Open Banking and APIs are enabling embedded finance solutions for Business and Corporate clients. These clients effortlessly access their balances and transactions and execute payment functions directly within their ERP, accounting SW, or Apps. Embedded Banking enhances operational efficiency, elevates usability for clients, and allows banks to deepen client relationships.
What you'll learn
Different Embedded Banking implementation models: Through Aggregators, ERP Connectors, and client-facing APIs.
- How to "productize" and monetize APIs and embedded banking solutions.
- A fast and easy API enrollment process is key for successful adoption.
Oscar Gonzalez (00:09):
Good Morning, everyone. Sooner than we think. The bank login will be a thing of the past. For businesses and commercial clients, clients, the accountant, the treasurer, CFOs, business owners, they will not log in into the bank portal to do their banking functions. They will do everything from their system of choice, typically their ERP or accounting software. My name is Oscar Gonzalez. I'm leading the embedded banking practice at Citizens Bank, and today we will see how we are enabling embedded finance for business and commercial clients. Bank is something you do not, something you go, I like the sentence. I mean, historically people first went to branches. Then thankfully we started to have remote applications, online banking, first mobile applications. But we are still using the bank interface. Either we go to the branch or we use the bank's mobile application. We are using their system with the adoption of open banking APIs. We are enabling clients to bank with us directly from their system, from their system of choice. So this is the next evolution in business and commercial banking. What internet did or online banking did to branches. Embedded banking is going to do it to internet banking.
(01:56):
Banks will be custodians of trust. Again, historically, the banks, we've provided clients with the full stack with all the layers of the technology. We have the backend, we have middleware, and we traditionally have had the channel, the access, but we are not necessarily the best in customer experience. People like our companies like Apple, Amazon, they're great in customer experience, and we will see in a minute. Apple doesn't want to for the moment, doesn't want to be a financial institution. They are happy managing the sexy layer of customer experience. And this is going to happen with business banking and commercial banking. We don't need to be the owners of that customer experience. We could externalize that customer experience to third party.
(03:00):
So how we do it? What is open banking? What's APIs? What's embedded banking? You've heard a lot about these concepts. So what you can see here is, in my view, open banking is the enabler, is the technology allowing clients to share the data with third party applications? That's open banking, right? As a client, I give me my consent for this data to be shared with NetSuite or with QuickBooks or net wallet or whatever application. That's open banking, right? An open banking is enabled with APIs. APIs are exposing bank services to third parties. You see the example here, account balance, account transactions, payments, et cetera. All those historically were called from bank channel, but now the banks, we have exposed those services. Give me the account balance for this account number that is exposed. Now, externally, obviously with a layer of security, but that's open banking.
(04:08):
That's the APIs are now available to others. And embedded banking is a use case of open banking. So embedded banking is embedding these functions in my user interface. In this case, I put the example of Oracle. Could be my ERP, I'm the client here, and I have account balance, accountant, action, payments, wire, R-T-P-A-C-H, whatever. I have those functions in my system. I don't need to go to the bank. So I don't need to remember any login, any password. I don't even need credential for the bank because what I use is my authentication in my own system. It is my system calling the APIs of the bank to transact and do all this. So the adoption of APIs is rapidly enabling the growth, the enormous growth of this new channel.
(05:06):
One example of embedded banking, I was tempted to use Uber, but everybody's using Uber. So I brought another example that I love, which is Apple savings account. How many of you have a Apple savings account? So in this case, the experience, the channel, the user interface is Apple is a wallet, not necessarily a bank. Again, apple is not a bank, and many people don't know that Their bank account is not an Apple. It's in Goldman Sachs. But you don't need to know that when you have an Apple savings account, you don't have a credential in Goldman Sachs. Your account still is in there, but you never go to Goldman Sachs to see your balance to move money out or move money in. So Apple is the user interface. Goldman Sachs is the backend. So through APIs, Goldman Sachs is exposing to Apple. All the functions, right? Balance and transaction deposit withdrawals are done within the Apple user interface. It reads over 10 billion in deposit last year. And as I said, many users don't know that their account is in Goldman Sachs in business and commercial. A good example is our own citizens', ERP Connect.
