Leaders in Payments: Be Solid

October 2023

Speaker 1:

This special series of the “Leaders in Payments” podcast titled “Be Solid” is brought to you in collaboration with NMI, the Fully Integrated Payment Solution built to scale. In this six-part series, we’re going to discuss the embedded finance revolution, why it is so powerful and growing exponentially, and where it is heading. Most importantly, what does it mean to your business, whether you’re an ISV, ISO, payback, or bank? In a world of squares and stripes, be solid.

John Briggs:

We did a ton of listening to our clients, because I think the other thing that makes us unique as a bank provider, a lot of these clients that we are engaging with around embedded banking, they’re existing bank clients, right? They’re lending the money, helping them with some of their capital markets or capital related needs. And so these are existing longstanding relationships, which allows us to have access to them in a unique way.

Greg Myers:

That was John Briggs, EVP and head of Commercial Product and Innovation at KeyBank, and he’s my special guest on this episode, episode 228 of the “Leaders in Payments” podcast. And I’m your host, Greg Myers. This is the first episode in our series on embedded finance, and what better way to kick off the series than by talking to a bank about embedded finance? John and I talk about how KeyBank views the embedded finance space. From a strategy perspective, a product perspective, what’s driving the growth in the space, and what the future looks like. We also touch on other topics like KYC, risk, and the role that fintechs play in the ecosystem. We’ve got a great episode ahead, so let’s get started.

Hi, John, and welcome to this episode of the “Leaders in Payments” podcast, where we’re going to be doing a deep dive on embedded finance, so welcome to the show.

John Briggs:

Thanks, Greg. I appreciate you having me today.

Greg Myers:

Absolutely. So, John, if you don’t mind, tell us about your current role at KeyBank and maybe a little personal and career background and how you got there.

John Briggs:

Sure. On the professional front, today, I lead product and innovation for KeyBank and just a fantastic team of product professionals. I’ve been with the bank now for ... I’m not going to give you the actual number of years, but it’s been a number of years in a variety of different roles. So, I come with an accounting background. I’m a CPA by training, so spent time in accounting, finance, treasury, strategy, risk management. Now I’ve been in payments for the past six years, so for many that are in the payments industry, I’m relatively new on the scene. On the personal side, I would say very supportive wife at home that keeps my at-home life in order with our four kids, and I think as many can relate, I spend most of my time either at practice or at games on the weekends. So, that is my professional and personal life these days, Greg.

Greg Myers:

Awesome. Thanks for sharing that. Well, let’s talk a minute about KeyBank. I think most of our audience will know about KeyBank, but if you don’t mind, give us a little background about the company.

John Briggs:

We’ve been around for a little while. I believe we’re close to 200 years old at this point. We’re a regional bank, about $190 billion in assets. We’ve got a retail branch footprint that covers 15 states predominantly across the Northeast, Midwest, and Pacific Northwest. Our commercial business, we have clients in all 50 states across 11 different client verticals, and particularly, I think, relevant to our conversation today with one of those verticals being the technology vertical, which is really important to us.

Greg Myers:

Well, let’s go ahead and dive into the topic, which, of course, like I said earlier, is embedded finance. So, let’s talk about some of the terms. I think there’s a lot of terms out there, and in my view, embedded finance includes embedding any financial product — could be lending, could be credit cards, could be other banking products, even insurance. Is that how you guys at KeyBank see it, or do you see embedded banking or banking as a service, do you see that as something different?

John Briggs:

It’s a great question. It’s a question we get often, and I think in the industry, it really depends on who you’re talking to, how they answer that question. From a KeyBank perspective, I would tell you we share how you just defined embedded finance. We view it as being how do I take every product and service that we offer as a bank today, whether it being making a payment, receiving a payment, creating liquidity in the moment through lending or depository services, and how do I take that and get it placed in platforms to enable the end client?

