Vertical banking means offering a highly personalized banking experience to a very specific kind of customer. Where the usual approach is to enrich an existing banking product with technology, vertical banking does the opposite. The goal is to create a product that meets the unique needs of a well-defined audience.

Is building apps for the mass market and seeking growth at all costs still the key to success? Or is vertical banking – i.e. building a high-quality, but very focused product – the key?

If neo-banks are aiming to build customer loyalty and retention, they need to focus on creating innovative financial products that improve their customers’ lives through tailor-made solutions that traditional players are unable to offer.

Solarisbank, the pan-European leader in Banking As A Service, shared its vision for the industry and defined the main developmental directions in which the main economic sectors could evolve under the impetus of the “Banking Revolution” brought on by integrated finance. European companies have a tremendous opportunity to improve their position by adopting embedded financial services.

The potential of embedded finance is huge and therefore the market for Banking-as-a- Service is immense. In Europe alone, it is estimated that nearly 500 million bank accounts will be opened. The business model of which Solarisbank is a promoter allows any company to incorporate, via API, financial instruments into their product portfolio, in a personalised way, while maintaining full control over the look and feel and relationship with its customers.

The integration of financial services into non-banks, or to put it simply, embedded finance, is reshaping the way consumers interact and will interact with financial services. This is a great opportunity from several perspectives: companies that offer financial services directly to their customers can both strengthen their loyalty and tap into new revenue streams.

In a recent study conducted by Solarisbank with the Handelsblatt research institute, a sample of over two thousand respondents were involved to analyse the willingness of consumers – in this case Germans – to use financial services from a selection of leading online shops. It emerged that as many as 61.4% would be willing to use a financial service from at least one of the proposed online shops – an absolutely remarkable percentage.

A wake-up call for Italy and Europe, the time is now!

Given that the development of embedded finance in Europe is still in its embryonic stage, we can consider an example from other parts of the world, such as the United States and Asia, where, in the face of the implementation of regulations similar to PSD2, large technology companies have already entered the vast potential of integrated finance. In fact, the industry will experience a season of great growth worldwide, particularly in the old continent, thanks to the introduction of integrated finance: Lightyear Capital estimates that integrated finance will grow tenfold over the next four years, reaching $230 billion by 2025.

Bain Capital Ventures assumes that by 2030, the volume of this segment – in the US market alone, which is more mature than the European market – could reach around $3.6 trillion. All these forecasts and the indicators supporting them confirm an immense opportunity for the European market.

Who in the world has already seized the opportunities of Banking as a Service?

Here are some significant examples that give an idea of the benefits that companies and users will gain from Banking as a Service

GDO – Walmart: retail meets integrated finance

Their goal is to “develop and deliver modern, innovative and cost-effective financial solutions” and provide “technology-driven financial experiences tailored to Walmart’s customers and partners”. Or in other words, the goal is to better serve their 230 million customers with the power of integrated finance. How? By creating an ecosystem of financial services created around the needs of their customers. This includes a Walmart credit card, debit card, money transfer services and the ability to pay for purchases in installments. For Walmart, a retail shop that is founded on offering great value and customer service, integrating financial services into their portfolio of offerings is a natural step into deepening customer relationships and supporting the core business.
.
APP services – Grab: the transport app that has become an everyday super app

Grab is Southeast Asia’s largest ride-hailing and food delivery company. The company started as a basic taxi booking app and later evolved into a super app with an impressive ecosystem of services. Grab began incorporating financial services into their offerings in 2019, launching a digital insurance marketplace in a joint venture with ZhongAn Insurance. Since then, the company has continued to add more financial services by securing a number of partnerships with fintech companies. Their financial offerings now include GrabPay, a payment solution that includes a card and a mobile wallet, AutoInvest, a micro-investment solution released under the GrabInvest umbrella, as well as consumer loans and buy now pay later (BNPL) payment options. With integrated finance, Grab can tap into a growing market, tapping into more than 200 million registered users in eight countries, opening up new revenue streams and driving financial inclusion in Southeast Asia.