(06:36):
ERP Connect is an embedded solution available for different ERPs and accounting software like NetSuite, Sage Intacct, Microsoft Business Central, QuickBooks, Xero, and we are growing in number of ERPs and accounting software supported. As you can see, this is some screenshots, right? So I as a client, as a business owner or CFO accountant treasurer, I go to my system and directly in my system, I see my accounts, I see my balances, real time, current day transactions, previous day transactions, and I pay my invoices. Some people call these contextual banking because banking happens within your context, within your function. It's not anymore that I'm making a payment in the bank portal. I am paying an invoice. It used to be that I mark my invoice as paid in my ERP, and then I needed to go to switch to the bank to make that payment, repeat information, the beneficiary, the amount, et cetera, everything, right? Not anymore. Now it's contextualized. What I do in embedded banking is I see my invoices, I approve my invoices, et cetera, and from here, from my ERPI pay magically. The payment happens. The payment goes through, right? It goes to the bank. If the payment fails because the bank account information of the beneficiary was wrong or something, the A RP will get the return. It will reverse the accounting entry and will put the invoice. It will reopen the invoice again. So everything happens within your own system.
(08:35):
How do we implement this embedded banking experience? It depends on the customer profile. We have three methods. The first one through F-D-X-A-P-I, via account aggregators. You will see that this more for small businesses. Then we use as well ERP connectors. These are fintechs specialized in embedded banking. They have plugins for several ERPs or accounting software, and they connect directly through APIs with those, and they connect to the bank through APIs or files. The third one is direct connectivity with clients. This is more for apple meter market or corporate banking. Let's go through them. The first option is account aggregators. You may be familiar with FDX. FDX is the standard in the industry for APIs.
(09:43):
This is targeting retail, personal banking, and SMEs. Small business banking. There is no effort for the client. This is completely automatic, completely transparent to them. Typical functionality is information reporting only. So this is one direction. So clients can pull the account balances and transactions, and they will see that in their system of choice, no payments yet. They will come, but for the moment it's one direction. Typical bank fee, no bank fee here, right? So clients, they connect their application free FinTech partner account aggregator, app supported accounting software. So you have some examples here. I didn't bring all of them right? But the typical scenario is the bank through F-D-X-A-P-I. No, I am saying clearly we are not doing screen scraping anymore. Nobody's doing screen scraping. Everybody's moving from a screen scraping to APIs now. So FDX is the way to go. Three legged authentication. Three legged authentication means that I connect my, let's say my cartel, Brex, AppFolio, Xero, whatever.
(11:01):
I go to that application. I typically say I want to connect my bank. I see the list of banks. I select, for example, citizens, and that redirects me to the login page. So I enter my user password, OTP, et cetera. I do it once only to connect to the bank and we tokenize the authentication. So the aggregator, plaid, Finicity, Joly, Intuit, they don't have the credential of the client. They have a token on behalf of the client. They will call every time the bank to pull the information. So these are typically the applications supported by this model. Again, more for SMEs, small business banking, second option, ERP connectors. These are fintechs. I brought some example. Five span KOXA, SWA fins, and there are others. There are specialized fintechs that develop very nice embedded experience for different accounting software. And ERPs is, this is targeting businesses and commercial clients. More middle market, no effort for the client. In 20 minutes, they're up and running. They connect. In this case, as I said at the beginning, there's no login, right? Because they will log in with the credential of their ERP. So we connect to the different ERP connectors and they will bank on behalf of the client.
(12:43):
Typical functionality is two directions. In this case, the client will have their balances and transactions, so they can do the account reconciliation automatically, but it's also payments. So from here, from these applications and others, the clients can select their invoices or pay their expenses. They click, it goes through to the bank, usually some bank fee in this case. So usually banks here charge clients for this service. The FinTech partner is what I said. This type of fintechs and the app supported is always cloud-based ERPs. Some people ask me all the time, I have JD Edwards or SAP for the moment, the ERP connectors. This method is only working with cloud-based application, not with desktop or on-premise, big ERPs. But that will come later.
(13:52):
Third option is for those cases, I have an SAP, Oracle, epic or in for whatever. In this cases, it's not typically a cloud-based standard ERP, but it's more like upper middle market or corporate clients. They want connectivity all the time. I see strong demand here, like citizens. I want to bank with you from my system. I don't want to log in. I don't want to use online banking. I don't want to deal with files or transmissions. I know that this is possible. Just connect me to the bank. So this is targeting corporate banking. Technical effort is considerable. So while the other two, the client doesn't need to do absolutely anything. We don't even need to engage their IT department. In this case, yes, because we are connecting directly to the bank. We don't have an account aggregator to help us. We don't have a FinTech or an ERP connector helping us, in this case, the bank, we do custom connectivity through APIs with some clients. So they do need to have some expertise on their side to connect to our APIs. Custom price, no partner, no intermediary cloud on on-premise, crps, how we typically monetize embedded banking experience.