As part of doing that, there is enabling products or infrastructure required to deliver that capability to the end client. For example, if we’re enabling a SaaS company to offer payment acceptance, as part of that journey or that value chain, underwriting capabilities are required such as KYC. We don’t view knowing your client and the technology to be able to enable that process as a standalone product, but more as something that is part of enabling that value chain and delivering that end product to the customer. And I think where embedded finance and banking as a service start to overlap or mesh together is there’s a lot of providers out there that will provide things like KYC as a standalone service. For us, we’re not in that business. We are in the business of enabling payment acceptance and will enable some of the banking-as-a-service-type of capabilities to be able to complete that journey.

Greg Myers:

OK, yeah, thanks for sharing that. So, when KeyBank thinks about embedded finance, what is your strategy? What are you looking to do?

John Briggs:

Our embedded banking journey is really about delivering banking or financial solutions through platforms. So, for years in the industry, the industry has talked about this convergence of software and financial services. We’ve seen that trend accelerate in recent years. For example, if you go back to 2015, about 10% of card acceptance volume was through nontraditional providers. So, think of ISVs versus banks and the legacy bank and ISO model. Fast-forward to 2020, that’s up to 40% and I’m sure it’s even greater today. And so, we see that accelerating. Our goal as KeyBank is to be one of the leading providers in embedded banking, empowering these platform ecosystems.

Greg Myers:

And obviously you mentioned part of your responsibility is product. How do you look at it down at the product level? I think one of the things that people in this industry, it sort of started embedded payments, right? And I think it’s broadened, embedded finances much larger. It’s more than payments, it’s more than just payments. So, there’s a product component to it, right? Around lending or credit cards or deposit accounts or whatever it might be. So, you as someone who’s running product at a big company like KeyBank, what is your perspective from a just pure product perspective?

John Briggs:

Maybe I’ll start by giving you the lens of what we see in terms of the need out in the ecosystem, and this is at a higher level, a bit more generic, but we see a client that is pretty diverse across the spectrum of maturity, both on from a technology standpoint, maturity around banking and financial services and what it means to actually ingest support and service some of those products, as well as risk spectrum.

Some clients, they’re mature, they’re scaled, and able to take on certain aspects of the risk equation, and then you have others that don’t want any part of it. And so, at a high level, we as a bank, at the end of the day, we’re looking to support our client. Our client here is the technology company or the platform. And so, we’re building a flexible model, including flexible technology to be able to support all those flavors of client that exist out there.

From a product feature perspective, obviously this, as you said, Greg, the industry is most mature around the payments portion of it. That’s absolutely where we’re focused. So, the ability enabling clients to accept payments, make payments, whether it’s disbursements play or leveraging VCC rails, or issuing sponsored versus non-sponsored, those are all products we’re either enabling today in the market or are on our very near-term roadmap. What’s interesting is as a bank in this space and you start to have conversations, and maybe it’s a conversation centered around payments, the broader need where clients may have a specific use case, where they need to inject liquidity into the value chain or enable some new feature on their platform, it quickly dovetails into just a broader banking conversation, where lending becomes in scope or is required.

So, it goes back to we’re uniquely advantaged as a bank participating in this space because we’re in the business today of enabling and delivering all these products, and our mission from an embedded banking perspective is getting them all positioned in a way, leveraging modern technology and infrastructure to be able to deploy them to these clients in a really flexible way that meets their needs and allows them to build the experience they’re trying to build.

Greg Myers:

Right. One of the conversations that I hear a lot or have myself is that with payments, there’s so much data that is collected. How do you then take that data and make smart decisions, whether you’re a technology company or a platform, and maybe those decisions are around lending, so you know so much about a client that you feel comfortable lending. I mean, do you see that as kind of data being so important? And if you do see that, are you guys doing anything unique there or different than what maybe others are doing? Or is that just part of the process?

John Briggs:

Data is such an important part of the strategy. So, whether it’s passing back data for clients to enable specific use cases around reconciliation, as an example, or even where you were going, Greg, which is what I call modern underwriting. If you just step back for a minute and look at the way banks, the traditional underwriting process for a client, it’s one, it’s all backwards looking, right?

