EXCLUSIVE: ‘Who will join the banking lite race?’ – Steve Lemon, Currencycloud ‘Discover Sibos 2021’
Currencycloud’s Co-founder Steve Lemon doesn’t pull any punches when he says the traditional banking model is ‘dead’ and extreme embedded finance will likely bury it
“If Facebook really wanted to, it could be the global bank overnight,” says Steve Lemon. “It has the communication channels, it has the distribution channels. It’s not straightforward to build a global bank, but the point is, it could, with multiple partners on the back end. If Nike wanted to launch a banking service, it could just give a banking-as-a-service provider its colour palate and its logos, and off it goes.”
When Lemon co-founded money transfer service Currencycloud in 2012 with the sole intention of solving a specific problem for people who wanted to send funds abroad, not even the most extreme financial futurist would have had the audacity to predict a social network and a retailer that made its name selling flashy trainers could become a ‘bank’. Now he is simply stating an obvious fact.
They could… but they haven’t. At least not yet. Lemon holds the extreme view that the process of making payments will eventually be ‘abstracted away’ both from those executing them and the banks traditionally responsible for making them happen, with embedded finance delivered by a new generation of ‘banking lite’ providers. However, even he acknowledges that institutions will always have a role to play. Quite what that will be, as companies like his own redefine banks’ place within the ecosystem, remains to be seen, though.
Currencycloud was launched with the vision of reimagining how money flows globally for businesses, with the belief that moving it across borders shouldn’t be difficult – a vision clearly in line with that of financial services giant Visa, which is in the process of acquiring the business, having both previously partnered with, and invested in it. By removing the barriers long associated with foreign exchange, Currencycloud’s APIs have so far enabled nearly 500 banking and technology clients and have processed payments totalling over $100billion in more than 180 countries, on behalf of customers who, frankly, have no idea how those transfers are facilitated, nor, ultimately, by whom. For them the service is embedded into their experience of whatever financial or even non-financial brand they are interfacing with.
As Lemon points out, such ‘embedded finance’ is nothing new – just look at the proliferation of white-labelled credit cards in the 1990s. What has changed is the way those services are distributed. Any company can now add an API layer, like that offered by Currencycloud, to provide financial services to any customer in any environment – either on their own behalf or that of a partner organisation, through an intermediary application. This ‘platformification’ of financial services, says Lemon, means ‘every financial services business is now a fintech, technology-based business’. He adds: “If you don’t have a technology-led proposition, then you don’t have a proposition in financial services.”
And that’s led to the flourishing of symbiotic relationships between financial and non-financial brands.
“For example, Goldman Sachs wants to access new customers. It has a great credit card product, so it sticks an API in front of it and says to Apple ‘hey, how about you put your brand on this, and we sell it to your customers and generate a new revenue stream for both of us?’ That’s embedded finance,” says Lemon.
Similarly, it’s allowed online operators like Shopify to build an end-to-end platform that enables anyone to set up an e-commerce business.
“All you need to do is put your own website and your own brand on the front, and, all of a sudden, you have a complete e-commerce merchant platform with everything from card acceptance, to supplier management, to inventory. All Uber did was bring together a bunch of platforms. It had its own database, marketing dollars and front end, but it was, essentially, Google Maps for location services, a merchant acquirer so that it could take payments, and a payments company to make a payment back to the driver. In hindsight, it was so simple.”
Travis Kalanick and Garrett Camp, founders of one of the world’s most successful ride-hailing firms, might raise an eyebrow at that being ‘all’ they had to do! But, that aside, Lemon’s argument is this: “The whole point of embedded finance is that financial services abstract away into the background.” And with them, potentially, the relationships with customers that banks have invested so much in over the years.
“Your bank will become – from a brand association perspective – redundant. “I couldn’t give two hoots about my bank. I only ever speak to them when I’ve got a complaint about something, or I need to do something really unusual,” says Lemon, a member of what he terms the ‘swipe left, swipe right’ generation, which resents any friction and difficulty associated with financial transactions, even ‘the whole concept of physically needing to go to the effort of initiating a transaction’.
A real-life manifestation of this is already underway in the checkout-less Amazon Go grocery stores (Amazon Fresh in the UK), where customers walk in, pick their shopping off the shelves and, thanks to an app, just leave, knowing the bill will be paid via an Amazon account that’s linked to their payment choice without any conscious effort on their part. Amazon is also a great example of a company, like Apple or Nike, that benefits from strong consumer brand recognition that, when wrapped up with that greatest of temptations – convenience – persuades consumers to trust them with their money.
