TD Bank is catching up to peers that let business clients handle banking tasks within software they already use. A fintech partner, Fispan, is building the application programming interfaces (APIs) that make this work, connecting TD’s systems with accounting software like QuickBooks or enterprise resource planning software from companies like Oracle and SAP.
With this move into embedded banking, TD Bank, the U.S. unit of Toronto-based TD Bank Group, which has about $1.4 trillion of assets, is joining the ranks of banks that have been doing this for some time, such as Wells Fargo, Silicon Valley Bank and Citi.
“I've been talking about this for a decade and we were right; we were just so early,” said Daniel Kimerling, founder and managing partner of Deciens Capital and co-founder of Standard Treasury, a fintech that built such APIs for banks 10 years ago and was acquired by Silicon Valley Bank in 2015. “It wasn't rocket science that you should put the bank wherever the client is; don't make the client come to you.”
These banks are also competing with fintechs like Square and Stripe.
“We have seen fintechs have success in this space,” said Paul Margarites, head of U.S. commercial digital platforms at TD Bank. “We've seen clients using fintechs who do this.”
Prospective business clients have been asking TD Bank for embedded banking, Margarites said.
“It's top of mind,” he said. “I've seen it in every conversation where a client is considering TD as their bank. It will absolutely help with new clients.”
Existing customers are also interested, he said.
“It's a great experience from their perspective,” Margarites said. “It's very hard to say, ‘I prefer a different experience that's less integrated and more costly.’ ”
Silicon Valley Bank, which has been offering embedded banking for ten years, also sees growing demand for it.
“This has now become more normal,” said Shaleen Prakash, general manager and head of digital and segment operating solutions at Silicon Valley Bank. “It has become more of a regular ask versus once in a blue moon.”
At TD, Margarite’s team surveyed business customers, asking them which ERP and accounting packages they use. These included QuickBooks, Xero, Sage and Microsoft Dynamics. The bank forged integrations with those companies to feed bank account information into their software. These links will be announced soon, Margarites said.
TD will launch its Fispan collaboration with account information reporting, payments and positive pay embedded in accounting and ERP software.
In the future, it plans to add fraud defense and other banking-related activities Margarites is not yet ready to talk about.
The bank chose Fispan as a partner because the Vancouver-based fintech had already built connectors to many of these software programs.
“It's a great partnership because it brings the expertise around each individual ERP system, which doesn't necessarily completely sit at the bank,” Margarites said.
Some but not all of TD’s competitors also offer this form of embedded banking.
“We're getting to the point where it's table stakes,” Margarites said. “I think everybody's very much talking about it. Everyone's on that path.”
Embedded banking will also help TD Bank compete with fintechs, he said.
“I think that this demonstrates that we are just as innovative and fast and forward thinking as a lot of the fintechs out there, with a robust set of controls and security and experience that the bank offers, which is a real differentiator,” he said.
Josh Williams, chief banking officer and head of partnerships at Seattle Bank, made a similar point in a recent
“One advantage of approaching embedded banking as a bank is that we essentially are able to bring in a stronger commitment and knowledge to the regulatory framework, as well as the technology and business factors that are really necessary as you start to think about companies that have greater enterprise risk and or reputation risk versus, say, an early-stage company that's looking to just really rapidly get a simple product set out to market,” he said.
Silicon Valley Bank offers embedded banking to tech startups, large tech companies and venture capital firms. What these customers want varies according to life stage, Prakash noted.
Early-stage clients typically use accounting software to manage their books, so the bank connects its bank services to those platforms so they can manage their accounts and make payments from within QuickBooks, for instance.
Some early-stage small-business clients have asked to handle expense approvals through Slack, so the bank made that possible.
“We have customers who are integrating the card transaction API into their Slack channel, so that every time a transaction happens on that card, the entire five-person organization sees in their Slack channel that Charlene just spent $10 at” a coffee shop, perhaps.
Larger, more sophisticated companies use enterprise resource planning software, and the bank lets them interact with it through those programs, through APIs or through file transfers.
“Over time, our intention is to provide all kinds of banking as a service solutions to our clients beyond just basic payments,” Prakash said. “This is a B-to-B-to-B solution now, so this is way beyond payments. It could be deposits, it could be lending, it could be identity as a service. It could be KYC" — know your customer — "as a service. It could be authentication as a service. You name it.”
E-commerce companies like Mindbody, Shopify and Toast that build operating systems for restaurants, gyms and fitness centers would be good candidates for this, he said.
With Silicon Valley Bank services embedded in their sites, they could also process payments or provide lines of credit to their customers on their own platforms.
The work the bank has done so far in embedded banking has helped its clients offer more services, for which they can charge more and increase their share of wallet.
“Customers are happy because they are now able to drive better unit economics for themselves,” Prakash said. “Their end customers are happy because they don't have to shop around and go to 10 different providers and have to worry about the integration and interoperability between all of them.”
This leads to a larger share of wallet for Silicon Valley Bank and improved customer retention, he said.
Extending a bank’s products through another company’s brand and site comes with some risk.
When Silicon Valley Bank is working with a customer through its online banking platform, “we pretty much know everything there is to know about you,” Prakash said. “We know who is logging in. We know the risk profile of the individual, the browser, the location you are coming in from. We have a lot of multifactor authentication and other controls natively built into online banking platforms.”
But for embedded banking, the tooling needs to be very different, he said.
“You are now doing something on behalf of someone else,” Prakash said. “The bank is processing payments, not for a direct customer of the bank, but for somebody else. We refer to them as ‘on behalf of’ transactions and the risk is high. Now it's not just about your profile, it is the risk profile of that end client.”
The bank has refined its risk policy, governance and onboarding processes to adapt to the changing risk profiles of those end clients, he said.
Even the information sharing and payments the bank already provides business clients comes with risk.
“There's a risk in payments,” Prakash noted. “Who knows, it might be a bad element that either ends up initiating or receiving a payment. These are managed risks.”
