NMI’s Payment Playbook Podcast – Episode 3: Sophie Guibaud, Fiat Republic (Author of the book “Embedded Finance”)

Greg Myers: Hi, Sophie, 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.

Sophie Guibaud: Thank you so much, Greg. I’m glad to be here.

Greg Myers: Great. So, first of all, tell us a little bit about your current role at Fiat Republic and a little, maybe personal and career background about how you got there.

Sophie Guibaud: Yes, absolutely. So my name is Sophie Guibaud. I am the Co-Founder of Fiat Republic. Fiat Republic is a crypto friendly banking aggregator. So basically, we do unleaded finance for crypto platforms. But my background, I started my career in finance. And then I have spent the last 10 years actually a bit more than 10 years in MBD finance, or were the early stage of its, which is basically banking as as a service. So, I first joined a company called Bankable, we were helping FinTech launch, basically digital bank, and competitive propositions to what we know as banks that was at the beginning of the 2000. So when there was this first FinTech wave coming up to challenger banks, then I spent five years at Fido, where I launched a digital bank in the UK from Germany, Sweden was a German digital bank. And then for the past few years at Fedora, I spent three years helping launch digital banks to compete with the fintechs. Then I spent a couple years at an Openpayd with a banking service provider. And then I launched a Fiat Republic. So, I really spent 10 years in banking-as-a-service even used banking service. I think for the first time I’ve heard Chris Skinner introduced the term for our company back in the day, I have always been very strong advocate of how it could help companies launch propositions that are more relevant to customers. And the embedded finance wave I’ve been praising it’s I think, since 2014, and got so excited when I saw it finally gets like the traction it deserved in the past few years.

Greg Myers: Yeah. And I feel honored to have you on the show, you obviously have a lot of experience and background. And you’re the co-author of a book that happens to be entitled “Embedded Finance.” So perfect fit for our series that we’re doing. So, a little question about the book. So, I mean, obviously you have a passion about this topic, but what actually inspired you? Why did you decide to write this book?

Sophie Guibaud: Yeah. It’s a great question. I think I had a kind of awakening. It was back two years ago. So, as I have just been mentioning, I was a strong advocate of embedded finance before the terms even exists saying it’s going to happen, banking will be everywhere, except at a banks itself or we will be banking everywhere, except banks.

And I joined the group which is called FinTech and payments Clubhouse in February 2021, I think. And Clubhouse was getting a lot of traction. And at this point, I was just like, oh, I want to invite people from the industry, I was seeing more and more people doing interesting things around embedded finance. But I think the point where I got really decided I wanted to focus at first, the clubhouse and then write the book was when I saw the annual report, investor report of Grab, that was showing that now Grab financial services was bigger than Grab restaurants and Grab transport. So, Grab being, of course, the challenger or like the equivalent to Uber in Asia. And at this point, I was just like, okay, I’ve been talking about it for so many years. And it’s actually happening. And it actually has been happening in the background, because nobody had really noticed. And then looking to it, I realized that Shopify had done exactly the same. Exactly at that time. Now, more than 50% of revenues of Shopify, were coming from financial services. And both of those examples were showing that actually, embedded finance was proven in the sense that customers wanted it. And there were no ways to execute it for companies that were tech companies, but not with the final short services background initially. And so with this realization, decided to create this Clubhouse series, and interviewed many people from the immediate finance space, and eventually got together with my friends from Money 2020 and decided to write a book about it because we had interviewed many people and results, it was really time to raise awareness in the industry, whether you’re a user of immediate finance, or a tech player, or infrastructure provider or bank for actually everybody to consider what would be the impact on their life? Or what should be the impact on the strategy of their companies.

Greg Myers: Okay, so let’s go ahead and dive deeper into the to the topic at hand, which obviously, is embedded finance. So, let’s start at the highest level, how do you define embedded finance?

