Three embedded finance experts joined the Lendit TV live session on Tuesday afternoon to advise firms looking to onboard Credit Card Offerings.
Kalpesh Kapadia, the co-founder and CEO of Deserve, Kate Cardone, head of partnerships at Marqeta, and GM of M1 Finance Ben Reid, talked shop with moderator Peter Renton.
Before talk of BNPL and NFTs, there was embedded finance: at one point, the future of every company in the world seemed to include leveraging a payment product.
Today, the embedded finance gig is booming, with everyone from Plaid to Cross River, and giants like Apple, Amazon, Paypal, and Google offering some form of payment option.
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How did embedded finance get here?
“Going back 50 years, I would divide the industry into three different eras: 1.0 2.0 and 3.0,” Kapadia began, describing the different stages of the information age tech tree.
In 1980, Kapadia said you had relics like mainframe infrastructure. For example, film had to be taken out of cameras, sent to a central lab, and then processed into photos.
Then, 20 years later, in 2000, Kapadia said companies used digital databases and servers and leveraged modern infrastructure.
Where do these three firms come in?
“And then you fast forward 20 more years to 2020, where the players like us and Marqeta are completely in the cloud infrastructure. We are like the Instagram of credit cards compared to the Kodiak era we talked about. We are API-based.”
Marqeta has quickly become one of those giants, supplying $14.4 billion in payments capability in an easy, open way.
Marqeta went public on the Nasdaq over the summer, topping a $16 billion market cap in June. In Q2, Marqeta posted a 76 percent jump in net revenue.
Earlier this year, Marqeta announced it was launching card issuing through partner Deserve. Deserve is a co-branded card builder founded in 2012 that runs with Marqetta tech.
“The way I explained the partnership with Deserve is that Marqeta is the underlying tech platform beneath Deserve’s credit-card-as-a-service offering,” Cardone said. “What that really means is that when you work with Deserve, you get Deserve and Marqeta.”
Marqeta provides the system of record, the processing capabilities, interest calculations, and the data which Deserve uses to issue cards, approve cardholder transactions, manage customer servicing and collections, Cardone said.
M1 Finance is an all-in-one borrowing, investing, and spending product that features payments options and more, powered by Deserve. The main product is a retail brokerage and leads back to Marqeta’s open API.
“We tried to embed them with each other and make them work, make them one work as a single platform, we do have pillars of the platform, invest, spend, and borrow, and every addition, we try to make the others better,” Reid said.
“That’s not something you can do with that legacy architecture or legacy issuing approach. In that world, you stuck with a finite list of menu options, or how rewards can work.”
Reid said the firm plans to launch the “Owners Rewards Card by M1” this fall, embodying that goal of all in one finance.
Users will invest their money in popular publicly traded companies and then own cashback rewards by spending money at those companies.
Reid said it is a way to get behind the retail investing craze this past year, as customers want to hold a stake and involvement in their favorite brands.
“The rewards program is embedded with the invested product as well; you get better rewards based on the companies that you’re already invested in,” Reid said.
“So an example would be if you are not a shareholder of Chipotle, and you spend with your card at Chipotle, you’ll earn one and a half percent cashback. If you are a shareholder of Chipotle, or an owner of Chipotle and you spend on your card, you’ll earn 5 per cent cash-back.”
Where embedded finance is headed next
So, where do these embedded finance champs think the industry is heading next? Kalpesh said M1 Finances’ upcoming product is on the money.
Peter Lynch used to say, “buy the stock in a company where you shop,” Kalpesh said. He said creating a positive feedback loop in payments is vital to keep shareholders interested.
“The same thing we did with BlockFi, an immensely profitable card where you are rewarded in cryptocurrency by spending money in fiat,” Kalpesh said.
“And you know most people we talked with said, ‘you can pry my bitcoin out of my dead hands.’ Why would they want to spend their crypto when they can earn it by doing regular things.”
Reid said that he considered M1 a type of embedded finance company and said the ability to quickly build unique experiences will always draw in customers.
“The things that are attractive to embedded finance users — who don’t have anything to do with financial services — are the same things that attract us to financial services,” Reid said.
“Everybody wants to get to market fast and easily in a flexible architecture and be able to build unique user experiences on top of it whether they’re in or out of the financial services world so I think it’s exciting.”
Cardone said that Marqeta saw a ton of banking-as-a-service platforms, and the average consumer may be initiating a change in the way we think of banking.
Though she said, that difference is still in its infancy, citing a quote she read that found 60-70 per cent of consumers would not apply for a card from a non-traditional institution.
“We’re seeing a ton of banking as a service platforms pop up with the motivation to bring financial services to nonbuyers, making it easy and seamless to embed payments or lending into a retail experience, for example,” Cardone said.
“I think what’s interesting is consumers are not opposed to thinking differently about who they go to for their banking needs. It’s just beginning, and we’ll see much more creativity and innovation in this space in the coming years.”
Using the example of Goldman provided credit for Apple financial products, Kalpesh said the new headliners would be embedded services.
“I feel if you interact with the Apple card, you will believe this is an Apple product. You don’t believe it’s a bank product in the backend; Goldman Sachs is the bank behind it, but the embedded experience with Apple card has is received, iPhone and the wallet and with all the Apple products is the shining example of what it should be.”
Compared to the Amazon credit card, Kalpesh said, it’s night and day.
Even though you can buy anything on Amazon, you can’t manage their payment product on the site, you have to go somewhere else. Wherever financial experiences are outsourced, the brand needs to control that experience as if users were interacting with its own product.
“That’s the distinction I draw to the largest companies in the world,” Kalpesh said. “One has taken the embedded approach, the other has taken the traditional approach.”