Madhu Vasu

State Licensing vs Bank Sponsorship Which is better? There is no right answer. At Onbo by Stilt Inc., we were state licensed, and after our acquisition, we led integrations with bank sponsors for lending and banking products. Here's how the 2 approaches compare: 𝗟𝗮𝘂𝗻𝗰𝗵 State Licensing: It’s easy to launch. Some states have a simple application process and almost no costs. Depending on your product, you can even launch without a license. Bank Sponsorship: Have high setup costs + takes time and resources. Requires significant work at launch. 𝗖𝗼𝘀𝘁𝘀 State Licensing: There are no material operating costs, no monthly minimums, and a lower cost structure. Bank Sponsorship: Has higher setup costs, monthly minimums, oversight costs, frequent audits, etc. 𝗣𝗿𝗼𝗱𝘂𝗰𝘁𝘀 State Licensing: States have different usury limits and requirements. e.g. no origination fees, max X% APR resulting in a non-standardized product. No option to offer products like credit cards. Bank Sponsorship: Standardized product across all 50 states. Product parameters could be limited by the bank's charter location. e.g. NJ has max 30% APR. 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 State Licensing: Depending on the state, limited compliance requirements are specific to your product. A few federal regulators like the CFPB also have oversight. Bank Sponsorship: Higher compliance requirements including oversight from OCC, FDIC, etc. 𝗖𝗹𝗼𝘀𝗲𝗱-𝗲𝗻𝗱 𝗮𝗻𝗱 𝗥𝗲𝘃𝗼𝗹𝘃𝗶𝗻𝗴 𝗣𝗿𝗼𝗱𝘂𝗰𝘁𝘀 State Licensing: Multiple states haven’t contemplated revolving credit products. Sometimes, the rates and usury limits could be different for these products. Bank Sponsorship: Revolving products operate within the same framework as the closed-end products. Simpler to expand the product suite. 𝗦𝗲𝗿𝘃𝗶𝗰𝗶𝗻𝗴 𝗮𝗻𝗱 𝗖𝗼𝗹𝗹𝗲𝗰𝘁𝗶𝗼𝗻𝘀 State Licensing: No servicing licenses are needed because the lender is the servicer. Bank Sponsorship: Require additional servicing licenses in 40+ states unless the bank is the master servicer. 𝗥𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝗥𝗲𝗾𝘂𝗶𝗿𝗲𝗺𝗲𝗻𝘁𝘀 State Licensing: States have clear annual reporting requirements either through NMLS or through their own portal. Bank Sponsorship: Bank sponsors require monthly, quarterly, and annual reporting as a part of their monitoring and oversight program. 𝗗𝗲𝗯𝘁 𝗙𝗮𝗰𝗶𝗹𝗶𝘁𝗶𝗲𝘀 State Licensing: No limitations on raising debt facilities. No reporting is required unless it's a part of annual audits. Bank Sponsorship: Bank sponsors will want a say in approving the documents and participation in the loan facilities. 𝗔𝘂𝗱𝗶𝘁 𝗖𝗼𝘀𝘁𝘀 State Licensing: Most states audit annually or at a predefined schedule. Generally, the costs are either zero or not onerous. Bank Sponsorship: Bank sponsors have significant auditing requirements across multiple areas including but not limited to fair lending, compliance auditing, and financial audits. Read more stuff like this: https://lnkd.in/gzM_4Ye5

4

Banks and credit unions have enough on their plates without trying to build out new card payment flows. But—there’s a huge opportunity for them in offering card-based instant transfers. Pull-from-card and push-to-debit transactions are growing, serve many popular use cases, and can drive engagement, grow deposits, and generate revenue. Regardless of the benefits, most regional and community financial institutions lack the capacity to become principal members of Visa Direct and MasterCard Send. Moov takes on the complexities involved and makes it easy for financial institutions to offer these kinds of transfers—and a lot more—through a single, simple API integration. Read more from Matthew Thomason about how we make it happen.  #fintech #payments #banking https://lnkd.in/gUX6zJQp