Sophie Guibaud: Embedded finance, at its simplest definition, is providing finance at the point of context for users. So, what it means is that, for example, finance or insurance product for examples, but I go on a website, I buy a trip, for example, to Asia, and then I’m offered a travel insurance at this point, that’s embedded finance, I go to a shop and I want to buy a TV, for example. And I get offered some loan facilities based on the profile that this tool is on me that somebody did finance as well. So, it’s really providing this financial slash also insurance, I think it’s really important to say insurance and lending as well provide it to the customers exactly at the point they need it with the least friction possible.

Greg Myers: Okay. And I think in the US, it’s often been an extension of embedded payments, right? So, a lot of companies started by just integrating or embedded payments. But in my view, and I think a lot of people agree is that it’s such a bigger thing than just embedding payments, right? It’s embedding financial products. So, to your point, lending and other insurance, other financial services type products. So, to me, that’s embedded, like that’s the way you defined it. It’s embedded finances this broader thing than just embedded payments. But I always like to bring that up, because I don’t want people to think we’re talking about just embedded payments. I mean, obviously, that’s a part of it. But that’s not all of it.

Sophie Guibaud: I totally agree and embedded finance covers like plenty different forms, which is essentially providing anything related to the financial, health and life of customers when they need it.

Greg Myers: So, who are the key players and what is the key technologies that’s used in this space today?

Sophie Guibaud: Yeah, absolutely. So as far the smaller, let’s say, story, when we wrote the book, we wanted to have a bit of everything, in the sense like to appeal to, to end users to understand the impact. But we were already precious about writing a full chapter on exactly those providers and like this value chain and digital that kind of push back or question this and that we thought it was so important because actually embedded finance without a whole ecosystem that has essentially developed over the past 10 years will not be possible. So now if we look about specific character actors, I think the first one that would be an external one that is like the most important one, the regulators, the local regulators that are empowering the ability for competitive companies to use the licenses of other regulated entities to provide services to their own end users. And embedded finance has been enable or unlocked thanks to this type of setups. In Europe, for example, we will talk about agency becoming the agent of an EMI agent of an EMI institution, or an agent of a bank can take like different legal form. But it takes what’s important to point out is that without the regulator’s putting a framework to make it work, we would not be as far as we are right now when it comes to embedded finance. So, I think it’s worth mentioning this part. Now when we are talking about the value chain itself. So, you have the tech companies, or retail companies actually that own the audience that owns specific sets of data on the audience, that means they know them very, very well. And these companies not specifically don’t have like experience when it comes to financial services. But they realize that providing financial services, at the point of context with our users would not only bring revenue to them, evidently, but more value to the customers a better experience and also a stronger stickiness to their brands. And if we look at the different reports out there, when you come to me did finance, what we see is that basically consumer-like brands actually launched and they did fine on services, firstly, for customers six, stickiness and loyalty and experience. Secondly, for revenues. So that’s, that’s quite an interesting part. And those companies, when they launch that type of service, they need to wonder how are they going to do that? Do we go full on and get a banking license and create a separate entity? Or are we doing it internally? Do we need to produce capital requirements that goes with getting your license apart? How do we acquire all those talents? How do we set up all those processes, so that would be like to full on approach. Now there is a less fluid approach, which is to cooperate with a bank and using the bank license and their banking capabilities to actually service end users. So, for example, it’s what Shopify has been doing with Goldman Sachs, synthetics B platform, for example, and a different range of banks. Actually, Shopify has done it with Stripe and Stripe that has done it with Goldman Sachs. And then you have also an approach where you work with the middle where basically, middle layer that themselves are regulated entity contracting with banks, that aggregates different banking facilities, aggregate different banking providers, products across geographies, and then basically the brand contract with this middle layer. And this, for example, is what we do at Fiat Republic. In a crypto context, we work ourselves we are regulated entities in the UK, will be in Europe in the next few months, we contract with banking partners, but our customers are using our license. And we enable them to offer basically set on ramp off ramp to their end users. So, finance, again at the point of context. So, you have plenty different setups that are possible depending on what you want to invest the kind of regulatory setup that you want to investment that you want to put in. And whether you want to do the operations or not. So, for example, like the likes of Solaris are doing the KYC in partnership with another partner. But this means that when you work with them, you have like less operation on the day to day. So, some players, some brands, tech providers might want to just stick to the brand and to interaction with their consumers, but might not want to own operations. Or maybe they would like to own the operations because they think that it’s so close to their brand, that it’s really important and strategic that they own it. So, it’s a lot that I’m saying but I just hope it shows that it’s a patchwork and that we have such a big range right now of option that it really means that the brands can really create the experience they are dreaming of their own users.

