doing?
Eric Foust:Yeah, I think you'll see, based on a bank's core business, you'll see a different response. So where you've got companies that rely on interchange revenue, either through card issuing or merchant acquiring, they might not jump into the open banking account-to-account space as rapidly as other players. Our view is you want to be like we say this at Fifth, third if you're not interested in the future, the future's not interested in you, and so for us, we want to be people who are helping define what the future is, and this is one of those spaces. Where you've got new payment networks coming online, you've got new use cases that are going to be available. We want to help define the future. So we make sure that we continue to stay on the forefront with companies like Trustly helping bring new solutions to market that provide a lot of value for the end users.
Ian Horne:Yeah, and the way everyone engages in commerce and e-commerce is so different. Now, right, the customer expects more. That places greater strain on the merchant and, eric, I think you touched upon this earlier. So I guess what I'd like to know is how are the needs of merchants evolving and how do you kind of meet that with embedded payments?
Tom Bianco:Yeah. So one of our value props to the merchants is we provide a payment guarantee using the bankrolls ACH, rtp and FedNow at a much lower cost in a card transaction and with open banking being legitimized through Dodd-Frank 1033, that's going to allow the merchants not to just realize a higher cost savings right, but reinvest into how they can acquire consumers or how they can maintain consumer loyalty. We fully expect these guys to, you know, put some of the savings back into what they can do to acquire those consumers and really blow out what they are offering to attract those consumers. And then the seam line, the frictionless process of open banking. That's going to get refined over the next few years, right. So right now it's a bit of a clunky click through on a lot of connections. We want to see that at least get slimmed down so the consumer doesn't feel as much friction when they're going through that payment process.
Ian Horne:Yeah, and, of course, of account to account. You're cutting intermediaries out of the process, right? You're cutting intermediaries out of the process, right? In terms of that cost reduction that you're talking about, how much is that typically per payment, or how much do businesses typically save? Do you have any data?
Tom Bianco:So it completely depends on the merchant and the different bank categories that they're in. So nothing to share with you guys on the podcast. Sorry not to bring the thunder here.
Eric Foust:Oh, come on, get a plug in. If you want to know more, email us. If you want to know more, visit us over at booth1525.
Ian Horne:Amazing, but it isn't new. I think you can be forgiven for not having all the data on it at this point. Yeah, and also I mean we have touched upon the CFPB announcement and it legitimizing open banking. What else does it mean for embedded finance? What does it mean that you can do for payments? I? What else does it mean for embedded finance? What does it mean that you can do for payments? I'm talking about things like loyalty rewards, cashback. You can do all that stuff.
Tom Bianco:It's going to increase competition, right. That's what Director Chopra's one of his North Stars was. He wants to increase competition in a payment space, and in the US we're a predominant credit card heavy user base, right, and that's expensive for merchants to accept, and so allowing payments into 1033, specifically allowing payments into 1033, allows for open banking to come in and compete, and it's going to be done at a much lower cost. So I'm sure there's going to be a competitive battle that's going to ensue over the next few years, but we're going to take market share. So if we have a crystal ball where we're looking at today, if open banking payments represents X today, it's going to be exponentially larger in the next two or three years as these OAuth connections are being released by the banks because they're required to.
Sheryl Chen:So to Ian's question, and also prior to that, you also alluded to how everything was benefiting the consumers, right, so we want to talk about the pitfalls. What do you see are the potential pitfalls that's going to happen With?
Tom Bianco:1033? Yeah, so there's a couple of nuances there. One of them is in the rule if a consumer uses open banking, you have to have a 12-month re-auth process, and so if I say that I want to pay my Verizon bill with open banking, I will need to re-authenticate that every 12 months, which is what we used to see when you lost a credit card. Before you had to go into your bill pay app and update all of your credit cards. That's since gone away, right. So what the rule has done basically is take us back five more years, because consumers have to be aware that in December, my automatic bill payment is going to need to be reauthorized. So not a massive hurdle, but certainly something that could have been addressed with the initial rule release. The rule also has some language in there about tokenization. I won't get into specific details because I don't want to bore the audience too much maybe they do want to hear this is a FinTech nerd podcast tokens.
Tom Bianco:We are trusty as pro tokenization for account number and router number. So I want to make sure that's crystal clear. I, as a consumer, realize the benefit whenever something tokenizes my account information to something that means nothing to someone else. The way that it's been rolled out before 1033 was released has caused a lot of issues on our end.
