Successful embedded finance is a long-term journey, and choosing the right partners to bring along for the ride is critical. Find out how to choose wisely in Episode 3 of The Embedded Finance Blueprint: Partnering for Success.
We’re digging in with Melissa Eggleston, NBKC 's chief deposit officer, and Nag-Bushan Odekar, senior director of global strategy at Visa DPS. This episode is a can’t-miss chapter of the BaaS playbook.
Hey there, welcome to the Embedded Finance Blueprint, where we get past the noise to help you navigate the landscape, unravel the hype, and actually build a sustainable embedded finance business.
Today, there's no debate anybody can build these products, but who should? And if you should, how do you do it correctly? That's what this series is about.
I'm Ahon Sarkar, general manager of Helix by Q2, and I'll introduce you to a few friends, who will share their real-world lessons for success and help you avoid the potholes along the way. In just six expert conversations, you'll learn everything you need to get past getting to market, and get to growing your business.
So, let's dive in.
So far, we've talked about how you design a successful business model and how you design a product that actually delights your customers.
But once you've done those two things, you're ready to make one of the most important decisions you're going to make for the next few years. And it's not what you're going to eat for lunch. It's who your partners are going to be.
Because look, embedded banking or Banking-as-a-Service is not about adding a small feature to your business. This is a real business that you're signing up for, for the next three, five, or 10 years and beyond. And who you decide to go on the journey with is, perhaps, one of the most important choices you can make—whether it's the technology provider that you're ultimately choosing, or the bank partner that you're going to work with hand-in-hand to go build a new product for this financial system.
Today, I'm joined by two of my friends, Melissa, who is the chief deposit officer at NBKC and who has been working with us over the last few years to power companies like Gusto and Empower and more. She probably knows this space better than most bankers I've met.
And we're also joined by Nag, the senior director of strategy for issuing solutions at Visa, who's worked really closely with Helix over the years to make sure that we've built something that's scalable, flexible, and can actually help companies build something that's the right fit for their businesses.
Melissa and Nag, thank you for joining.
It's a pleasure.
Well, let's get straight into it. Let's start by answering the spicy questions upfront. There's a lot of noise in the space. People throw a lot of marketing lingo out there, so what's the number one embedded finance or Banking-as-a-Service myth you want to debunk outright?
Maybe we'll start with Melissa.
Well, let me get my hot sauce out since we're getting spicy here. Ultimately, I think there are some misconceptions around speed, right? That fastest to market is best to market.
We've seen several examples where that just isn't the right play or isn't the right path for some partners of ours in this space. So, I'd say speed. I mean, we want to move fast. We want to move fast with Helix, we want to move fast with our partners, but fastest isn't always best.
And I think one of the things that we've seen in that light is that if you have to do this as fast as humanly possible, you're going to take a cookie-cutter product, and get it out to market, and then wonder why nobody is using it.
It turns out that using it is a little bit more important than getting it out there.
Undoubtedly you miss something, right?
You miss an important step. You miss an important cue from a base that you're trying to attract, and, ultimately, you end up taking more time after it's launched when you could have just taken it upfront.
Nag, what about you?
Yeah, I love what Melissa said. Look, I think embedded finance is very exciting, but there is this notion that cloud-based digital applications and APIs will solve everything in embedded finance.
It's just not true. The truth of the matter is that a lot of financial institutions—and I think you are aware of this, Ahon—when you partner with them, they have an underlying legacy infrastructure. So, what I would say is that be prepared to be flexible in your approach. And remember that the APIs are not a feature, it's simply an access point.
So, it's when you look at a product feature that exists behind the API, it probably requires really good operational know-how and, most importantly, a lot of rigor when it comes to building the right integration.
That's the key thing I'm going to say. And as Melissa pointed out earlier, don't compromise the fundamentals for the sake of speed to market. If you do so, you might be opening yourself up to significant vulnerabilities down the line.
And from your perspective, what are those fundamentals? What are the things that you should make sure that you focus on in that light?
I think the regulatory parameters are what you just can't go around, right?
You need to know what they are. And again, don't think of compliance and fraud mitigation as a nice-to-have, right? They are the key to establishing trust in payments, and without trust, we don't have a business.