(15:27):
People are, many clients, they're not even aware that this is possible. When the first time they see a demo of this, like, no, you can bank from your NetSuite or your Sage, Intacct or Microsoft Dynamics. Really, they're amazed. I haven't seen one single client that having NetSuite for example, and looking at an application like this, I haven't seen one single case of a client saying, that's not for me. I'm not interested. Every single client, and most of them, they were not aware. So every single client is like, oh, I want this because saves time and it's much more efficient. They don't need to again, deal with files, what we call the swivel chair, nothing like that. So how we monetize that is typically new client acquisition. We have clients saying that if I cannot bank with embedded banking, I move to another bank. That is happening.
(16:33):
It is growing massively. So when the awareness increases, we're going to see people switching because they want to bank like this. I strongly believe that this is going to be the main channel to business and commercial clients, not online banking, no mobile banking, banking from their system of choice. So new client acquisition clients are coming because we have this type of solution, deepening existing client relationship. We see a strong increase in deposits and volume of transactions from clients once they adopt a solution like this. So more volume, more deposits, new digital products. Once they have a solution like this, we offer side features like account verification. So before you or when you capture the bank details for a vendor, you can automatically verify the ownership, the status of that account to reduce fraud. So those are typical side features that clients would adopt once they have embedded banking. Others are automatic remittance advice, things like that. So new products are coming together with embedded banking and obviously usage fees.
(18:05):
So to end here and open for questions, I love this sentence. People will bank with their preferred applications. You see in the background, typical applications, those will be the channel, not the bank. And this is not a bad thing for banks. I mean, some people could say, oh, what? You're going to lose business to fintechs? But to me, this is first competitive advantage, having this kind of solution for clients. And second is a new distribution channel. In the future, I see that clients will be able to open accounts from their ERP or accounting software. Right now they're transact, right? They see their balance, they see their accounts, they make their payments, but in the future, they will open a line of credit or a bank account or a loan or something, whatever, from their UI without coming to the bank. So it is a new distribution channel that brings business to banks. So with this, I will open for questions. Yes. Oh, sorry.
Audience Member 1 (19:20):
Citizens to not features business customers to use.
Oscar Gonzalez (19:28):
No.
Audience Member 1 (19:33):
So my question was, in this belief as you guys look at your product roadmap for mobile banking or online banking, are you guys choosing not to build features and instead push your customers to use one of these integrations to limit the need for you guys to create it in-house? Perfect,
Oscar Gonzalez (19:50):
Thank you for question. Not yet. That is not yet. So for the moment, this is a parallel channel to our typical cash management application or online banking solution. Not yet. So both are growing in parallel. We constantly enhance our online banking solution while enhancing and enriching this with more features. But most of our clients having these system still use the portal. I have some clients saying, I don't need the portal, right? It's like, okay, forget it. Remove it from my product portfolio. I'm happy with this. I can see my information reporting, I can do my payments. I don't need that. But for the moment, that's the
(20:37):
Minority of clients. So obviously this is going to be like, as I said, this is online banking versus branches. Branches are still there and we're enhancing branches and we're enhancing online banking, and we have mobile banking. So all of them coexist in parallel. It'll be many years where this will be just one more channel, but we will constantly enhance the others. Now, I do see that this is going to cannibalize part of online banking. Yes, gradually, because I'm seeing that right now. Some clients it's like, okay, with this I'm happy. I don't need that. Right? More and more clients will switch. We'll have this experience instead of the online banking. Any other question?
Audience Member 2 (21:24):
So I have some personal experience with this. I was a commercial banker for 10 years. Can you just comment on the stickiness of this type of business for a corporate client, for citizens compared to your clients who are not using API
Oscar Gonzalez (21:42):
Totally, totally very sticky. I mean, I forgot to put some client testimonials, but I remember one client saying, I dunno how we live without this. I couldn't see myself going back to previous banking. That's the stickiness. As I said, once you have this, you don't want to move back because the account reconciliation happens automatically. You don't need to even download a file or export, import a file into your system. It does the account reconciliation for you. You don't need to rekey payment information. So it's very, very sticky. I mean, again, I haven't seen a client moving out. Also, once they have this, that's the way they bank. They may use online banking for, I dunno, advanced reporting or other features that we have in the online banking. But if your typical use case is simple, if you're a business banking balances transactions, account reconciliation payments, payment invoices, I mean this does a CH wires, international, domestic, international IATs transfers checks. So clients can pay with a check their invoices from the ERP. They click the button, we print and deliver the check to the vendor. So every type of payment, positive pay as well, information reporting, as I said. So very sticky. Other question.