Tom Bianco:On a consumer's end, consumer confusion, because when a consumer revokes the token, they're also revoking the payment aspect of the token. So if I go and share my data with Verizon and I'm making a payment with Verizon Mobile and then I say you know what? I'm going to stop sharing my data, it also deletes the token. My intent wasn't to delete my payment information, it was just to stop sharing the rest of my bank information. So there has to be some standards around tokenization so that consumers are educated enough that when a bank decides to use it on their behalf, the consumer understands and says okay, I'm going to bifurcate, I'm going to keep sharing my payment data but not share my actual bank data on a consistent basis. So that way the payment process of that persists.
Ian Horne:For sure. I think data privacy and security is a huge topic moving forward in all markets, certainly for the Europe market and I'm sure for Asia too. So it's interesting stuff. I mean let's go. We're kind of getting low on time. So I want to get into the partnership angle with you two a little bit more, because we often only hear about kind of bank and fintech partnerships when things go wrong, but actually just pulling back the curtain a bit. What is the kind of day-to-day partnership like? What kind of interactions do you have? And again, how do you make it work? Tom, let's bring you in.
Eric Foust:Yeah well, we spend a lot of time together.
Eric Foust:We look at roadmaps, we look at timing, we look at use cases, we look at the problems they're trying to solve and we work through those things together as a team. And, you know, there's inevitably friction points, right, when you have a FinTech that's looking to scale to the moon and they want to do it in a certain way. We need to make sure that we're all aligned on how that's taking place. But I look at these partnerships as no different than a personal relationship, right, as long as you have open dialogue and you have alignment on where you're going and you're having the conversation, you can reduce some of the future risks around things you know being in the headlines. So it's I liken it to we're going to be together for like 10 years. So like let's get to know each other really early, you know, and really like just get it. Get it early and often because it's going to be a long year relationship and we look at companies where we've got decade plus partnerships it's one of the most important things for us.
Tom Bianco:And I look at it as like we're in an open relationship. So you, you're in an open relationship. Yeah, we're in an open relationship, right? Because, as the fintech and we're trying to establish these partnerships, I have a list of things that I need to have from a bank partner. I have a list of things that I want to have from a bank partner. I also understand that I'm not going to have a single bank partner that checks off every single one of those things. So the needs need to be checked off, the wants.
Tom Bianco:That's where we can find compromise. So, tom and his team, they can provide a lot of the needs that we want, and then the open dialogue happens there. But there's also a section where you know, fifth, third, can't provide some certain services where their risk appetite may not be where ours is at. So we go out and we develop other relationships with those financial institutions willing to take on that risk, right? So, as long as we're open about this, is where we are going to be funneling our business and these are the transaction types that need to be supported. And, plus, we text and send emojis and GIFs and stuff like that. So, open line of communication.
Sheryl Chen:Cornerstone of every good working relationship.
Eric Foust:Yeah.
Sheryl Chen:Okay, last question. So how do you both view your roles in the fintech market?
Tom Bianco:I'll take that first, if you don't mind. When 1033, the proposed rule, was released last October, trusty took a leadership position in ensuring that the fintech's viewpoints were heard by the CFPB, so we had an extensive comment response letter to the CFPB. We held several public sessions with the CFPB to make sure that the voice of the fintech, which we feel like is not as loud as some of these larger financial institutions, is being heard, and we're proud to stand in front with the payments use case as well as data, because a lot of the other fintechs out there, the aggregators, are more focused on just the data aspect, but payments are so much more to us. Payments are so much more important and a bigger part of the future innovation piece.
Eric Foust:I'll be real crisp on this one. We're an innovation partner and a scale provider for the world's best fintechs.
Ian Horne:Love that. That was crisp, nicely done, and we're so close to the end of the time.
Eric Foust:I can see the countdown clock in your eyes. Is it on my t-shirt? Yeah?
Ian Horne:you have done that so well.
Eric Foust:When you post this on social like, just use that. Yeah, that's the headline.
Ian Horne:Well guys, real pleasure talking to you. It's been a lot of fun. And, Sheryl, can you see us out?
Sheryl Chen:Okay, so that is all the time, unfortunately, that we have for. Thank you, tom and Eric, for joining us on the Money Pot and explaining how we can raise the standard of embedded financial solutions, if financial solutions. If you have a bright idea for a podcast, let us know. At podcast at money2020.com, we love bold and creative ideas and we also love geeking out and practical discussions with actionable points for our listeners. Anyway, this is Sheryl Chen and.
Ian Horne:Mario and Ian Horne signing out.
Sheryl Chen:Thank you also to our amazing live audience in Las Vegas and also to all of you listening wherever you are.
