BBVA has been making a concerted push toward banking-as-a-service, working with fintechs to white-label its products and services to third parties, often in ways that leave BBVA virtually invisible to the customer.
In an interview, Susan French, the head of product for BBVA Open Platform and the former global head of Visa's developer program, acknowledged that the result is sometimes products that compete with the bank's own, but said it is ultimately a way to expand BBVA's reach.
"Our former CEO talked about being a bank of billions," she said. "The only way you can be a bank of billions is to use networked channels in order to bring new customers into the bank. You can’t grow like that through traditional retail banking acquisition."
French discussed how the bank decides which fintechs to work with, the development of open banking in the United States and the growth of real-time payments. Following is a transcript of the Q&A, which has been edited for length and clarity.
What types of fintechs does BBVA target for banking as a service?
SUSAN FRENCH: The first and most obvious are digital banks like Simple [the neobank BBVA acquired in 2014]. There are several others that are being incubated by BBVA. Azlo is one of them. Our newest digital banking client is Wise, a digital bank targeting small businesses. In the U.S., anyone that wants to start a digital bank that’s targeted toward any constituency, whether its small businesses, freelancers, people who belong to the same community, would be a candidate to use our technology platform and bank charter.
Do you ever think, "This is competing with our business"?
We do. At the end of the day, BBVA’s perspective is there are a lot of different ways to attract customers to the bank. Our former CEO talked about being a bank of billions. The only way you can be a bank of billions is to use networked channels in order to bring new customers into the bank. You can’t grow like that through traditional retail banking acquisition.
So even though there might be some short-term pain here or there, the broader mandate is let’s bring more customers into the bank through another, entirely different channel of acquisitions, which is welcoming third parties whose customers become customers of the bank, even if they don’t really know it. Their deposits and revenue are still coming to the bank.
What do you think about when you’re doing due diligence, character assessment, vetting of these third parties and their founders?
A lot of startups have great ideas but no concept of how to make them real or how to make money off them. Others have a great idea but they don’t have the execution team in place with the necessary experience and industry understanding to pull it off. So the first thing we look at is, are they solving a real business problem with commercial possibilities?
Second, do they have a team in place that can pull it off — who can build a product, sell it, execute on it. Then we look at their relative maturity of process, compliance, and environment. Do they have a compliance officer? Are they working with a consultant who can help them understand and appropriately comply with the regulatory requirements of being a participant in the financial system? For a lot of fintechs that’s a big hurdle.
How much coaching do you give fintech startups?
We’ve debated as a company how much help we should give them. On one hand, the more help we can give them, the faster their learning cycle can be. On the other hand, part of what we assess in their maturity is how well they understand their compliance and regulatory obligations. So we’re trying to find some middle ground where we can do some streamlining around the onboarding process to make it not quite so onerous.
What other segments is BBVA targeting with open banking?
There’s a burgeoning market opportunity around digital services for freelancers, gig economy workers and others who are in business but not really. One of our other recent clients, Catch, is a platform for providing benefits for freelancers and other gig economy workers, side-job workers, who don’t have an employer to get insurance benefits, retirement benefits or even paid vacation from and they’re building an application on top of BBVA’s open platform that lets these kinds of people open a bank account, start a savings program, set aside funds for their vacation so they get the equivalent of a paid vacation. They’re rolling out an insurance product so people who don’t have employer-sponsored insurance can find it.
So whether you’re paying drivers or dog walkers, construction workers who work periodically, lawn mowers, these fintechs are building businesses that need to have the ability to pay the people embedded in their platform. They don’t fit in a traditional payroll model, they don’t want to wait for checks, they may or may not have bank accounts, so you need a way to embed payments, preferably real-time payments, into their tech platform.
Our payment capabilities enable companies like that to do that. BBVA Mexico announced a partnership with Uber just recently where they’re providing digital bank accounts and payout for Uber drivers. There are lots of opportunities like that it the U.S. as well, to bringing together the parties in a marketplace so they can transact with each other.
There seems to be a movement toward real-time payments lately, especially among fintechs.
It’s becoming a more real phenomenon. Another segment we target is first-party disbursements. If you’re an enterprise and you pay people or businesses for things, whether it’s insurance claims payouts, medical claims payouts, merchant rewards, commissions, merchant settlement, a significant number of those are still paid by check.
Enterprises that want to move from check-based disbursements to electronic payments or go from slow to faster electronic payments can take advantage of the payment capability and embed those services into their claims or rewards platform and pay people. Increasingly, wanting to pay people instantly is becoming more valuable. Particularly for b-to-c platforms like insurance claims.
We also target fintechs offering personal financial management, like Digit, which has an automated savings program. We’re one of several banks behind Digit. Digit Pay, their save for bills program, is with us. They siphon off small sums of money from their customers’ external bank accounts and save them in a savings account with us.
When the customer has accumulated enough to pay whatever bill they’re saving for, they use our bill payment service. Most of what they’re doing now is credit card debt pay-downs. Their program is all about making many small payments over the course of the month against your credit card debt, so that over time you reduce balances and expense without having to pay a big lump sum.
I can pay $10 a week out of my income and expense painlessly and apply that to my credit card bill. Over time that can significantly reduce the payback time on your credit card debt.
You’re paying the debt without feeling it.
Yes. We have another client that’s doing something similar with student loans.
How many clients do you have overall?
We have 10 clients total on the platform now. We’re hoping to grow significantly. More clients will probably come on board before the end of the year. Our hope is we see significant hockey-stick scale in 2020.
What about the reputation risk of partnering with new companies? Things can go wrong, people make mistakes.
The bank has a rigorous due diligence process it goes through with each client. They do searches on all owners and principals. They verify all their business documentation. We have them do demos of their onboarding flow, so we can look at the sequence they go through, the checks they perform, the disclosures they present and how they present them, and verify that they’re collecting authorization from their customers for the financial transactions and archiving those appropriately.
We look at their risk management policies and procedures to manage fraud and identity risk of their customers. We go through a pretty rigorous process of due diligence. Even then, we typically have a pilot of 60 to 90 days where they have limits on how many dollars they can move or how many accounts they can open while we and they watch.
Today banking is BBVA's main business and banking-as-a-service is a smaller side hustle. Do you think those positions could ever reverse?
I’d be amazed. It would be great if it did but I’d be surprised.