Greg Myers: Okay. So, there are a lot of, to your point, a lot of players in this ecosystem, there’s a lot of different technologies that all have to come together. And then to your last point, the brands are trying to create something that adds value to their relationship with their consumers. So, what is that opportunity there for those brands? I mean, it’s easy to say we can add payments, we can add lending, but overall, like, and I think you kind of mentioned it, but maybe dive deeper into that whole area of like the stickiness and the consumer relationship coming first and revenue coming second. What are the opportunities for those brands?

Sophie Guibaud: Yeah, you know, what, I would like to take two examples. Do you remember the first time you use Uber, Greg? Yeah. And how did it make you feel when you get out of the car without paying, like you were stealing or something. But best rights not to run, like get your card out. And having this moment where you need to pay, the guy needs to give you the receipt. But because and this is all about your traits back. In the days, Uber was all about the experience, I think they still are very much to be fair, but the way they made us feel around payments, just explain what finance can do for brand rights. Like I personally felt that I was using Uber more often more than traditional cabs, because not needing to deal with reception, knowing that they would be in my email later for when I needed to claim them. Knowing that I could include, for example, a virtual card, all that type of simple things that just makes life easier. And when you need to claim back your receipt, for example, it’s just easier for you. So, for me, like it really shows how this experience I really remember the first time I did it on Uber and like it was not Konami did final side that at that point, but how it made me feel more loyal to Ubers. And like local taxi companies, just because with them, I knew I would have a great payments experience. And if there was anything going wrong, I could claim back easily, like much more easily than having to login on my, my card interface to charge back or that type of thing. So that’s the first thing. The second one that I think, like not everybody has experienced yet. But that’s quite new. It’s Amazon Fresh. I don’t know if you heard about it. Okay, so in the UK, and I think there is one in the US as well, Amazon has open the shop, and you go to the shop, you put everything you want in your baskets, and then you get out of the shop. Okay, and that’s it. So, you don’t need to queue you don’t need to scan, you don’t need to do anything. The shops recognize you when you arrive. And then you just need to get out. And it’s linked to your cart on your Amazon accounts. And basically, a few minutes later, you get like the full details of what you have purchased. And it just taken from your card, you don’t have to queue up to scan or do anything like that. And again, it’s a great experience. Like if you think about space, can you rush hour, right? And when you don’t want to queue, again, it’s a reason why you I guess you would go not to Amazon Fresh, then you would go to any other in your store. So, the only thing here that I like we have explored or two in the book, and that I was mentioning is that some people and actually everybody, I mean, I think it benefits everybody at some point to, to some extent have cash in hands to be able to control expenses. Because of course, like when you go to those shops, and you do your purchases, it’s maybe more difficult to actually like really track what you’re spending. So, when we were interviewing people for the books, they were mentioning that, for example, for their Christmas shopping, they prefer to have cash in hand to make sure that we’re not overspending and really shows that we are budgeting correctly. So, I would say that those are potentially the limits to embedded finance. I’m sure it’s going to be covered in next few years by whatever notifications that you’re receiving that you can afford what you have in your hands, or whatever. But yep, so the benefits are really like providing this experience and the interest bringing, like removing friction from payments, that can be the case nowadays.

Greg Myers: So, if we step back and think about, more broadly how this impacts the different groups. So, I think we talked about how embedded finance impacts consumers. I think you gave a couple of good examples of how it makes our life easier. What is the broader impact on technology companies, for example, so the companies that make all the plumbing happen and all of that maybe their traditional payments rails or something like that, what is the impact on technology companies?