39

Recently in news was Pincode – PhonePe’s Open Network For Digital Commerce (ONDC) focused App, who requested ONDC that they will get out of most of the categories, except food and unreserved ticket booking. While intuitively it seems like a drag on the growth of the ONDC ecosystem as Phonepe through its Pincode offering was expected to bring in the large customer base of Phonepe to the ONDC platform, on further digging down the situation seems to be quite positive for the ecosystem Out of the 5.5 million transactions made in Dec, this is the breakup : Mobility dominated by Namma Yatri – 63%, Of the remainin 37% in retail transactions, the breakdown is F&B – 32.5%, Fashion – 29.6%, Home and Kitchen – 12.6%, Grocery – 10.1%, Beauty – 8.5%, Electronics – 5.7% ONDC has been playing a textbook platform strategy game 1.    When a platform starts, it’s a chicken and egg game between the 2 sides of the platform, on who will be onboarded 1st on the platform, the buyers or the sellers. One side is incentivised to come in. This brings in the 2nd side, who may also incentivised, till the network effect kicks in and no further incentive is needed. ONDC incentivised buyers through the buyers Apps. In non-mobility section, the transactions have gone up to 1 lac per day in March '24 from 2k in 2023 Jan. ONDC has further upped the incentive game, providing additional incentives to the apps for growth in transaction volume. This will probably take the daily transaction to 2lac/day, which is Amazon’s per day volume. 2.    The 2nd principle is the 80:20 rule, where 80% of revenue is expected to come from 20% of products. The 20% brings the money to the platform while the 80% of the products which we call the long tail brings the stickiness. ONDC has opened up 8 categories for this reason from mobility to retail and credit. From individual apps, it needs to be vertical play as there is management of each SKU. This is the 1st reason why we see Pincode restricting itself to only 2 categories after the initial experiment. F&B and Grocery which will bring in about 45% of the sales volume. 3.    The final step for the platform is moving up the value chain which is essentially guaranteeing quality of service delivery which is where ONDC is struggling still. Pincode cited the predictability of service delivery by platform players.It will be very interesting to see, how the entire platform looks when 2 lacs transactions / day is reached. This is where Amazon aced the game Overall the decision by Pincode doesn’t look so bad both for them and ONDC. They have chosen value over a long tail and expects to excel there

27

We are thrilled to share that our very own CEO/ Founder Abhishek Veeraghanta was featured in Digital Transactions July edition. Read the article below to learn more about his thoughts on the FedNow Service and current #fasterpayments opportunites for financial institutions. #instantpayments #payments #FedNow https://lnkd.in/evNu7_rM

22

We recently reached the one-year anniversary of the launch of the FedNow Service. It’s worth taking a moment to reflect upon the journey here and what’s next for the U.S. payments ecosystem. With FedNow and The Clearing House’s Real Time Payments Network, financial institutions now have two rails in the U.S. that can facilitate real-time payments for businesses and consumers. We continue to see growth in the number of financial institutions that have onboarded to each rail, and we expect to see a 31.7% CAGR in real-time payments transaction volume over the next half-decade. It’s noteworthy that real-time payments represented just a 1.5% share of the total payments volume in the U.S. in 2023 – yet the U.S. was still the 12th largest real-time payments market globally by number of transactions. There is still a huge runway for real-time payment growth here. At ACI, we are eager to work with financial institutions looking to unlock significant benefits for businesses and consumers. Check out Bridget Hall's insights on the topic in this article: https://aciw.co/4cN3m2r