Ride Sharing and the NCC world – Lyft: more security and instant payments with a debit card
for drivers

Lyft, the second largest ride-sharing company in the US, uses built-in finance to build loyalty among drivers by allowing them to manage their finances directly in the Lyft app. With Lyft Direct, Lyft provides a debit card and bank account – in partnership with Payfare and Stride Bank – that allows their drivers to receive compensation instantly after each ride, eliminating any transaction fees and increasing financial security by solving cash shortages.

Instant Messaging – WhatsApp: adding payment functionality to its largest marketplace

WhatsApp is the most popular messaging service, with around 2.5 billion users worldwide. The Facebook-owned company recently incorporated payments directly into its instant messaging app in its largest market, namely India. The payment feature is powered by BHIM UPI and processed by various local payment partners. The value proposition is quite simple – it allows users to send money to friends and family at no extra cost. However, what makes it much more convenient than other P2P payment services is that it is directly embedded in the same application that users already use to communicate with their friends and family.

This content is provided by our Corporate Member Solarisbank

Banca Sella, one of our corporate members, launched a challenge to gather new ideas and solutions. It’s called Sella Data Challenge and it’s addressed to all fintech startups and scale-ups that want to do open innovation. Doris Messina, Chief Digital Transformation Officer in Banca Sella, explains the reasons behind the initiative

What do you expect from this initiative and what are your main objectives?

Thanks to this initiative, we want to initiate a new way of co-creation with participants and identify fintech startups and scale-ups with which to develop partnerships for new products and data driven solutions. This is a part of the opportunities offered by open innovation and cross-fertilisation.

For the first time, the logic of open banking is being applied to data and it is precisely for this reason that we have chosen to make our data available through the Sella Data Challenge. We are sure that it will receive stimuli, ideas and solutions which together can build new solutions and new services to put on the market.

How does this “challenge” work?

We are inviting start-ups and scale-ups,in particular, to get involved and develop new solutions, starting from the analysis of customer data made available anonymously by Banca Sella on the “data sandbox“:a real testing and development environment, consistent with privacy protection regulations, which allows you to view data that has been made anonymous and can then be used to carry out the desired analysis and consequent proposals.

The selected participants will have two and a half months, starting from mid-March 2021, to develop and present their idea through a working prototype, a demo, an application or simply a “proof of concept”.

This initiative should be contextualised within Banca Sella’s overall strategy. Which one?

The Sella Data Challenge is an integral part of our innovation path: it is impossible to innovate only from within and what will make the difference in the future are the partnerships within the fintech ecosystem. Contamination and collaboration are now, more than ever, the key to fast, agile and effective innovation. Open Banking is proving this because it actually leads to an exponential increase in the potential of financial players to make the best use of data and technology.

Keep up to date with news from FD Community and the Italian fintech world

by subscribing to our newsletter

Banca Sella is part of the Fintech District community. In this interview Doris Messina, Chief Digital Transformation Officer, shares what is the meaning she gives to be open and what are activities that the bank has implemented to provide a tangible representation to this word. Entirely in line with the philosophy of the Fintech District, she also launches an invitation to fintechs who want to collaborate and create new services or products.

How has Banca Sella dealt with the fintech world so far?

Banca Sella has always affirmed that only by building an open financial ecosystem, available to the community and supporting the development of fintech was an added value both for the creation of a broader ecosystem and for the banking industry itself. For this reason, in 2017 Sella started the Fintech District and was its creator, promoter and supporter.

What does the word Open mean to you specifically in banking?

For Banca Sella Open is the keyword. Open means above all open-mindedness, willingness to listen, questioning where it is needed, welcoming new collaborations and new initiatives born in synergy with the members of the community. It is in this spirit that we are part of the Fintech District and we invite those interested in starting synergistic activities to contact us.

What is the added value that Banca Sella thinks it can bring to the community?