Sophie Guibaud: Yeah. That’s a good question. Just if you allow me, I would like to comment on an end user, because I have talked to you about the experience, specifically on retail context. But something we didn’t touch upon is to experience in an online context, and specifically access to financial services for people that would be rejected by banks. And there were a couple of examples coming from Shopify and from Stripe that I think are really worth mentioning. So, Shopify, for example, they launched two business bank accounts for their users, because what they realized is that their users were setting up some online stores, but it was taking them two to three weeks to get bank accounts, they needed to, like provide business plans, or this type of thing. And sometimes also, when, for example, they were going in periods of rush, for example, Black Friday, Christmas, they couldn’t get like loans as fast as they wanted, or at the good condition as they wanted. And that’s why Shopify set like launched those financial services, because they get all the information that they need to open a business account instantly, say, no ecommerce business model, so they don’t need to explain it to the bankers. So really removing this friction and getting a bank account between two and three weeks to zero. And also they gather all the data on the stores of their users, which means that they know where like, what will be the prospective sales of people. And that’s much easier to do loans to them. But it also means that with all the datasets they have, they can provide a financial loans that are at better financial conditions that to bank could. So, there is really data play that front tech companies that can enable to provide better financial terms just because they have a better understanding of the business of their users. And they have much more data than the banks. And if they don’t have more data than the banks, at least they understand it’s more in depth because they have the correct system to understand it, while banks might not have some systems that are as accurate. So that’s the broader impact. It’s not only just wants to experience but for business owners, it’s really enabling them to do business and like improving financial terms, improving financial inclusion. So that’s for the end user parts. For the tech company part I think it has I mean, embedded finance has been a massive opportunity like full, what we call banking as a service providers. But banking as service providers have existed for now almost 15 years. I think what we have seen is the first range of banking and service providers. Like as I had mentioned, enabling FinTech companies to launch that was the first phase. The second phase has been really like banking as a service, vanilla like one-size fits all approach. I think this embedded finance revolution brings the opportunity to banking as a service providers to launch or specialize in specific niche segments, where basically, they would develop a specific services here to answer the needs, the needs of specific markets. And by that I’m saying, of course, crypto platform for Fiat Republic because it’s what we do. But I’m also meaningful, for example, marketplaces. It’s something that has been booming yet paying out merchants is always very complicated. So like, you can really offer this banking as a service niche offerings that brings lots of opportunities to tech providers. And of course, like all those reports, saying embedded finance is taking off, brings lots of opportunity for those banking and service providers to ride on those waves. And finally, I was talking about the banks. Well, we have some banks that I’ve made the immediate move, when it comes to immediate finance, there is Westpac in Australia, there is Goldman Sachs in in the US, Europe, we have like the likes of Clear Bank, banking Circle, Pisa that has been purchased by Societe Generale. So, we have seen these different moves. But what we also say in the book is that those moves need to happen right now. I mean, like for banks to consider embedded finance five years time, I mean, there will be stickiness of the tech companies to their existing providers. So, there is like first mover advantage for sure that needs to be taken into account when it comes to timing when you enter embedded finance for banks.

Greg Myers: Okay I’m glad you added banks to that because that’s a that’s a whole nother player that is kind of sittingout there that either has to get on get on the train, or they’re going to miss it completely because they’re being disintermediated in some ways through this embedded finance revolution that we’re talking about. So, another question, and this may or may not have been covered in the book, given the timing, but globally, I think we’ve seen a slowdown in technology investments, and at least here in the US, we’re talking about potential recession. Have you seen the embedded finance kind of ecosystem? Have you seen that momentum slowed down at all? Or is it still going full charge ahead?

Sophie Guibaud: I haven’t seen any slowdown to be fair, like when it comes even our own crypto platform clients. I mean, the people that raised are currently launching their own the finance propositions are working on it, right? It takes some time, like there is like, potentially becoming regulated, etc. So, when it comes to us yet, Republic, we haven’t. Generally, when it comes to embedded finance, I would expect that potentially in terms of volumes, there has been lower volumes, maybe some people taking less loans, because they get more as they get more expensive. We have seen that in the real estate space. So why not on the consumer space too? I would expect that unfortunately, with the people that have been made redundant, maybe some of them, we need some, some buy now pay later facilities. So that will be the thing, but I would expect that the companies that raised with the purpose of launching did finance propositions are currently launching. So I wouldn’t then expect massive, massive slowdown, but if it keeps on the recession, slash inflation, slash everything else happening. There might be indeed, like, some slowdown, but I haven’t seen the figures.