36

1 Comment

In 2022, Wells launched a credit card with Bilt Technologies, a fintech startup. But ...losing as much as $10 million every month..the program has also been hit by fraud. The partnership also poses money-laundering risk. Khwaja's Reflections from Board Oversight Standpoint: Wells Fargo has been making some (good) progress on the corporate governance front. Some of the forward-thinking areas include: ✅ Enhancing disclosures regarding board oversight of human capital management and risks, culture and ethics, and framework for workplace harassment and discrimination.  ✅ Technology and Innovation as one of five strategic pillars. More can be done. Here is My Take: ✅ There is a misalignment or lack of interlock between tech/innovation and risk oversight. ✅ I recommend the lead director establish a standing technology/innovation and cybersecurity committee. ✅ Make the pie bigger for value creation and don't delegate innovation/technology agendas to other committees such as audit or risk. ✅ Per proxy report, 38% of Director nominees only have technology/innovation/cybersecurity expertise while 92% have risk management expertise. Get more innovation/technology/Cybersecurity expertise. ✅ Get the right incentives aligned to take the lead in the innovation game. What do you think? *********Subscribe here to get all my 🔥 takes on the Board and C-suite effectiveness. 👉🏿 https://bit.ly/3VCkqyV ******** #CEO #KSgems #TheVentureMindset #Startup #Technology #Innovation #BoardOversight Manuj Aggarwal Nitin Gaur Christopher Hetner Ilya Strebulaev Alex Dang https://lnkd.in/euXAN-9b

6

7 Comments

You've Heard Of BNPL - What About SNBL? Buy Now Pay Later (BNPL) has been one of the success stories in payments over the past decade. But what about Save Now Buy Later (SNBL)? A way to benefit from spreading payments over time without taking on debt, it offers flexibility to both consumers and merchants.  Here's how SNBL works: a consumer commits to a purchase with a specific retailer, makes an initial payment, and then continues to add funds to an account. The total amount added to the account is expected to match the value of the goods they intend to buy. In short: 💰 Consumers enjoy potential cashback or additional rewards with SNBL payments. 🛍 Retailers benefit from increased sales, particularly in markets with limited access to formal credit. 📈 Businesses can share the benefits of purchases with their customers. 🗑 SNBL, like BNPL, typically results in higher total purchase values for online and in-store shoppers. In my interview with Payments Culture, I delve deeper into LayUp's offerings and our SNBL mission. Special thanks to Matt Jones for the feature! Read it here: https://bit.ly/3w7KvPG

15

1 Comment

Embedded Lending is imperative now for platforms and brands to stay relevant to customers’ needs and demand. It is key for Consumer and Small Business focused businesses. Short cut is partnership with dedicated lending fintech providers What is driving the market - in recent interview with John Downie, CEO SteadyPay, enabling partners to provide frictionless lending #embeddedfinance #embeddedlending #lendingasaservice #contextual #frictionless #steadypay #ffnews

24

1 Comment

Integrate instant payments while combating the rising threat of fraud. In this article, read about fraud prevention strategies, the top use cases and monetization opportunities for instant payments, and more. #instantpayments #fraud #payments

10

If you’ve been paying close attention, you realize that the once mundane world of cross-border payments is innovating at warp speed. International trade, global commerce, and remittances have never been more exciting! A recent G20 mandate has challenged financial institutions to improve cross-border payments by making them faster, cheaper, more transparent, and accessible. The Bank for International Settlements (BIS) has responded with Project Rialto. Project Rialto aims to improve instant cross-border payments using wholesale central bank digital currencies (wCBDCs). It explores the potential of wCBDCs to enhance speed, efficiency, and transparency by integrating decentralized finance (DeFi) technology into traditional financial systems. Pretty awesome, right? Well, it depends on who you’re speaking to. Here are the facts: There are two types of CBDCs: wholesale and retail. The promise of CBDCs, in general, is to optimize outdated financial systems and promote financial inclusion, especially in emerging economies. Countries like the Bahamas, Jamaica, and Nigeria have already introduced CBDCs, and more than 100 countries, including my homeland Ghana, are exploring their benefits. There are concerns: While promising, wCBDCs raise issues around increased surveillance and control by central banks, cybersecurity risks, and the complexities of integrating wCBDCs into existing systems. The reliance on decentralized solutions also presents uncertainties regarding regulatory compliance and the interoperability of diverse financial networks. Ultimately, the future of cross-border payments is at a crossroads, balancing innovation with careful consideration of the potential challenges ahead. Different economies are driven by different motivations, fueling the global interest in this transformative financial technology. #Payments #CBDCs #Blockchain #Innovation Read more here: https://lnkd.in/eHJX-yev