Completely agree. I would say fraud controls and understanding what the customer journey is going to look like, and your vulnerabilities, and understanding that fraud is going to happen. But if you can eliminate it as much as possible by understanding it, you'll be better off in the long run.
So, totally agree, Nag.
Yeah, it feels like a lot of companies that launched over the last few years are maybe learning this lesson the hard way, right?
Because to your point, in 2018, 2019, and 2020 it was how fast can I tell my VC that I'm going to get a product out into market? And now that investor is coming back to you and saying, “Hey, when are you going to be cash-flow positive?” Right?
And part of that is making sure you have the right business model. Part of that is making sure that you're incentivizing the right activity. But once you've done those two things, to your point Melissa, it's about how do I drive up engagement? How do I drive down fraud? And how do I do that on an inherently profitable foundation?
And fraud isn't simple. It's not something where you can push a button and then fraud turns off. In fact, fraud is actually a fairly nuanced component of your business because it also interacts with the single most important thing, which is getting people to engage.
How do you stop fraud amongst the people that want to harm your business without hurting those that are the most active inside business? Those are the kinds of questions that you need a bank partner for.
Yeah. And it's not static, right?
And Melissa is aware of this: New things happen all the time, and you have to be aware of it, and you have to be proactive in building those solutions.
Let's face it, banks have worn this risk mitigation hat for years and years, right?
And the reason that some of our Banking-as-a-Service partners have been so successful is they push the limits around how they can make a customer experience exponentially better than maybe potentially a bank can.
But it doesn’t negate the fact that there are still people out there who are going to try to figure out how to expose those vulnerabilities that you have. And I think that's why a bank partner and controls within a platform like Helix are super important along with what Visa offers as well.
Yes, 100 percent, and that's also where I think having that direct relationship with both of those parties—not being disintermediated from your bank partner or your technology partner—is super important.
Because when suddenly, inevitably, something happens, and you get targeted by a ring of fraudsters somewhere, you don't want to be going through six hops in order to get to the actual solution. You want to hop on the phone right then and there with a partner that knows you and understands you, and you tackle the problem together.
I think one of the really interesting things about having you both on the podcast is you're not new to this. You've kind of been through it and seen what works and what doesn't work.
If I'm listening into this podcast, the thing I want to know is how do I set myself up for success? What's the pre-work that I have to do? What are the kinds of questions I should be asking a bank partner or a technology partner? What should I think about in the short term, in the long term? So, when I get into this conversation, when I actually meet you guys, I'm ready to be successful, and I'm ready to move quickly—but in a thoughtful manner.
And maybe on this one, Nag, we'll start with you.
I'll start broad and then get a little specific, but as obvious as it sounds, make sure there's a real market opportunity for the partnership where you can build a strong business case. I think you'll be surprised how that is sort of the essence behind it.
But also make sure that your partner and your goals are actually aligned. Are you looking at the same outcomes? Are you targeting the same personas? Are they different? How would success look for both of you?
Have clarity on this right from the start, because that is how you build a relationship and then evaluate each other's core competencies. Does your partner's platform and product feature enhance your value proposition and vice versa? You should have a mindset of delivering superior value to clients.
And we have this whole thing at Visa where we say, “Hey, let's focus on one plus one equals three because it just makes us both better.”
And then once you get into the process, after you sign an NDA or whatever it is, have full transparency with each other. Let them know what you're good at and what you're not, and ask them, “Hey, what works for you?”
Share each other's sandbox and get your developers and architects to get comfortable with the respective tech stacks because a good initial alignment with the tech teams will go a long way.
And finally, the one thing which is really important is to make sure you share the same business values on what you're trying to do, and if there might be a cultural fit. Because, come on, do you really want to partner with someone you're not going to get along with? I don't think that seems like a long-term proposition. Make sure that you guys love doing this together, and then you sort of motivate each other and take it to the next level.
It's funny. I'm sitting here listening to you talk. I'm kind of like, so what you're telling me is that I'm getting married, I'm not dating.
So, you're saying make sure that your values are aligned, find a partner that's complementary to you, make sure to have open lines of communication. That's the same stuff my mom told me about marriage.
And there is no therapist.
