NMI’s Payment Playbook: KeyBank’s Journey into Embedded Finance

Embedded finance is everywhere. It allows businesses and consumers to send and receive payments, oversee lending and manage various financial tasks from within a software solution. Anyone who’s ever called an Uber or signed up for a streaming service like Netflix or Spotify has already used embedded finance.

Bain & Company estimates that the B2B embedded finance market will grow to $2.6 trillion in transaction value and $6.7 billion in revenues by 2026. In addition, Juniper Research projects that revenue generated by embedded payments will surpass $59 billion by 2027 – an 84% increase.

To explore payment and merchant services solutions in more detail, we have launched NMI’s Payments Playbook - a joint podcast between NMI and Leaders in Payments host Greg Myers. Our first season covers embedded finance and will continue for six episodes.

In our first episode, Myers speaks with EVP and Head of Commercial Product & Innovation at KeyBank, Jon R. Briggs. Together, they explore KeyBank’s perspective on embedded finance and the diverse range of products and services included in the bank’s embedded finance roadmap. Briggs also explains his strategy for success in the market, the necessity of modern underwriting and the role fintechs play in maximizing KeyBank's embedded ecosystem.

We’ve highlighted a portion of their conversation below. Listen to their full discussion here.

Greg Myers: Will you give us a little background about KeyBank?

Jon Briggs: I believe we, as a bank, are close to 200 years old. We’re a regional bank with about $190 billion in assets. We have a retail branch footprint that covers 15 states, predominantly across the Northeast, Midwest and Pacific Northwest. In our commercial business, we have clients in all 50 states across 11 different verticals. One of those verticals is technology, which is very important to us.

Myers: How do you at KeyBank see embedded finance?

Briggs: That’s a great question and one we hear often. From a KeyBank perspective, we view embedded finance as taking every product and service we offer as a bank, whether making a payment, receiving a payment or creating liquidity in lending or depository services, and getting it placed in platforms to enable the end-client.

As part of accomplishing that, we have to consider the products or infrastructure required to deliver that end capability. For example, if we’re enabling a SaaS company to offer payments, part of that journey involves underwriting capabilities such as KYC. We don’t view Know Your Client (KYC) and the technology to enable that process as a standalone product. Rather, it’s part of enabling that value chain and delivering that end product to the customer.

That’s where embedded finance and banking-as-a-service start to overlap. There are a lot of providers who provide things like KYC as a standalone service. We’re not in that business - we’re in the business of enabling payment acceptance. We enable some banking-as-a-service capabilities to be able to complete that journey.

Myers: When you think about embedded finance, what’s your strategy? What is KeyBank looking to do?

Briggs: Our embedded banking journey is about delivering banking or financial solutions through platforms. For years, the industry has talked about a convergence of software and financial services, and we’ve seen that trend accelerate.

For example, if you go back to 2015, about 10% of the overall card acceptance volume was through non-traditional providers like ISVs and ISOs. Fast-forward to 2020, it was up to 40%. I’m sure it’s even greater today. So we see that as accelerating our goal for KeyBank to be one of the leading providers of embedded banking and powering these platform ecosystems.

Myers: Embedded finance has broadened - it’s much more than just payments. There’s a product component around lending, credit cards, deposit accounts or whatever else it may be. As someone running product at a large company like KeyBank, how do you view embedded finance from a pure product perspective?

Briggs: We see a diverse range of clients with different levels of maturity from both a technology and banking/financial services standpoint. Some clients have matured and scaled to the point where they can take on certain aspects of the risk equation. Then, you have others who don’t want any part of [that risk]. At a high level, as a bank, we’re looking to support our clients, so we’re building a flexible model, including flexible technology, to support all of the different clients that exist out there.

From a product feature perspective, the industry is most mature around the payments aspect of [embedded finance]. That’s where we’re focused. Enabling clients to accept payments and make payments are products we’re either enabling in the market or working towards on our near-term roadmap.

I think we’re uniquely advantaged as a bank participating in this space. We’re in the business of enabling and delivering these products. Our mission, from an embedded banking perspective, is leveraging modern technology and infrastructure to be able to deploy products to clients in a really flexible way.

Myers: With payments, so much data is collected. How do you take that data and use it to make smart decisions? Why is it so important, and are you doing anything unique with your data strategy?

Briggs: Data is such an important part of the strategy. Whether it’s passing back data for clients to enable specific use cases like reconciliation or enabling modern underwriting, if you step back and look at banks’ traditional underwriting process, it looks backward. Banks tend to ask for financial statements over a period of time. Everything is predicated on looking at historicals versus transactional banking.

With embedded payments, you have data in real time. I can predict what your sales will likely be today, next week or a month from now because I have daily (if not hourly) transactional information going back in time. So I have the best pulse on the health of you as a company. At KeyBank, we see that as a very important and rich source of information to enable a more modern underwriting experience. It’s not something we’re in the market with today, but it’s certainly on our roadmap.

Myers: The momentum of this space continues to grow. But, given the downtrend in investments, do you see that momentum slowing down at all?

Briggs: In terms of investment in the space, I would say there’s a broad, “wait and see” type of mentality out there. However, as far as driving embedded banking, there’s a lot of value in the payments revenue and banking revenue streams. 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 as a core part of a platform’s strategy.