The boss of the banking as a service firm is bullish on ‘embedded finance’ and wants to bring fintech to a global audience of non-financial services brands as well as start-ups.
The collapse of Wirecard’s global payments empire has been likened to fintech’s ‘Enron moment’.
Wirecard disintegrated into insolvency, following some painstaking reporting by the Financial Times, in a void of missing cash, mass-fraud and criminal enterprise.
The reverberations, which included a huge disruption to hundreds of thousands of customers of UK fintech firms such as Curve, Anna, Pockit are unlikely to turn off consumers and investors to fintech longer term. Its collapse could also prompt a new leg in the financial disruption race.
Railsbank, a banking-as-a-service platform, has bought the UK assets (Wirecard Card Solutions Limited) of the firm (not the equity). It’s got big plans to expand off the back of the deal.
Nigel Verdon, founder and CEO of Railsbank, speaking with AltFi last week, said he was buying the business to help expand its customer base as well as bringing “some very good people” and some useful tech into the fold.
“People make everything happen in this industry. It's not just tech. Wirecard UK has got some very good people. There are some small bits of technology in there too. It has 12 years of experience in it. It's got a tonne of stuff in it that we'd have to put in a lot of hours to build.”
He expects the process will take “definitely to the end of the year” to complete. Railsbank has about 140 odd staff and Wirecard about 90 in the division it has bought.
“We're a rapidly growing business. The opportunity to buy what used to be called the Newcastle Building Society card division [which was acquired by Wirecard nine years ago] was good. They bring all that experience of card issuing of 12 years or so, which is superb."
He says as the main Wirecard issues were in its card acquiring business, the transaction was relatively easy from a compliance perspective.
“That was 95 per cent of their business. The card issuing business is quite isolated from the main issues at Wirecard. I think most of the company was quite isolated from those issues because there are several thousand people who worked there. There's a tonne of really good people.”
“In pulling this apart and finding out who was complicit and who was literally just doing their normal jobs, I hope people who have been doing a normal job, nobody starts persecuting them because they work at Wirecard. Let the authorities sort that out.”
“Anybody who the authorities haven't locked up is a perfectly good person to hire and that's most of the business. That's 99 per cent of their business.”
Verdon’s vision is to be the largest global banking as-a-service platform connecting fintechs, banks and non-financial brands to its APIs and a very big market of financial services.
“We have two clear segments. We've got 26 neo-banks sitting on top of us, the majority are start-ups and scaleups. And then there are traditional brands who just don't want the problem of building financial services stuff and managing it and all the operations side: settlement, clearing, regulation KYC all that sort of stuff.”
Embedding in for the long term
This view of where fintech is going is increasingly dubbed ‘embedded finance’ I.e. firms embed financial products provided by others into their existing operations. Verdon says his goal is to allow any start-up or any brand to launch financial products cheaply within a matter of six to eight weeks instead of taking a year and a $3m cost.
“We achieve that by being a super simple set of APIs. We've solved all the industry stuff in the backend. Licencing from schemes the likes of Visa and MasterCard, licencing from regulators, all the pieces to get direct connectivity into the UK faster payments.
“We bring all our infrastructure and licences and everything like that, put it behind our technology and that allows customers to launch in six to eight weeks a new Monzo type of thing.”
So far for Railsbank this also includes a credit-as-a-service product with insurance products coming next year alongside investment products such as share deposit accounts.
“[We want to] do that globally to enable brands like Uber and others to do that globally. And we are currently the only global player. We are live in the UK, Europe, Singapore, going live in Malaysia and the Philippines at any moment and we just launched in the US.”
“Our vision is that we will be the platform that anybody embedding financial services into the customer experience will sit on top of us.”
Verdon thinks credit cards have some way to go in the fintech space, particularly in the US and is soon launching a service to allow start-ups to launch credit cards.
“A lot of the fintechs have topped out on neo-banking and making money out of interchange. Now the real place to go is into credit, and especially in US market.
A key event that has yet not really materialised in the fintech world is the encroachment of Big Tech into the financial sphere.
None of the likes of Facebook, Google et al want to get into the operations of running financial services, Verdon says. But they do want in. This is evidenced by Goldman and Apple’s partnership.
“You can use tech firm’s customer base, that's massive. They've got trust as well with lots of customers and loyalty.”
“This helps solve a fundamental problem with banking. Normally to acquire a deposit account from retail it's a $250 customer acquisition cost and lifetime value is about 250 dollars. So, if you're losing money in pretty much every deposit the less you're able to get lent out.”
“That's impacted the cost-income ratios of all banks and decaying equity values. Big tech needs platforms that connect with financial services, and that's where we see our platform. They can sit on top of us. But it wants a single API across it. If a deposit account can be originated at about $10 an account as opposed to $250, suddenly you've changed the total economics of retail banking."
Verdon says this trend is probably more of a threat to a lot of the start-up fintech world, although they could be good acquisition targets for products that Big Tech wants to do. He thinks that some of the underlying firms that power the financial system such as Visa and Mastercard, as well as SWIFT are seeing their grip on how money is being moved around the world loosen.
“We're going to see a restructuring of the industry. There is a re-wiring going on if you look below the scenes,” he said.
“You can see they're building the rails to move money anywhere through any device for any form factor securely. Suddenly the ownership of those payment rails disappears, and they become a utility that Visa or MasterCard sits on top of, and when you have got the power that Visa and MasterCard have then they listen,” he added.
Railsbank is a principal member of Visa and Mastercard, UK Faster Payments, BACS and a full Supervised Financial Institution (SUPE) member of SWIFT.