First of all, in a context further renewed by PSD2, we provide our expertise, through consulting, thus offering the opportunity to interact with a player that has been operating in the banking and investment field for 130 years but with a view to innovation and the world of fintech. Banca Sella can also be the enabler for community members as we have made available almost 200 Banking and Financial services APIs on the Fabrick platform. We also support business development through Sella’s Corporate & Investment Banking division which helps companies, especially fintechs, to raise capital and carry out M&A operations.

Stay up to date on Fintech District’s activities and events,SUBSCRIBE TO OUR NEWSLETTER

A new solution, “Bank4ME” designed to ensure that the branch is always operational but remotely, at a time when it is particularly important to offer this service to bank customers. An international acquisition thanks to which it will be able to offer to its customers the possibility to managing centrally the security of the devices by protecting, monitoring and controlling the assets.

Auriga, corporate member of Fintech District, has two important pieces of news to share. Vincenzo Fiore, CEO of Auriga, explains them in this interview, also announcing the will to accelerate international development.

As a company that is always attentive to innovating and responding to market needs, have you recently launched solutions to help banks deal with the coronavirus emergency and minimize its impact?

In the current scenario, bank branches, as an essential service for citizens and businesses, must play a key role, not only in terms of economic support in an unprecedented period, but also, and above all, in terms of accessibility to financial services.

As a result of recent social distancing provisions, several of our client banks have pointed out to us the need to guarantee continuity of the services offered to their clients and their full efficiency, while guaranteeing at the same time, adequate levels of security for both clients and employees.

Digital technologies represent a strategic solution in this context, because they not only guarantee the full efficiency of services, but also allow to preserve the human component and take advantage of the advice of banking professionals.

Our Bank4ME solution – one of the modules of our NextGenBranch proposal – has adapted itself to this situation since it is designed to ensure that the banking branch is always operational remotely.

Through a platform station, present in a reserved area of the branch and accessible to customers after recognition, you can access all the services of your bank in self-service assisted mode and interact with the bank’s consultants in videoconference, in a secure and personalized way.

What are the main advantages of this solution?

Bank4Me allows you to:

• guarantee the continuity of the services offered to the client (consultant always available, remotely, as in a branch) and at the same time safeguard the health of both employees and clients, keeping in line with the imposed obligation of social distancing;
• enable smart working for employees, operators and managers in branches, who until now have generally been denied the possibilityof continue working;
• reduce the management costs of the branches and make them more flexible by freeing the offer of consultancy services from the physical presence of the manager and safeguarding the levels of service availability and customer experience.
• make the consultancy relationship more efficient and also promote a growing digitalization of services, with a view to greater multigenerational inclusion

Bank4ME extends our NextGenBranch proposal, thanks to which the branch is transformed into a consultancy space with added value. A modern and technological branch, open 24 hours a day every day, where the customer can access all services in self-service mode without giving up consulting support or assistance in real time, but having it delivered in an innovative way.

Bank4ME also responds to the urgent need of banks to maintain their presence on the territory, while reducing branch management costs and breaking down the existing barriers between the physical and digital world, thanks to the use of technology.

What other news about your company?

Auriga recently announced the acquisition of Lookwise Device Manager (LDM), a modular cybersecurity platform and business unit of S21Sec, a leading European security services specialist and part of Sonae IM, Ventur Capital focused on cybersecurity, retail and telecommunications technology investments.

The agreement provides for the acquisition and integration of LDM expertise and technology in Auriga’s business. The acquired unit, based in Madrid, Pamplona and Mexico City, brings with it a proprietary platform capable of providing the most advanced and effective countermeasures to defend against cyber threats, malware and hacker attacks. Auriga also acquires the LDM client portfolio, while working with S21Sec to offer expanded cybersecurityconsultancy to customers and prospects.

Recognized worldwide as a solution to respond to the latest malware attacks, LDM received the ATM Cyber Security Excellence Award at the ATM Customer Experience & Security Summit in 2018.

How does this acquisition enrich your offer and what benefits does it bring to your customers?

