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Nium Podcast: The Future of Banking-as-a-Service

Open banking is poised to be the next wave of digital transformation in the financial sector. One of the key components to open banking isbanking-as-a-service (BaaS), in which banks open up their systems and allow FinTechs and other third parties to build offerings on their regulated infrastructure. Mexico’s Accendo Banco has been an early adopter to this trend. Host Taneia Bhardwaj chats with the bank’s director of consumer banking, Francisco Perales, to understand if the BaaS bet has paid off.  

Tune in to discover:  

  • Why BaaS is the future  
  • White-label banking strategy  
  • How open banking is driving financial inclusion in Latin America  

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Full Transcript:

Taneia Bhardwaj: Hi, I’m Taneia Bhardwaj and on today’s episode, we’re chatting with Francisco Perales, Director of Consumer Banking at Accendo Banco. Accendo has been one of the early adopters of banking as a service, an approach where banks open up their APIs for FinTechs and other third parties to build their own financial products. I began by asking Francisco about the new open banking regulation in Mexico and how he sees it revolutionizing the banking landscape.

Francisco Perales: Hi Taneia. Sure, I’ll be happy to do so. Mexico has 51 banks and recently Congress passed a FinTech law that entails three things, a new e-wallet, crowd funding and cryptocurrency. I think it is wonderful that we’re moving into that direction because it’s important that the regulators work on an open banking platform for banks so that we can have the chance to do a better job at financial inclusion. We think things are going to change the way people buy financial products, especially now after COVID-19 where people are really going to look at experiences digitally, whether they do it through FinTech,  e-tailors, marketplace platforms or direct banking offerings. I think it’s important that we have the regulatory framework so that things happen in an orderly fashion.

TB: Right. Let’s talk about the approach then that Accendo has taken. You’ve been one of the early adopters to banking as a service. You’ve invested in APIs for third parties and also partnered with FinTech companies. Two questions that really come to mind. One, what led you to sort of take this approach? And would you say it’s paid off?

FP: Yes, I think it has paid off really well for us. We’re the only bank that is doing banking as a service. A few years ago, we started thinking about how we were going compete in the consumer banking sphere. One of our thoughts was to partner with FinTechs so that we could sell our products and create la white label brand so that we could be faster at acquiring customers with a different cost structure. Since we didn’t have any branches, we started from scratch. It was pretty good technology-wise because right now, we’re a hundred percent cloud based. This makes us elastic in terms of demand but also by not having any branches, we have to think differently. So we decided to work on a banking as a service software/service to empower these type of businesses, whether they’re a FinTech or a retailer. And one of the things that we did was created white label banking products and co-branding products, so we can issue debit credit cards and we can help with payments real-time. We also help payment platforms on the acquiring side, and we did this through APIs from micro services. So I will say it paid off. We recently won the best FinTech banks last year in 2019 from Mexico and we’re so proud of it.

TB: You talked about how white label banking services is a key strategy for you. Talk to us a little bit more about what are some of the problems that you’re solving for your clients and use cases that you might have discovered along the way?

FP: I’ll give you a couple of examples. So for example, it’s difficult here in Mexico, probably not the best experience to open a bank account as a regular consumer. You have to walk into a branch, probably spend two, three hours, maybe go once again and then get delivered probably one, two or three days later. So one of the things that we did is empower FinTechs so that you could open a bank account within minutes, and we’re talking about seven minutes and your card will get delivered within 30 minutes to an hour, whether you’re working or whether you’re at home and I think that is amazing. That’s an amazing customer experience. And the way we did it is by partnering with FinTechs by providing white label banking service, where they could connect and have a product up and running like an e-wallet with a card within weeks, and we’re talking eight, 10 weeks. So we’re able to do that rapidly and we’re becoming faster and nimble. One of the things that keeps me worried at night is trying to really make our customers happy. Whether a customer is a FinTech or a retailer, more importantly, making sure that their customers, ultimately the consumer, is really happy with the products and services that we’re providing to them.

TB: How would you say the COVID-19 pandemic has changed consumer behavior in Mexico specifically?

FP: The pandemic unfortunately has changed and is changing the way we do business, the way we live, and the way we go about our lives. One of the things that has changed is folks don’t really want to go to a branch or to a crowded space, right? By providing digital experiences through our customers, which are the FinTechs and our bank partners, we’re able to have a lot less friction. I’m talking about the friction of being in a crowded place of having to go to a branch, to open a bank account, or to get service for a financial product. I think that has changed for the best. So technology has had to adapt sooner rather than later to the digital world, or to doing things digitally that they weren’t used to. And what we have seen in our numbers, which the pandemic really took off here in Mexico, mid-March, April, May, and June, we’re basically at the peak right now, and we’re seeing our numbers grow through the pandemic.

People are adapting more rapidly to this new reality. it’s important that businesses also adapt at the right time with the right product because these digital banking perspectives will probably get accelerated because of the pandemic. It’s important because we think we are doing things better, faster, cheaper, and we’re also protecting the consumer by not going to public areas to get their banking services. That’s an important thing when you have a crisis, you need to make sure that people have their money, that people get their payroll, that people are able to pay their bills, and they’re doing it differently now.

