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Hi embedded finance friend

I am writing these lines from the WeWork in Mumbai Nariman Point. After a week of spending time with my family-in-law, I am getting back into work mode. Since the summer is rather quiet, I am focusing most of my time on content creation and brainstorming what other activities I could be doing to make embedded finance more accessible. If you have any thoughts on what’s missing in the European embedded finance ecosystem, you know where to find me. Maybe I will be sharing some of (crazy) ideas later this month.

Also a small reminder, that our next embedded finance event in Berlin is happening on October 10th. Make sure to get your ticket if you haven’t registered yet.

Now let’s dive in 👇

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Stripe Treasury adds a new banking partner

Stripe announced that the US bank Fifth Third Bank is joining its partner bank network for the Stripe Treasury product (Finextra). Stripe Treasury is the banking-as-a-service product from Stripe which enables companies to offer bank accounts, payment functionality and more to their own customers. The most known company using Stripe Treasury is Shopify, which leverages Stripe Treasury for its own Shopify Balance banking product. Stripe Treasury has received a lot of attention when it was launched in December 2020 (TechCrunch), where it also revealed that Goldman Sachs, Evolve Bank & Trust, Citibank and Barclays (the latter two are international partners) will be the first bank partners. After the big launch announcements and the announcement of a few bigger customers, it has gotten a bit quiet around Stripe Treasury, likely impacted by the downturn in investment and Stripe was likely focusing more on its core product. However, Stripe Treasury seems to be coming a lot more into focus this year. In May, Stripe already announced a more modular approach to its platform (Fintech Finance News) which enables their customers to use certain products without the requirement to use other Stripe products. Likely a big driver for Stripe Treasury and other financial services products. Stripe’s product offering can be summarised as payment (i.e., acceptance, terminals, billing, checkout), financial services (i.e., treasury, issuing, capital), business operations (i.e., Atlas, Sigma) and other services (i.e., KYC, taxes). Unlike Goldman or Barclays, Fifth Third is not financial brand that (almost) everybody knows, however, the Fifth Third and Stripe partnership could have a bigger impact than Stripe’s partnership with the big banks. Firstly, we have seen banks like Goldman Sachs and Evolve & Trust struggle in their “as-a-service” partnerships, most famously Goldman Sachs losses with the Apple Card and Evolve & Trust fallout with banking-as-a-service provider Synapse. Secondly, Fifth Third is a well known player in embedded finance segment, having acquired themselves the embedded payments provider Rize Money in May 2023 and partnered with a number of different fintech companies. I am quite curious how this partnership will develop, but to me it seems like a great match for fintech and embedded finance.

Sage partners with Stripe in the UK

British accounting tool provider Sage has partnered with Stripe for an embedded payments products (Finextra). Sage focuses on the needs of small and medium-sized enterprises and provides them accounting, finance, HR, payroll and other services. With the Stripe integration, Sage can offer its own customers a streamlined checkout, Tap to Pay contactless payments, and auto-reconciling functionality for bank transfers. The companies using this tools can simplify their financial processes, offer multiple payment methods and ensuring secure transactions. Sage on the other hand should be able to monetise their existing customers through a new product offering, enabling them to take a share in the payment volume and not only rely on fixed software-as-a-service fees. Previously, Sage has already launched an invoice financing product with Satago, where a Sage user can choose immediate cashflow after an invoice is created. While the financing products adds a lot of value, the payment product is likely to have a bigger impact on Sage’s revenues.

Doordash is working on an embedded payment offering

Typically I do not cover new hires of companies, unless this comes with a signal for relevant product or strategy changes. In a way, this happened at Doordash when it hired former Amazon executive Parisa Sadrzadeh, who spent the last years at the supply chain logistic provider Flexport (PYMNTS). Doordash also announced its plan to enable their merchants to build their own store-fronts and accept payments. Doordash is a platform for deliveries where ‘dashers’ pick up and deliver food takeout and other products (i.e., groceries, flowers) to customers. Previously, the customer placed an order and paid the restaurant directly or through a platform. With an own storefront, the restaurant can create their own online presence and share this with interested customers. Typically, a restaurant would send such customers to digital platforms, resulting in higher costs (Doordash fees are likely lower). Especially for restaurants with limited tech knowhow and who rely heavily on Doordash might be the ideal customers for this product. Doordash would likely be able to monetise the total payment volume and even earn a cut when a customer does not choose Doordash as a delivery option. Doordash is no stranger to fintech or embedded finance, as it partners already with Marqeta for the Doordash Red Card, which allows ‘dashers’ to pay at the restaurant during pickup. Payments are only approved by Doordash if the amount and merchant matches a customer order, thus, eliminating the possibility for ‘dashers’ to buy products for themselves.

Five learnings for banks from the Synapse bankruptcy

Synapse was one of the very first US banking-as-a-service providers. The company did not only receive funding from Andreessen Horowitz but also Angela Strange (“Every company will be a fintech company”) was on their board. But all of that did not help and the company filed for bankruptcy earlier this year. There is plenty of news coverage of what has happened and how it will continue, especially regarding the missing funds of customers and it will likely take a lot of time to resolve this specific case. But what can other banks learn from this development and how can they ensure it will not happen to them? This article (American Banker; paywall) states that banks should

• bring data management in-house, ensuring they have direct oversight of account data and reconciliation

• introduce proper record-keeping and account titling to qualify for "pass-through" FDIC insurance

• staff up for AML and fraud mitigation and avoid relying excessively on partners

• add third-party risks into their business continuity plans

• include AML and fraud controls to its partner vetting process

McKinsey and Clearbank reports on embedded finance

McKinsey states in its report (McKinsey) that the European embedded finance market could reach € 100 billion in revenue by 2030. Additionally, banks could generate 10-15% of their overall revenue from embedded finance and 20-25% of their revenue for retail and SME lending products could come from embedded finance. The report lists the two approaches of embedded financial product (built in-house vs. partnership) and McKinsey expects that both models will continue to exists due to its different benefits.

The report from ClearBank (ClearBank) focuses specifically on the economical impact of ClearBanks embedded banking product. The main benefits for the companies embedding ClearBank’s embedded banking product are additional revenue and reduce in customer churn. In its analysis, ClearBank states that revenue for a customer can go up by £ 9.7 million, however, this requires initial investments of £ 582,000 for staff for a nine months integration time and overall costs of £ 3.8 million for the first three years. Please note that these numbers are not calculated purely for non-financial brands but also includes ClearBank’s fintech customers. Nevertheless, anybody out there on its journey to embed financial products can likely get a reality check on their own business plans.

Job board

A German vertical SaaS provider in my network is looking for a new product manager. The company is already offering an embedded payment product and is extending into financing product as well. The company is operating in the sport industry and is employing more than 200 people. Does this sound interesting? Please get in touch and I can share more

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