EXCLUSIVE: “Squaring the Circle” – Anders la Cour, Banking Circle Group and Laust Bertelsen, Banking Circle in ‘The Paytech Magazine’
The rebundling of financial services by tech-driven companies previously associated with just one vertical has highlighted infrastructure challenges as much as it has created market opportunities. Banking Circle Group’s entry into the US market seeks to resolve that dilemma
A survey published this year by open banking platform Plaid found that more US consumers now use fintech services than they do video streaming and social media. Let’s take a moment to digest that fact. In 2021, 88 per cent of American people accessed an app to manage their financial lives, up from 58 per cent in 2020. Fintech is now so much a part of US society that 71 per cent of consumers say that they talk about digital finance in their everyday conversations.
Comparing features on Zelle or Venmo is as common as discussing last night’s Netflix mini-series or your favourite new meme. That’s an extraordinary position of power, influence and responsibility for the industry to be in. How are providers responding?
Many by mutualising and embedding services like never before; assembling a curated menu of options that are adjacent to their core offering and chosen to meet their users’ specific needs. That’s happening in the B2B environment as much as it is in B2C.
It’s a big swing of the pendulum, away from the ruthless ‘unbundling’ of financial services by a new wave of specialist digital providers who mined deep veins of financial exclusion and disillusion with banking services that followed the Great Financial Crash 15 years ago.
Now they are busy ‘rebundling’ those services and adding more to offer a one-stop-shop, stocked with options that at least equal and often exceed those previously available through the mainstream banks, whether that’s payment services providers moving into lending or investment platforms offering debit cards. In the last few years we’ve seen plenty of examples of that in the US market, but these models differ from legacy institutions’ in many respects. While bundling is a tried and tested strategy for improving customer loyalty and increasing lifetime value, the customer experience these new players deliver is unrecognisable from what went before. As is the technical challenge in achieving it.
“Clients have the ability to link payment services to their own infrastructure, which is unviable when using slower legacy systems”
The integrations necessary for this ‘platformification’ of financial services, often embedded in another (not necessarily financial services) channel, have not kept pace with the aspiration at the slick front end, where much of the investment in startups focussed – rightly, in the first instance – on UX.
“Rebundling products is great for improving customer stickiness, as it allows businesses to offer a complete lifecycle of financial services to their customers,” says Anders la Cour, co-founder and CEO of Banking Circle Group. “But in the race to rebundle, the strongest multi-solution platforms will be those built on modern tech stacks.”
The key challenge is interoperability.
“It’s increasingly an issue as the world becomes more globalised,” says la Cour. “Many industries have been radically transformed at the front end, but often far less so when it comes to the back-end systems – it’s no different in payments.”
The trend hasn’t escaped the notice of investors. As seasoned fintech VC Mark Goldberg, a partner at Index Ventures, which has dual headquarters in San Francisco and London, commented recently:
“The next wave of infrastructure will be towards one superstore that happens to sell 10 products, not 10 companies that sell one.”
With capital flowing most freely into later-stage fintechs over the past five years in the US, and mega raises in 2021 giving many a decent runway to aggregate services and grow into last year’s eye-watering valuations, the back-end infrastructure’s ability to support expansion is likely to come under increasing scrutiny. Banking Circle Group’s move into the US will help address those shortcomings, promises la Cour. He explains that, as companies accelerate the digitisation of their customer and supply-chain interactions, the Group acts as a bridge, creating the interoperability that is still lacking in banking and payments.
“We facilitate easy movement between financial systems and services, regardless of the markets that our clients and their own customers are in. As a back-end provider for other financial services businesses, our focus is on taking away the complexity and handling the infrastructure, leaving our clients to focus on what they do best.”
At the heart of the Group, is the Luxembourg-based Banking Circle bank, headed by the Group’s co-founder Laust Bertelsen, which has been providing banking, payments and embedded finance services across Europe since 2016, building a ‘super-correspondent banking network’ at the centre of which sits its own ‘bank for the digital economy’.
Last year, it was granted a full banking licence in the state of Connecticut, in preparation for the Group’s move into the North American market. The bank’s track record in Europe is impressive. At the time of writing, it had processed more than $250billion in transaction volumes since its launch on behalf of payment companies, other banks and marketplaces. And it processes six per cent of Europe’s B2C e-commerce flow. It’s built a client base of more than 250 financial institutions and larger marketplaces, including payments giant Stripe’s operation in Europe.
It delivers access to 12 local clearing schemes through a combination of direct clearing and partner banks, enabling cross-border payments in 25 currencies. The bank aims to become one of the few in the US that are able to deliver real-time payments at the lowest possible closing cost between major clearings globally. It will do that by leveraging its already well-established network and direct access to US clearing. That will be welcome news particularly for export-focussed businesses in the States, which may have been frustrated by the lack of fast, frictionless and transparent cross-border services that are only now being seriously explored by the two existing federal payments operators.
“Banking Circle’s goal is to reduce the cost of cross-border payments to just five cents and the time a transaction takes to under five minutes,” says Bertelsen.
While that might sound ambitious, similar targets at very high volumes have already been realised in Europe by moving fully to the Cloud in 2021.