TB: I suppose another learning for you has been that in order to make the system more inclusive and competitive, collaboration is clearly the way forward. How do you see that trend take shape over the next five years in Mexico?

FP: The financial industry on the consumer side is going to change and cash is going to change: the way we look at cash, the way we get cash, and the way we make payments. I think the whole ecosystem is going to change and banks have to adapt and we need to partner. We need to partner with people that do deliveries so that we can deliver a bank card more efficiently, just like we deliver food. Just like you asked for a ride with Uber or Cabify. That entails collaboration between different types of businesses. I think we’re seeing the changes, not only in Mexico and Latin America but in some parts of the world, we need collaboration with merchants so that they accept payments in a different way more rapidly.

We need collaboration with our regulators, we need collaboration with our FinTech partners, and we need collaboration with the telecommunication industry. I think that’s going to happen probably faster than we think. And I think businesses are starting to realize that you cannot be good at a lot of things. You have to focus on a couple of things that you’re really good at and then get collaboration. This is where we can partner with companies like Nium for payments. Instead of us creating a whole network of payments around the world, this is where we can partner with Visa and MasterCard. This is where we can partner with delivery type of organizations like Uber, so that we can deliver products and services. If we have to deliver a physical product, this is where we need to think outside the box so that we can create a digital card.

I’m very proud to say that we were the first team in the world to launch a physical card without numbers for Visa, the first one in Mexico. Those things came from some of our customers by listening to them. That’s the type of collaboration. We were trying to solve a different problem. And we ended up doing something very differently and solving a much bigger problem. We did this with the collaboration of our customers, trying to think outside the box, trying to think digitally, trying to develop products for a digital platform for a digital world, and for a different market that doesn’t understand why we have to go into a branch and do business there. So that’s what I would say is the trend that’s probably going to happen over the next few years in the industry, whether we are FinTechs and banks or some other type of business, we need that type of collaboration. I’m talking also about ID verification. There’s companies that do a much better job than banks, making sure digitally that we are ID’ing our customers properly. I think we’re going to see a trend of that collaboration in the future and we are seeing it right now.

TB: Mexico has adopted open banking, not just to change the dynamics of financial services, but as you said, to also solve the larger problem of financial inclusion and bringing back confidence in banking. I know it’s early days, but how hopeful are you that some of these objectives will be met?

FP: I am extremely hopeful, Taneia. Unfortunately, the banking industry is so concentrated only on a few things. I think I will say it’s a sad story in terms of financial inclusion, because we have around 40 to 50% of the population that is not banked. And to me that is kind of like a bank in malpractice and we have to be very honest with ourselves and think, ‘what did we do wrong’? ‘How did things go that way’? We know from research that economic development, especially to the low-income communities, starts with having an education, but it also helps if you have a bank account and if you are included in that system. I think technology is going to help us level that playing field. When you think that some of these households might not have internet and they might not have a computer, but most of them now have a smartphone and we can do a lot of things.

A smartphone, right now, was like a super-computer 10 years ago in terms of the capacity to do things, the capacity to solve problems, the capacity to understand and to search for things. Now you cannot open a bank account, a very decent bank account, and have access to these financial products within minutes. In that regard, I’m very hopeful. But if you look at our track record as a country, we have always been that way and that’s not necessarily good for anybody. So in that regard, I think we can really help the goals of our government and our regulators to really close the gap in terms of financial inclusion. Then we can have a great financial product so that they can save for the house, so they can save for college for the kids, so that they can borrow at an affordable rate and in that regard, I think technology is going to help us a lot. It is going to help us do things differently, whether you are providing a loan and going through the underwriting process or whether you are helping someone say for something, regardless, I think hopefully 10, 20 years from now, most of the folks will have access to a financial product that is of great quality through their cell phone and they will have a banking service that works for them 24/7.

TB: How do you see financial services ecosystem shaping up in Latin America? What would your advice be to those players who are looking to enter the arena and make a big splash?

FP: Well, I’m also very hopeful about Latin America. When you look at how many banks we have in Mexico, which we have 51 and not all of them, but most of them, were with the consumers. Then you see that there’s 400 FinTechs just in Mexico. A lot of them do e-wallets and a lot of them are working on the payments sphere. There’s a lot more that are coming with innovation and different ways of doing business. When you look at Latin America, there’s around 2000 FinTechs, according to Finnovista, and they are really innovative. I’m hoping that some of the governments learn from the experiences that we’re seeing in the UK, from the experiences that we’re seeing here in Mexico, in terms of the regulatory side and what the government is trying to do to make sure that there is financial inclusion for everyone.

I’m very hopeful that banks are going to look really different in a better way, a make-over for the banking industry. As I was saying before, consumers will buy financial products digitally. I don’t see my kids really walking into a branch to open a bank account, to get their first payroll card or debit card or bank account when they have their first job and they need to get paid. I don’t see them going through a bank. They are going to do these things, whether they do it with a bank, through a direct banking offering or through their employer or through a FinTech, where they’re going to open everything they need to start this job and start getting paid. That ecosystem is shaping in a much more efficient way so that we can deliver products that are better, that are cheaper, that pay better rates, and that are much more efficient for the consumer.

TB: Thank you so much, Francisco, for taking the time out for us and good luck with all your future endeavors.

 

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