Common sense rules.
Who do you call for therapy after this, right?
Nag, what you're referring to is the self-awareness that's maybe required coming into this process, right?
I'm sure we've all seen companies come in that think they're good at everything. Nobody is good at everything, literally nobody. And understanding where you're not strong—and to your point, understanding the core competencies that you're looking for in a partner— is really important.
Melissa, when you think about that from the partner bank side, obviously similar but different to finding a technology provider. How does someone set themself up for success to work with a bank, and how do they find a bank in the first place?
Yeah, so I'll address it from the NBKC lens. Obviously, other banks do this in different ways, but it's super critical to some of the points Nag made. It's super critical for us to meet our partners and fully engage and understand their philosophies and how they want to go to market.
I mean, generally speaking, the room is filled with a bunch of really smart people who have vision and ideas beyond probably some of the subject matter expertise bankers have. I do think we're innovative and progressive, but it doesn't change the fact that they're technologists and think about the world differently.
So, from our perspective, it's important to have an open line of communication, meet those folks—the key stakeholders—early and understand risk tolerances.
I mean, we think we're experts in banking, right? So that's what we're going to bring to the table. We're going to bring the risk conversation. We're going to talk about what it looks like to manage a portfolio of companies where regulators are happy with us all the time so we can continue to operate and support their growth and scalability.
So, scalability is another huge component. Our partnership with Helix has allowed us to have a backbone that can enable any of our partners to scale. And so that's important for all our partners as well.
But, ultimately, our job is to extend our Banking-as-a-Service to those partners, then to go out, acquire customers, bank them, operate their business, and be in the background as the support and catalyst for their success.
Now, to get there, they’ve got to give us a whole lot of information. They're a critical third party to the bank. They're essentially an extension of the bank, and we are going to have a healthy amount of due diligence requirements—all the things you would expect with someone providing a critical service out in the market.
And, honestly, that's a good thing. If I'm the partner, you may not realize it immediately, but—going back to that kind of marriage metaphor, you don't want to get married to someone who sees you and is like, "Oh, cool, where do I sign?” Right?
You should be seeing red flags on your side if someone's willing to go get into a 10-year relationship with you with absolutely no context.
I guess one more thing before we go into maybe the flip side of it, a real-world cautionary tale. You mentioned, Melissa, that if I'm the prospective client— if I'm a big brand that's looking to get into this—I might not be very familiar with the risk side of this, with thinking about things that are way outside my business.
Are there kinds of questions that I should be asking myself to help me understand my own risk profile or risk tolerance before I come into a discussion with the bank?
Well, I think if you just were not even thinking about any risk that the bank or a partner might have, I would suggest thinking about understanding the bank, and their appetite and commitment around providing Banking-as-a-Service.
I really think that is number one: Understand what that commitment looks like in the market because, frankly, there's been a little fad around it in banking. It isn't easy for a bank to go out and build Banking-as-a-Service and be good at it—and it has continuous regulatory changes and pressure around it. So, I would ask, first, how committed is the bank to it?
And then, I think it goes into understanding the customer base. We always ask what kind of customer base you are trying to attract. What do you think the customer base is going to need from a money movement perspective?
The easiest way for anybody to lose money is to start moving money, whether that be on a card, whether that be through an ACH transaction, wires, anything along those lines.
That probably is the basis for some of our conversations around it. And then, just understanding how they want the offer to be in the market. We have a lot of partners who go out and get legal reviews in advance of building products—really as they're considering how to build it—just to make sure they're on the right side of the legal perspective before we even get into a regulatory sort of review.
So, I would say that those are probably some of the things I would think about first.
I think that's a really good callout. And you know, you mentioned money movement is the fastest way to lose money. Yet, it is also a requirement as a part of the overall offering. And so, I think underlying that is you have to understand, within your money movement flows, what is absolutely required in order for your product to work? And what be flexible?
Because there may be things that you don't know — that you don't know about how money moves—that can dramatically limit your risk. As a small example, in your head you might say, “Well, I want to connect all of my nine external accounts for the customer “ But guess what? You're introducing a ton of risk when you're doing that.
So, coming in with an open mind and asking the right questions will actually help you get to where you want to go, even if you don't necessarily know what's in the way quite yet.