“With an entirely Cloud-based infrastructure, we’re able to evolve architecture at rapid speed,” says Bertelsen. “The Cloud increases control, capacity and efficiency, and means our developer teams can take an agile approach to make specific upgrades in a decoupled way, which also has a customer experience advantage, whereby systems can be improved without impacting other critical workloads.
“APIs also enhance the customer experience, facilitating effective integrationbetween platform functionality and customer workflows. The advantage is clients have the ability to link payment services to their own infrastructure, which is unviable when using slower legacy systems. Banking Circle’s APIs enable clients to instantly access data to accelerate the process, in turn promoting a seamless user experience.”
The bank’s move into the US will not only open faster, cheaper export corridors to State-side businesses, but, of course, give US market access for European clients.
“Interoperability is increasingly an issue as the world becomes more globalised”
“We partner with banks, financial institutions and fintechs all across the globe, enabling them to gain geographical reach and access markets their customers want to trade in,” says Bertelsen. “US organisations are no different. For payments companies and fintechs looking to offer their customers payments services beyond North America, partnering with Banking Circle means they have the potential to handle transactions in up to 25 currencies without facing prohibitive costs, all with full regulatory compliance for each jurisdiction
“Working with US companies is important to our mission because we want all payments businesses to be able to unlock access to the global markets through fast, low-cost payments and multi-currency account solutions.” Banking Circle recently announced the addition of USDC stablecoins to its payment rails for conversion from fiat currencies.
“This latest addition is an important step as we grow our super-correspondent banking network, giving banks and payments businesses the ability to step outside the traditional correspondent banking model and extend their offerings,” says Bertelsen. “Web 3.0 is already completely transforming the payments landscape and we encourage US banks and financial institutions to get onboard now.”
Banking Circle is taking on a job that very few other banks or fintechs want to tackle – investing in integrating a vast network of local clearing and payments schemes, which, points out Bertelsen, addresses another key issue.
“Many sellers and merchants still face financial exclusion as they are unable to access payment solutions that make it easy for them to serve different geographies and accept different currencies. The root cause is that the financial institutions that underpin e-commerce businesses continue to struggle to tackle some of the inherent issues around international payments, from the cost and speed to the threat of de-risking. In creating this super-correspondent banking network, direct access to local payment rails cuts the cost and time of payments for specific currencies, opening up significant revenue opportunities in some geographies.”
Although it is expanding into the US, the bank won’t be going up against existing local banks, stresses la Cour.
“Rather, through us, banks and financial institutions in the US can enable their own customers to operate in Europe and receive domestic payments from the region.” Cross-border payments are fundamental for businesses if they are to grow beyond their borders. And it’s likely to feature among additional services that, according to one survey last year, 53 per cent of US financial companies are looking to include for clients. The great rebundling is happening. It’s just a matter of making sure the payments infrastructure keeps up.
YouLend: A GLOBAL OPPORTUNITY FOR SMEs
Embedded finance is said to have accounted for nearly five per cent of US financial transactions in 2021. While that makes it the world’s largest market, there’s plenty of room for growth, says Mikkel Velin, CEO of YouLend, an embedded SME financing solution and part of the Banking Circle Group.
Already partnering with a number of enterprise platforms, such as eBay and Shopify, YouLend uses alternative data points to carry out credit risk assessments for small businesses, incorporating data points such as website analytics, social media trends and online reviews to predict the growth of a company and reduce reliance on outdated financial information to inform credit decisions.Its launch in the US as part of the Group’s expansion into the region comes at a time of increased optimism among small business owners, despite the economic headwinds. The latest Small Business Recovery Report to be produced by Kabbage (part of American Express), revealed in September that many SMEs are looking to invest, particularly in digitisation and making more of customer data. We asked Velin what YouLend could bring to that SME growth market.
FINTECH FINANCE: YouLend offers financing solutions to SMEs via payment service providers, banks, e-commerce platforms, marketplaces and techcos. Does that give you a particular perspective on the embedded economy?
MIKKEL VELIN: We think the embedded financing market in the US is still significantly underserved. Only a small proportion of enterprises are offering such products to their merchants and businesses and many of those are still working with clunky platforms or complicated and slow user experiences. YouLend has already refined its offering across Europe, with one-click applications and instant offers. Being part of the Banking Circle Group gives us a significant advantage, too, in being able to quickly and cheaply implement a suite of complementary financing and payments products to enhance a merchant’s experience, so our partners can create an ideal roadmap for them FF: How do rebundled services and embedded solutions benefit businesses?
There are clear signs in the payments space that finding opportunities for partnership between providers is delivering value to both those providers and their end customers. That applies to embedded financing as well. Enabling customers to quickly access multiple financial products is what most want – to build trust and familiarity with their main provider and go to one place to manage all their business activities, from making sales, to taking payments, to applying for funding for future growth.
FF: Can YouLend expose SMEs in the US to global lending opportunities, too?
MV: A key aspect of what we offer our partners is product parity, globally. We understand the challenges of running an enterprise platform across different geographies. So, we make it possible for these platforms to offer the same products everywhere, whenever they wish. We also offer clear improvements on key aspects of our partners’ growth – our solution spurs merchants’ growth by 15 to 35 per cent on average, for instance, and reduces their churn by half.
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