So, banks tend to ask for financial statements over a period of time, tax documents, depending on the size of the company and the sophistication of the company. It could be audited financials, it could be financials that might as well be written on a cocktail napkin. You have that entire spectrum of client maturity that’s out there. Everything’s predicated on looking at historicals versus the beauty of transactional banking and payments, is you have data in real time. And so, I can predict what your sales are going to be likely today, next week, a month from now, because I have daily, if not hourly, transactional information going back in time. And so, I have the best pulse on the health of you as a company. We at KeyBank, we see that as a very important and rich source of insights for us to be able to enable a more modern underwriting experience. And it’s something we’re not in the market with today, Greg, but I would tell you it’s certainly that, it’s something on our roadmap.

Greg Myers:

I’m always curious about this. Is there more demand coming to you from your clients, or is there more of KeyBank being aggressive in going out and promoting and selling this? I guess it’s a push-pull kind of thing or a chicken-and-egg kind of thing, whatever you want to call it. But just curious from your perspective, is it client driven or is it more, “Hey, this is KeyBank’s product strategy and we’re going out selling it”?

John Briggs:

It’s a bit of both. I think we have a really clear north star vision that I touched on, which is a future where every product or service can be delivered through a platform, whether it’s fully API enabled or through our own hosted UI, but the journey in terms of how we go from here to that point is absolutely shaped by the voice of our customer. So, before we entered the space and started our build three years ago, we did a ton of listening to our clients, because I think the other thing that makes us unique, Greg, as a bank provider, a lot of these clients that we are engaging with around embedded banking, they’re existing bank clients, right? They’re lending the money, helping them with some of their capital markets or capital related needs. And so, these are existing longstanding relationships, which allows us to have access to them in a unique way and hear some of the pain points that they have with some of the incumbent providers or some of the problems they’re looking to solve.

And so, that listening, I would say, helped us avoid or solution around some of the gaps that we see out in the market or position ourselves in a way as a bank in the space in a really unique way. So, client always front and center. I would say today the demand on us in a really good way is far outpacing our ability to deliver up against our roadmap or some of their asks. So, we have a lot of clients that have very specific points of view around products they’re looking to solve and are lining up to be partners with us and help co-develop and solve some of these problems that exist in the industry, which is really exciting, and, I think, unique in the market.

Greg Myers:

That’s a really good segue into the next question. I don’t know that we hear this as much as we used to, but there was always kind of banks see fintechs as a threat or kind of that perspective going around, but it seems like, and you mentioned three years ago you started down this path that KeyBank really has taken a different path to working with fintechs, working with payments companies. So, it’s kind of a two-part question: Why did KeyBank take this different path and how is your approach in your view different than what some other banks are doing?

John Briggs:

Let me first by saying fintechs are both friends and competitors, and I think we at Key have had a FinTech partnership strategy for, I believe it’s now eight years. We’ve got a lot of really robust thought and process around what it means to bring on and have a fintech partner and partnership. And this includes everything from commercial partnership to equity as well and joint roadmaps. The reason why we started down this path eight years ago is we had a number of folks on the executive team in our payments business that were just new to the space. At the time, we didn’t have a good sense of where the industry was or where it was going. And so, as a result, we spent a lot of time externally with a lot of VCs that are dominant in this space, understanding where they were placing their bets, why they were placing the bets, what they were seeing.

And what we quickly realized is the fintech community, and this is going back seven, eight years ago, it’s advanced materially from then, but they’re so hyper-focused on solving the unique pain points of a specific set or cohort of clients. So, whether it’s within a specific vertical or solving a friction point that’s unique in a certain workflow. And what we realized is as a bank looking to be able to support our 270 commercial clients, we can’t be everything to everyone, but what we can do is we can get really good at identifying and partnering with what we viewed to be the best of breed in the industry and bring some of those fintech capabilities to market through our bank channel. So, we’ve looked at it as a phenomenal way to advance our product strategy quickly and create really deep integrated experiences with our existing commercial clients by partnering with these fintechs that have these unique deep solutions.