I want to flip to the other side of the coin. Do you guys have a real-world or maybe more cautionary tale to share for those who are looking to manage an embedded finance business? And, Nag, maybe I'll kick it over to you first.
Look, there are lots of cautionary tales, but I would flip this over to the advice.
The advice I would give to someone is to think long-term business success rather than short-term tactical wins.
I loved what Melissa said about scale because the thing is 500 credentials versus a million credentials, that's a different ballgame. So, let's make sure that when you have significant transaction volume growth that your collective platforms are ready.
Can your sponsor bank handle significant growth from an underwriting perspective, from a risk perspective? All of that is important. When you build your collective value proposition, think of what success would look like in all economic environments: inflation, stagflation, high interest rates, low interest rates, economic and market volatility.
Because if you come up with a solution that is focused on a certain economic environment, that is not a sustainable business model. And that's an important thing to remember. And so, balance your product offerings if you can, and I know, and I hate to bring this up again, but fraud risk and security of your clients and cardholders should be in the front of your strategy and execution in your mind.
This cannot be an afterthought because great customer experience and user experience is beautiful and even compelling to win business, but that great user experience can become ugly if you don't have strong technology and operating parameters that mitigates fraud and lower risk.
So, that is a huge part of it. And most of all, make sure your strategies are aligned with your platform and your solutions and your operations, and know where you want to play in the marketplace and what your segmentation is.
Be clear. What is your competitive advantage? Because everyone's jumping onto this bandwagon. What is your competitive advantage, and why would this work? Be specific on which use cases make most sense. If you're trying to be all things to all people in the world of payments, you'll have a bloated balance sheet and you most likely will fail.
And then, perhaps, the last thing I would say is a lot of time technology starts dictating your strategy and your business case. It should always be the other way around. Your business case, which is always based on the client need, should guide your execution.
I hope that sort of says if you have those things in mind, you are set up for success.
Yes, 100%, and I think if you're listening into this podcast series and trying to think about your competitive advantage coming out of the business model and product design episode conversations, that's a really important thing to bring to your partnership conversations too.
One of the things that we used to tell people in the earlier days of Banking-as-a-Service is people looked at banking as a service and thought, “This is easy. You just sign a thousand clients, you make a billion dollars, and you go home.”
That's not how this works. And what I would tell those people is Banking-as-a-Service is kind of like Software-as-a-Service meets venture capital because every partner you sign up—as a solution provider, as a bank, as a technology vendor, whatever—is a bet. And you're betting with your time, you're betting with your money, you're betting with your risk. Right?
And so just as you are evaluating the partners you're talking to, they and we are evaluating you. Are you thinking about these things? Have you thought about the types of risks that you have? Because we, at this point, having gone through this for years and years, we know that if you haven't thought about those things, that's going to cause a lot of issues down the line when you realize the consequences of not having thought through that.
And even some of the simpler things, Nag, that you were saying—like think about scalability— and you and Melissa are both kind of putting it, it's easy to see marketing language and say everyone is built for scale. I mean, go find me one website that isn't built for scale. I have that in air quotes. If you're not watching the video.
Let's launch this in four to six weeks.
Launch in 37 seconds, get a million customers in two days and become a billionaire. The reality is—and I think we've all learned this the hard way—that building for the 500- to 2,000- to 20,000- to 50,000-user embedded finance business and building for the million-plus-user business is like being on different planets, right?
And if you want to someday get to the place where you do have a million customers, you have five million customers, just know that getting onto the former will mean that ultimately you have to convert. And that will be painful, right?
And so sometimes making long-term decisions in that way can be hard to do upfront when your boss or your investor is telling you you’ve got to launch now. But it's probably one of the most important things to do if you don't want to be kicking yourself later.
Yeah, you'll save more money if you think through that. You should have a good conversation with your money guys, the venture guys.
So, Melissa, from your perspective, as you think about giving advice to folks who are trying to figure out Banking-as-a-Service—trying to figure out if they should do it—what would you leave our listeners with?
I would say—going back to your prior question—if it's too good to be true, it's probably too good to be true.