14

Sanatan Kapoor, Group Head at Bill Desk said the lack of consumer foresight is a challenge in the B2B payments sector. At Mpai’s annual summit held this February in New Delhi, he added that designing B2B payments solutions with consumer interests in mind was a significant business opportunity for clients. For more such diverse ideas on merchant payment solutions, stay connected with us! #B2BPayments #MerchantPayments #PaymentSolutions #ApplicationDesign #PublicPolicy #OrganisationalPriorities #TechProduct #ValueChain #TechPolicy

58

Great piece by Miriam Cross at American Banker on what BaaS banks should do in light of the Synapse debacle. As I explained to Miriam: 📣 Banks and their fintech partners will need to demonstrate going forward - to skeptical regulators, to a distrustful public, - that the rippling effects of the Synapse bankruptcy are an aberration. “The Concern here for the broader banking-as-a-service industry is that the fintechs and the BaaS banks may be tarred with the same brush unfairly. The Synapse mess will be Exhibit A to justify the banking agencies’ continued scrutiny of banking-as-a-service.” 📣 BaaS banks should communicate how they ensure the safety of funds held at the bank and that they have robust reconciliation systems with their fintech partners’ subaccounts, where they can establish to the penny who owns what in those pooled accounts. “It’s crucial that we don’t throw the BaaS baby out with the bath water. Millions of consumers get their financial services through fintech-bank partnership relationships that are successful and mutually beneficial.” And check out the great insights from Jason Henrichs, Allen Osgood, Teri Hodgett, Jesse Silverman, and Reid Whiting. https://lnkd.in/gfjai7bg

43

11 Comments

Introducing the third musketeer of payments tech — drumroll, please — generative AI. Just as Athos, Porthos, and Aramis were a formidable trio, so too is the combination of traditional payment methods, innovative fintech solutions, and the cutting-edge capabilities of generative AI. With its ability to analyze vast amounts of data, identify patterns, and generate insights in real-time, GenAI is revolutionizing the payments landscape. From fraud detection and risk management to personalized customer experiences and predictive analytics, GenAI is slowly but surely becoming the unsung hero of the payments industry. #PaymentsTech #GenerativeAI #Innovation #Finance #Data

8

1 Comment

What is FedNow Relative to Other U.S. A2A Initiatives? FedNow, launched by the Federal Reserve, is an A2A payments clearing network that allows financial institutions to move electronic payments in real-time, offering businesses immediate access to funds, 24x7, 365 days a year. FedNow improves upon the inefficiencies present in the traditional U.S. ACH networks which are driven by periodic batch processing. Faster A2A payments networks are not new to the U.S. The Clearing House’s RTP network, launched in 2017, was the U.S.'s first real-time A2A payments network. As illustrated in Figure 1, slow uptake among smaller banks and credit unions, coupled with the restricted range of use cases (i.e., RTP only enables push payments) have hindered RTP’s impact (accounting for less than 1% of U.S. A2A payments today). Prior to RTP, NACHA introduced a ‘same-day ACH’ product. None of the A2A clearing infrastructure upgrades have disrupted card usage or even significantly cannibalized traditional ACH. Clearing networks (U.S. faster networks summarized in Figure 2) serve as the foundational technology for A2A payments. Actual consumer use cases, such as consumer-to-merchant payments, must then be powered by products such as digital banking, fintech apps (e.g. CashApp), or forms of software-embedded payments. Supply of this consumer end product continues to lag in the U.S. market. As illustrated in Figure 3, U.S. A2A bank services (i.e., via internet banking) are rather confusing, although Zelle has added focus. On average, U.S. banks have done a poor job delivering robust A2A use cases, leaving many consumers to use PayPal (Venmo) or CashApp for their P2P A2A payments. Cards and checks are still most frequently used for bill payments. Even the more successful consumer A2A products still often rely on traditional ACH for clearing, rather than RTP or the new FedNow. Bank readiness is a challenge for payment networks in the U.S., given the ongoing fragmentation of an industry that includes c. 4,000 commercial banks and several thousand credit unions and savings and loans companies. RTP, launched six years ago, claims to currently reach 65% of U.S. bank deposit accounts (increasing to 90% if you count all potentially reached accounts via participating banks). There are reasons to believe that FedNow account readiness should move at a faster pace. For example, FedNow offers more elegant interbank settlement for member banks given the Fed’s longstanding interbank settlement role. Source Flagship Advisory Partners #fintech #payments #intantpayments