Greg Myers:

Obviously, we can’t talk about money movement without talking about risk. How do you manage risk in this space?

John Briggs:

We’re a bank and so our business is risk, and I think it’s of utmost importance today. And I think as you look forward over the next couple of years, and there’s a clear line of sight in terms of where regulatory bodies are going. How I would tell you we at Key manage risk is we have a risk appetite that is unique to Key and we effectively make sure our appetite for — whether it’s credit risk, compliance risk, InfoSec risk, you name it — is extended through all the partners and clients that we bring on. And for us to be able to do that without creating a lot of friction with our clients and their end clients’ experience, we have to bring to bear a lot of modern technology to make that as seamless as possible for them.

And so, it is a lot of heavy investment on the platform side and data integrations to be able to pass data and make it seamless for our clients so that we can make sure we as a bank are meeting our obligation to our constituents or our stakeholders from a risk management perspective. The way we execute on that with our clients is we’ve got to be able to have a model that can support those that are more sophisticated or scaled from a risk perspective, which as an example, a registered payback as well as those that aren’t as sophisticated or scaled or don’t really want to own the risk like a referral partner relationship or an ISV. We’ve built tools and technology and a program to be able to support all those flavors.

Greg Myers:

The momentum of this space, I think, just continues to grow, but do you see, given kind of the slowdownin investments in this space and the fear of a potential upcoming recession or any of those macroeconomic headwinds, do you think that’s slowing down the momentum in this space at all?

John Briggs:

I would say in terms of investment in this space, I would say it’s fair to say there’s just broadly this wait-and-see type of mentality. From a momentum of driving embedded banking, which is what fintechs have known for years and SaaS platforms are certainly learning, particularly verticalized SaaS platforms, which is, there’s a lot of value in the payments revenue stream and banking revenue stream. And so, we haven’t seen that momentum abate at all. There’s still tons of demand, if not an increase in demand to adopt payments to be core part of their platform strategy. So, certainly not headwind there, but as far as clearly new money coming into the space to support new fintechs, there’s absolutely a bit of a pause at moment.

Greg Myers:

Yeah, I would agree with you there. So, big-picture thinking, what do you think is next in this space? Do you see consolidation? Do you see just continued pedal-to-the-metal growth and companies adding more products to their kind of embedded finance strategy? I mean, where do you think this is all headed?

John Briggs:

My personal view is, I think there was a number of fintechs that were born during a period of really cheap liquidity. I’m having a lot of conversations with fintechs, where the economics made sense when rates were near zero versus today. And so, it’s changed the value equation materially. And, as a result, I expect to see some consolidation in the industry, just because I think the good news is there’s a lot of great teams and technology out there, but I’m not sure that all of their business models can be supported in today’s rate environment. And I think as a result, you’re going to see some consolidation over the next year or so.

Greg Myers:

Yeah, I definitely agree with you there, John. We’ve covered a lot of ground about the bank and about you and about, obviously, embedded finance. Is there anything else you’d like to cover before we wrap up?

John Briggs:

No, Greg, I think you had quite a comprehensive set of questions today. I think maybe where I’d end is I think what we know today and where the industry is or what the need is, is true today and maybe not so much tomorrow. And I think that’s what makes payments certainly in the embedded banking space really fun, because it is really dynamic, it’s evolving quickly, and I’m really excited about how Key is positioned and our ability to help lead through a lot of change to come.

Greg Myers:

Well, John, thank you so much for being on the show today. I know your time’s very valuable. So again, thank you so much for being here today.

John Briggs:

Absolutely.

Greg Myers:

And to all you listeners out there, I thank you for your time as well. And until the next story.

Speaker 1:

Thank you for listening to this episode in our special series, “Be Solid,” brought to you by NMI, the fully integrated payment solution built to scale. For more information on embedded finance and this episode, please visit www.nmi.com/resources/podcasts. And remember, in a world of squares and stripes, be solid.