How Railsbank plans to fuel embedded finance in Australia

Railsbank spent much of the past year integrating staff and clients it acquired from Wirecard Card Solutions to help pursue new opportunities for fintech, including in Australia.

The London-based Railsbank has teamed with Sydney-based challenger bank Volt to route account management, card and payment products through Volt's banking-as-a-service platform. It's an early open-banking play in Australia, which has gradually implemented PSD2-style reforms over the past three years.

Open banking, which allows fintechs to access bank data to develop new services, got off to a slow start in Australia in 2018 compared to the U.K. and Canada, which allowed real-time payments for non-banks much faster. Australia added cards and P2P apps in the summer of 2020, and plans to add mortgages and other banking services later in 2021. There's no open banking law in the U.S., but the concept is gaining steam.

"While Australia has a thriving fintech scene and a strong talent pool, the country’s embedded finance market is still in its infancy. However, we predict that it is set for rapid growth," said Justin Xiao, COO of Railsbank.

The foundation for that growth is being set by the push to digital finance and commerce that has accompanied the pandemic, a trend that has impacted most markets globally. In Australia, about 11% of the population uses mobile payments, up from 7% before the pandemic. Mobile payment apps are at the heart of open banking and other embedded-finance projects, which often use a large enrolled base of payment credentials and a partner bank's scale to offer cards, money transfers and a path to lending and other financial services.

Railsbank's own journey to open banking got a push in the summer of 2020 when the company acquired U.K. assets from Wirecard, a German company that was selling off various units after its accounting scandal. Railsbank went to work building a system to ease partnerships between banks and third parties such as payment apps.

In Australia, Volt and Railsbank want to enable other firms to bundle and scale a range of banking products via fast digital enrollment.

"The partnership enables us to jump-start activity within the Australian market and to continue our expansion within the Asia Pacific," Xiao said.

Apple's role in Australia is key to building a market for embedded finance. After years of fighting with Australian banks over terms, Apple Pay has expanded quickly and now has two-thirds of Australia's mobile payments share, according to 9to5mac.

That gives Apple a sizable base through which to sell Apple Card, which it offers through an embedded finance partnership with Goldman Sachs. Google has a similar collaboration with Citigroup and Stanford Federal Credit Union.

Apple and Google didn't invent open banking or embedded finance. But the competitive threat from the two technology giants pressures banks and other companies to find partners that can give consumers access to payment, finance and consumer apps the banks may not support in-house. Walmart, for example, is partnering with Ribbit Capital to build a fintech business that can embed financial services for Walmart's enrolled base.

Writing for PaymentsSource, Sandeep Sood, CEO of Kunai, said the difference in the age of fintechs and web connections is the rails that connect fintechs, technology companies and banks can be infinitely replicated on a massive scale. Another PayThink contributor, Alex Ressish, chief commercial officer of Tribe Payments, argues embedded finance will make the payment an afterthought that enables dozens of services, requiring payment companies to add value through their ability to use payment credentials as a base for value-adds.

Railsbank contends it has built international connections to replicate its Australian project in other markets. Visa has invested in Railsbank, and the two firms have a partnership to deliver financial services. Railsbank is also part of Visa's Fintech Fast Track program.

“We also have a number of existing customers that want to start operations in Australia and the launch of our embedded finance offering will help accelerate their market entry and growth," Xiao said, adding Railsbank hopes its launch in Australia will expand awareness of Railsbank among Australian fintechs, companies and brands, fueling added embedded finance expansion in the region to Japan, the Philippines, Thailand and Vietnam later this year.

"In the future, we hope to be able to also support those firms who are looking to expand into other markets where Railsbank already has a presence," Xiao said.