1

While I agree that the frontlines of customer engagement for financial institutions are at purchase, BNPL isn’t the only engagement solution, and is not designed to drive top of wallet behavior. At Hoox we’ve reimagined cardholder engagement; we provide an optimization platform for financial institutions to better activate their card portfolios through personalized incentives at the point of purchase––converting at tremendous success rates.

21

Temenos Launches the FIRST Responsible Generative AI Solutions for Core Banking! 🧠 🌟 These secure solutions effortlessly integrate with Temenos Core AND Financial Crime Mitigation (FCM) 📊 Using Temenos Generative AI, customers can engage in natural language queries to generate insights and reports, massively REDUCING the time it takes for business stakeholders to unlock the power of CRUCIAL data 👩‍💻 Prema Varadhan, President Product and COO, Temenos, commented: “We all use AI in our daily lives and benefit from the personalized services and insight. Temenos Explainable AI offers transparent, auditable insights while our Generative AI infused platform delivers these insights instantly in an intelligent and personalized way. Temenos ensures responsible AI practices by providing explainability, security, safe deployment, and banking-specific capabilities. With our AI platform, banks can rapidly implement real-world use cases that enhance efficiency, boost profitability, and create hyper-personalized customer experiences.” Find out more on the link below! 👇 https://lnkd.in/eTX222ny Bola Rotibi #banking #generativeai #bankingsolutions #artificialintelligence

6

JPMorgan Chase & Co. has been busy. Two interesting tidbits have come out in the last few days. 1. They are the underlying payment provider for Amazon and their sellers 2. They just announced a new partnership with Visa to enable Visa Direct for merchants Let's talk about it. 1. JPM is not very public about their role in embedded finance but, they have become a key player in the #BaaS #embeddedfinance space with their merchant partnerships. They enable payments for multiple marketplaces with Amazon being the largest. They enable money movement for merchants selling on these platforms. This is particularly interesting for Amazon given the co-brand partnership they already have on the consumer credit side. This is a smart move that makes the economics of co-brand and payment services much more competitive to price as a bundled offering, as opposed to trying to bid both of these services separately. 2. Despite being one of the investors in The Clearing House and a heavy user of their #RTP network, they are clearly hedging their bets by offering #VisaDirect as a payment option for the Payments group. They claim that this will not cannibalize existing payment methods but rather add options for consumers to receive rebates and returns from merchants. Needless to say I am skeptical this is only additive. I believe this will be somewhat additive, but I also think this is a story of consumer choice. As we have said many times, consumers are comfortable with and familiar with debit cards as a primary payment method. It will be much easier to get customers to adopt #VisaDirect than it is to set up a new process and program around RTP or FedNow As usual Chase is big enough to diversify their options and is nailing it on providing the services their clients demand. They are not just 'selling what they offer', but rather adapting to the needs of their end users, whether consumers or merchants. What do you think? Is there something I missed? #merchantservices #embeddedfinance #Paymentnetworks #Realtimepayments Mary Wisniewski Sam Kilmer Brandi Gregory Lindsay Hooks Kevin Von Holten Jessica Pinkston Emily Osburn

79

9 Comments