I mean, I don’t think Im oversimplifying it, but if it's like, well wait a minute, this just seems way easier than anybody in the market has been talking about, there's probably a reason. And I would stop and evaluate that. As it relates to Banking-as-a-Service, and from a bank partner perspective, it's really different managing a program of 20,000 users from the bank's perspective than managing a program with hundreds of thousands to millions, right?
I mean, there's a different aptitude, there's a different staffing model, there's a whole different level of commitment. So, it sort of goes back to a prior comment of mine: Really understand the commitment of your bank—any bank you're talking to.
Do you have access to the people at the bank that you can call when something goes completely awry? Because there will be something that will happen that will be absolutely critical, and you'll need a point of contact.
So, I think that's super important. And then, additionally, making sure that any partners—period —that you're choosing are going to enable your business to be successful in the long run. So back to your comment, Ahon, bankers have been doing conversions for years and years.
Customer conversions. It is terrible. It is the worst ever. So, cheap is not always best, and it's going to have customer impact long-term if you don't plan.
Yes, 100%. If you build for the cheap thing and then later you scale past it, and you have to spend a whole bunch of time and money to move, that's painful.
But, also, a thing that we see folks do often is they are overly myopic about the part of the finances they're looking at? What I'm looking at is how many dollars and cents I’m spending for this partner. What I'm not looking at is how much I’m spending in the context of the full P&L of my program. And that's where things that you both talked about—fraud losses— become really important.
It's like, “Hey, maybe I spend half a penny over here in order to mitigate fraud. Oh my god, I'm spending a ton of money on mitigating fraud.” What you're not seeing is you're saving millions of dollars in fraud. And so, when you're thinking about the right long-term economic decision, think about the whole thing. Think about things like fraud and disputes. Think about things like money movement costs. Think about things like ongoing fees or per-API calls. Because all that adds up.
And what you oftentimes find is something that may not be the cheapest from a pure cost perspective is actually the thing that's going to make your business the most sustainable, whether that be the technology or the partners you choose.
I would say there's value in expertise and good partners who perform well in this space. And so, that is something that cannot be overlooked when people are considering, any company is considering, moving into the space or looking for additional partners, in my opinion.
And you can't have expertise in everything, Ahon, as you said earlier. That's right. So ,the question becomes is, “Who has that expertise?”
And so when you have that trusted bank partner, having the trusted tech partner, and having the trusted understanding of where everyone fits in, you can say, “Hey, here's the value chain. Do we still have a gap? If there's a gap, let's really talk about it.”
That value chain is what people are looking for. They're not going to say, “Hey, I'm going to do business with you because I like this and this and that part of it.” They want to say, “Just give me the whole thing, man. How does this work?”
Yeah. We're not perfect. But there is a difference between a partner who recognizes there's a gap and works with you collectively to solve that versus someone who just says, “Hey, sorry, that's just the way it is.”
Yeah, I know Nag, you're very much into hiking, and, as I listen to all this, I'm imagining when you go to climb a large mountain in the Himalayas, let's say you'll get a sherpa. And in that moment, expertise matters. You can find a sherpa for a fifth of the cost, but if that sherpa’s never done the hike, you're going to be in for a bad time versus if you pay double.
If you get someone who's been doing this for 20 years, you're going to get up the mountain a lot more easily. You're going to have a much better time. And, honestly, it's not dissimilar in this space.
Yes, 100 percent. The sherpa is important, and especially for the altitude. And you have all this amazing gear from Patagonia, and that sherpa is in flip-flops, and he's still doing better. It's really embarrassing, but it is a good lesson learned.
You just called us a Banking-as-a-Service sherpa.
I mean, kind of.
Well, Melissa and Nag, thank you so much for an awesome conversation. Really, really appreciate it.
And I hope you guys learned a lot from these experts. They know the space better than most and hopefully gave you a lot to think about.
On the next episode, we'll focus on the journey to take this product and these partnerships that you've built and really make it human-centric—bring it to market—because that's what's going to ultimately drive engagement. That is what’s going to drive that delight, and that is what's going to drive sustainability for the business.
We'll hear from none other than Warren Hogarth, the CEO of Empower, who has worked with Melissa and Nag to help bring Empower’s product to market.
So, we'll see you on the next episode.