By integrating LDM with the WWS suite, Auriga offers its customers the ability to manage the security of devices (such as ATMs, POS terminals, critical infrastructure control systems) centrally by protecting, monitoring and controlling assets.

In this way we can significantly develop the most effective cyber risk management and prevention capabilities for our customers, that in turn can protect the digital financial services offered through their channels. All with a minimal use of resources and time.

The acquisition responds to Auriga’s international growth strategy, which also sees its network of offices extended to Madrid and Mexico City, as well as its desire to invest in a sector such as cybersecurity which, in the light of the advent of a digital transformation economy and the proliferation of cyber threats, is becoming an increasingly strategic priority for banks.

Stay up to date on Fintech District’s activities and events,SUBSCRIBE TO OUR NEWSLETTER

As founder and CEO of Soisy, Pietro Cesati made time to write a book and provocatively entitled it “Manifesto of a bank without the bank“. To better understand his position and the world of the marketplace lending, which it is primarily dedicated to, we met and interviewed him.

In your book you explain in what ways fintech will make the world safer. How will that be?

In short, by eliminating the risks of banking crisis. Banks are at the core of our economy and have been one of the elements that have enabled our society to progress in recent centuries. Unfortunately, they have one weakness: their business model is fragile and periodically generates heavy banking crisis that have serious consequences for on both the economy and society (just think of the still evident effects of the 2008 crisis.
One of the main innovations of fintech is the marketplace lending, or lending between privates, which divides the role of the bank over a multitude of people who finance loans, thus eliminating the single point of fragility represented by the bank.
A good example of what happens in a crisis if risks are distributed can be found in the bursting of the dot.com bubble in year 2000. The size of the bubble was huge, but the consequences for the economy as a whole were limited, because risks were very distributed and banks scarcely involved. When the real estate mortgage bubble exploded in 2008, the consequences were much more serious, because this time banks were involved.

Marketplace lending: how does it work and what advantages does it give to customers and shareholders?

Marketplace lending introduced the concept of the platform to the financial world, just as Airbnb has done in the world of tourism. Airbnb does not own the homes it offers for rental, but simply puts owners in touch with tourists interested in renting them. Similarly, marketplace lending platforms do not own the money they lend, but merely put investors who want to lend them in touch with applicants who need a loan. For investors it is a way to get higher returns than the market (for example Soisy gives returns between 4% and 8%). For borrowers it is a way to have an efficient, transparent and, usually lower cost, service.

But the most interesting part is that all this is possible because the marketplace lending aligns the interests of customers and shareholders more easily, while banks face a trilemma: the impossibility to satisfy customers, shareholders and regulators at the same time. Considering that in this historical moment, with the effects of the 2008 crisis still visible, they are focused on regulators and shareholders, those who suffer most are the customers.

Marketplace banking: what is its definition and what are the benefits it gives to customers and shareholders?

Another of fintech’s new features is the creation of companies that offer very specialized services, with a great ability to work together offering all the services of a traditional bank in a harmonious way. Marketplace banking is this mixture of specialization and collaboration in offering services to clients, which could lead to the emergence of real marketplaces specialized in integration and not in the production of different financial services. In this way, clients can benefit from high quality services resulting from the extreme specialization of those who develop them, but also from the convenience of being able to access to different services in a single place.

Are the increasingly frequent alliances and synergies between banks and fintech in your opinion changing the end customer’s perception of the world of banking and finance?

I don’t find bank-fintech alliances so frequent and I don’t think that the ones there have changed the perception of customers. In general I find that banks are still not very interested in fintech and slow in deciding how to approach it. However I see a slow improvement growing, with increasing customer focus, which will inevitably drag the banking sector towards fintech in the long run. This is good, because collaboration is one of the pillars of the digital world.

We will only be able to say we have brought the fintech revolution to the heart of finance when the entire industry asks itself how best to solve customer problems and how to do so together with the rest of the ecosystem.

Stay up to date on Fintech District’s activities and events, SUBSCRIBE TO OUR NEWSLETTER