Audience Member 3 (23:27):
Thank you. Very interesting presentation. Thank you for sharing this. Do you have any worries that a glitch on the application provider's side could negatively affect you? Or if the customer may be confused if something doesn't work and they blame the bank because they're trying to do something with their bank account and you might not have the visibility into what happened on the application side, do you have any thoughts on how?
Oscar Gonzalez (23:57):
They have to blame the bank? I mean, we offer this solution, so it's always our fault, right? Even though, as you said, I mean we usually work with FinTech partners providing those pages within the ERPs, but at the end of the day, it's our solution. And believe it or not, some of these partners are very mature in the industry and they work with the main banks, 14 main banks in the us. They have this kind of solution. So this is not new. Thousands of clients are using this application. So we don't usually have those glitches. But if we do, we have this partnership with fintechs and we have a strong or very deep visibility of what's going on in the middleware in the ERP connector, in the aggregator and on our side. Obviously if something happens on the side of the client, we look into that with them. But thankfully we don't have those many things. Okay, good.
Audience Member 4 (25:01):
So if you move forward five years and you keep seeing this progression, what do you think the future role of the bank will be in this context and what will be the next strategic differentiator?
Oscar Gonzalez (25:14):
That's a $1 million question. That's the $1 million question for now. This is, as I said, this is a competitive advantage. We offer this, maybe others don't, but when this is standard in the industry, what is the bank? Because there is no customer experience. It's an excellent question.
(25:35):
I dunno. I dunno. We need to find the competitive will be more products, better conditions, but not necessarily the ui. This replaces the bank UI with your own UI. The rest is the product, the conditions, the bank account. We are very good. Banks are very good at moving money, investing. We are the best in risk management compliance, but we don't need to be the best in ui. We don't need the best in user experience. So it's a great question. I mean, let's see. But in my view, it'll be better products, better conditions, not necessarily UI or customer experience.
Audience Member 5 (26:24):
I'm curious how you think about ERPs themselves potentially offering banking services via their own kind of bank partners. And whether you worry that could be because the UI is on their environment. So curious if they bring in their own bank partner and start perhaps steering your customers. Is that something you think about?
Oscar Gonzalez (26:52):
Great question. Yes. That's going to happen. That's going to happen for now. The cloud-based ERPs, let's say NetSuite, say Intacct, dynamics Business Central and others, Workday, SAP4HANA, they are not doing this. They allow third parties to use their framework to build embedded banking experiences. But once they see that those guys are eating their pie, they're going to say, wait a second, I can do that myself. And we are prepared for that. We are prepared to connect to Oracle without using an ERP connector or an aggregator. Once they are ready, we are happy to connect with them. For now, it's mostly through these fintechs, because as you're saying, ERPs are not offering embedded experience connecting to the bank yet.
Audience Member 6 (27:57):
You mentioned advanced reporting a moment ago as one reason that some of the customers might still go to the bank portal. Certainly when you look at companies like Oracle where data is their business at the end of the day, right? Is there an ability or are they building APIs where the database on the customer side, whether it's Oracle or SAP, can be uploaded on a regular basis or after hours? All the payment detail, not just that a payment was made for X to Y, but all the detail that they would use to do that advance reporting in the cash management or treasury management portal today. And there are some that have amazing flexible reporting capabilities, but I would imagine that some of those vendors like SAP and Oracle will be building if they don't already have even better capabilities for advanced reporting. Is there an API for database? And then the question about where the bank fits in and how the bank survives. I would think relationship management might be part of the solution there. You might want to speak to that too.
Oscar Gonzalez (29:03):
Totally, yes. And regarding cashflow forecasting, advanced reporting, different options there. So the banks on our portals, as you're saying, we usually provide clients with advanced reporting cashflow forecasting, but others do it as well. And through APIs, we're enabling people like Riva, Truda Mon, right? They read bank account data to perform advanced reporting on people like money they ingest, they connect through APIs to ERPs. So you either pick the data from the bank or from the ERP, but this is an ecosystem growing massively of fintechs reading data from the bank and from ERP to enhance the experience of users. So it's us providing that service. Fintechs or directly the ERP as you're saying? I mean, we are coexisting together with overlapping functionality. Yeah. More questions? Okay. No more questions. Thank you very much. Thanks for attending. Have a good day.