“If I was to ask my mum ‘would you be happy giving multi-billionaire Jeff Bezos access to your bank details so that he can instruct your bank to make a payment to him?’, she’d look at me like I was crazy,” says Lemon. “But if she was presented, in an online environment, with the choice to connect her bank account for free to payment services when buying products from Amazon, she’d probably say yes.”
Fintech started by unbundling financial products and services – picking off those provided by banks (often at great profit) and reimagining how to present them at less cost, more efficiently and in a format that appealed to the customer.
Lemon believes we’re now seeing their rebundling, with smart fintechs and others assembling ‘best-of-breed’ providers. In many ways this stage of development presents more of a threat to traditional institutions.
“There are hundreds of banks out there that all do thousands of things fairly well, but provide a single point of access to that suite of financial services,” he explains. “Whereas there are something like 25,000 API-led fintechs now, all doing one thing extremely well – so it’s never been as easy to consume, or build, a financial services product suite [that isn’t necessarily accessed via a bank].”
Smart payment card Curve is an example of the potential for such disintermediation between banks and their customers. Curve enables them to combine all their credit, debit and loyalty cards into one card for everything, so that they only need to remember one PIN. Within the app, they can choose which of their payment providers a transaction is ultimately routed through, have the ability to add receipts, and even change the account to be debited after the transaction has taken place.
“So, if you’re the banking provider that has all the cost and expense of serving that customer, your card is now something the consumer never uses,” says Lemon. “American Express had a complete sense of humour failure over it and said it wouldn’t allow its card to work with Curve, because it wanted its brand front and centre. All the traditional lenders are experiencing this obfuscation.”
It’s why he believes they need to evolve by creating partnerships and ecosystems to ensure they remain relevant.
Changing Role of Banks
Embedded finance is very much a global movement, but while Curve itself was born in Ireland, certain areas are leading the way and it’s not the West, believes Lemon.
“Innovation in Europe and the US is not innovation, it’s digital enablement, whereas fintech in Asia is digital at its core,” he says.
“Your average Chinese Millennial does everything in those apps. They spend more time on them than the rest of the apps on their smartphone put together. It’s banking, it’s payments, it’s social, it’s e-commerce… it’s literally everything and it’s all interwoven and inter-embedded,” says Lemon.
Eventually, he believes, that type of symbiotic environment will be true of the rest of the world, too. Though slow, it’s already well on the way to being built.
“Unless you are literally living under a rock, you consume embedded finance services in one form or another, every single day,” says Lemon. “Let’s be clear: that doesn’t mean the banks are going to find themselves out of business. But their role in the ecosystem will likely change. It’s not going to be in 10 years, or even 20. It’s going to take time, but it will happen.”
The fact remains that storing and moving money and extending credit is tough in a regulated environment. But Lemon argues that it’s possible by partnering with multiple providers and taking an as-a-service approach.
“The financial services organisations of the future are not necessarily going to be organisations that own the whole stack, whereas your traditional bank owns everything,” he says. “It’s the purveyor of the licence, it creates the products, it runs the technology… it’s got to keep the lights on and keep the plates spinning, front to back. Whereas, the purveyors of financial services in the future might not actually be financial services companies themselves because it’s never been as easy to curate a suite of products, services and required functionalities, like onboarding and know your customer. You just bring all those things in line and build a workflow, without actually owning any of the technology – other than the integration and harmonisation layer across the front. The only thing you’ve got to worry about is getting the business model right.”
Sceptics of this ‘every company will be a fintech’ refrain point out that third-party platform providers can be heavily reliant on partners for core financial services and infrastructure, and are therefore limited to certain configurations and capabilities. There’s also the fact banks retain a high-level of consumer trust when it comes to looking after their money, to an extent that fintechs haven’t yet earned.
And, just because a customer does one bit of their business with a particular company, it doesn’t mean that they want it as a provider for everything – especially if the service is inferior to elsewhere – leading to fragmentation of the market. Nevertheless, Lemon maintains that the status quo is unsustainable. If traditional financial brands are to avoid invisibility, they’ll have to come up with something very different to what has gone before.
“The definition of a bank is an organisation that provides deposit and lending services, and will arbitrage the difference in the interest rate to make a revenue,” says Lemon. “But with the low-interest-rate environment, that model has been dead for years. On the other hand, you can create a company that offers banking-lite services, without being a bank.”
If you’re listening, Nike, now might be a good time to pull on those 110s and sprint to the starting line.