Greg Myers: And we’ve talked about, I think, what’s going on today, and who the players are and what it is, and all those kinds of things. So now, kind of get your crystal ball out. And let’s talk about the future. So, what do you think embedded finance looks like say maybe five to seven years out?

Sophie Guibaud: Yeah, so that’s a good question. It’s actually like some things that we had, like a bit of fun doing as part of the book, we created a chapter telling, like, what to do like of people in 2030. So, do you mind if I just read a short paragraph? So, we are talking about me yeah, let’s start with what they might be like in the life of a middle-class consumer in 2030. Yeah, wakes up at 7am to the sound of classical music playing from the speakers in our bedroom. The shower is on, the coffee is brewing and a little graphic display shows her the balance in our bank, and investment accounts and notes price movement in a cryptocurrency she holds. She also received helps that open awakening heart rate is steady. But she’s a bit dehydrated. Where she slept our smart home system paid for the next two months anticipated power in advance, because the price is predicted to rise soon. Over the course of the day, our cloud based well it’s boosted by machine learning and trained by my preferences and risk tolerance performs several transactions to optimize our finances, putting her in a more advantageous tax position and earning her a few dollars here and there. As she eats breakfast, our bills to be paid are reviewed and our budgeting app inform her she has saved enough for next month’s vacation. She asks Alexa to book the tickets on the travel sites and purchase insurance for the trip at the same time. She also asked her to book an Airbnb and purchase a prepaid entertainment pack for the cities she’s visiting. All of this information appears instantly in a virtual way that and she shared with the person she’s traveling with. She has never been to a bank. She has several financial services accounts. And what she’s not clear on what they are. She knows how much she pays in fees each month. But as to how the financial infrastructure behind the firewall let’s work. She has no more need to know that she knows how the engine works, or how the refrigerator stays cold. So that’s just an extract But basically, it’s like we try to convey what it could look like. Well talking about worry free finance management and frictionless payments basically and optimization without thinking about it. You think we can get there and by 2030 I honestly hope so. Did you expect chat GPT to blow the rates it did?

Greg Myers: No, It’s fascinating to think about all of those components that were in that paragraph just it’s also the trends that you mentioned. It’s sort of the transparency in fees, and not really having to know how all the things behind the scenes work. And so many things done in advance and automated for her, and it’s a fascinating world that we’re headed towards.

Sophie Guibaud: That’s the truth. 2030 like, I don’t know, you know, but, again, I’ve neven seen Chad’s GPT, the way like it just arrived and out of nowhere. I kind of feel like it’s it could be it could be the case, I certainly see integration between Alexa payments and others. It’s actually something that Dave Birch, that you might know, has been talking about the results. So Matt Harris, from Bain Capital ventures, we both interviewed them, and it’s the kind of recurring topic as well. So, there is some kind of convergent thinking in the fact that there will be those kinds of wallets that are moving and optimizing things in between each other based on your preferences.

Greg Myers: I think it’s all it’s all definitely coming. So, we’ve covered a lot of ground already. And I want to make sure that we cover everything that you set out to in this session. Is there anything else that you’d like to talk about before we wrap up?

Sophie Guibaud: I think I’m fine, I would just encourage people for sure to read the book. So, the book is Embedded Finance is published by Wiley. It’s available on Amazon and it’s written by myself and Scarlett Sieber.

Greg Myers: Thank you so much for being on the show. I know your time is very valuable. So, I really appreciate you being here today.

Sophie Guibaud: It’s a pleasure, Greg, thank you.

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

00:02:10 – About Sophie Guibaud

00:04:09 – About the Book "Embedded Finance"

00:07:13 – How Sophie Defines Embedded Finance

00:09:17 – Key Players in Embedded Finance

00:15:01 – Opportunity for Brands

00:19:35 – Impact on Technology Companies and Banks

00:24:54 – The Impact of the Current Economic Environment

00:26:58 – The Future of Embedded Finance