Is Embedded the Future of Banking? with Renata Caine

In this episode I sat down with Renata Caine, who leads Embedded Finance for Green Dot. 

How does Starbucks offer it's reward card? How does Amazon provide a credit card? All these "embedded finance" programs have banks behind them who help the brands onboard customers, provide oversight, and act as the buffer between the brands and the regulators. 

I went into this conversation thinking that standing up an embedded finance program was mostly about choosing 1 great partner and making sensible decisions around compliance. Now I know how wrong I was! 

• A bank getting into BaaS is a bit like a contractor building a house. They may do everything - the plumbing, the electrics, the painting - or they may outsource all those things to others. Deciding what skills you have as a bank, and therefore what you can offer, what you can build internally, and what you need to contract, is step 1. 
• We got into detail about the pros and cons of For the Benefit Of (FBO) v Ultimate Beneficial Owner (UBO) account types. An FBO account is a single pooled account at the bank on behalf of a brand or a fintech, whilst a UBO structure means every end consumer (or business) is an actual customer of the bank. There are distinct pros and cons to both set ups, and again, the bank should work out where its skills lie to decide which route to take. 
• Making money is harder than it seems! You might make revenue from interchange, interest and/or program management fees, but the size of those buckets varies hugely depending on the type of brand or fintech you work with. Diversification is the key, and scale is needed to make any meaningful revenue. This isn’t an area you can “try out”. You either go hard, or go home. 

For so many more great insights, listen in here. 

Transcript

SPEAKER_00 0:00

The plumber would be the payment processor. What would the electrician be the cardish for what would the electrician be? Oh gosh. Hello and welcome to In Control, where we learn about the finance of everything. I'm Tash, your host, and I'm also the CEO and founder of Cable, which supports the show. If you enjoyed this podcast, please share it with your friends and colleagues and subscribe on Apple Podcasts or Spotify. Back in early 2020, Angela Strange from Andrews and Horowitz said that every company will be a fintech company because she believed that nearly every company will derive a significant portion of its revenues from financial services. That phrase, every company will be a fintech company, has since been used so much it's basically Silicon Valley law, and Angela couldn't have been more on point. Starbucks holds about$2 billion in unused, preloaded cash on customers' physical and digital loyalty cards, which it can make interest revenue from. Delta Airlines made about$2 billion in revenue from credit card spending in just Q3 of 2025. And Shopify has provided more than$5 billion in cash advances and loans to its merchants since launching its capital product. These companies are not financial institutions, but they're making incredible amounts of money from offering financial products right where consumers and businesses need them. And how do they do this? By partnering with banks in what has become known as embedded banking or banking as a service. At the same time, banks have been struggling. Consumers expect fast, slick, easy financial services right from their phone. Bank MA is on fire right now, as I talked about recently with Joe Mancini. His prediction was that we'll see a halving in the number of banks in the US over the next 10 years. So, on the one hand, banks need new revenue streams and the ability to gather customer deposits. And on the other, companies need banking partners to enable them to offer financial products to their customers. But how on earth does all of this work? How do banks ensure regulatory compliance when a non-financial institution is offering their products? How do tech companies or coffee shops persuade banks to let them resell their products? Embedded banking, I think, is probably how banks survive the next 50 years. And so understanding how it works is really critical. And who better to learn from than Renata Kane, who leads embedded finance for Green Dot, which partners with the likes of Walgreens, Amazon, and Ancrypta.com. Renata, thank you so much for joining me. And I want to start by asking, when did you start working in the embedded banking space?

SPEAKER_01 2:39

Oh gosh. Um well I started in payments and hello. Um I started in payments uh in 2005. So it's been over 20 years. Um we didn't call it embedded finance then, but things that we were doing were all in service of embedded finance. So it's been it's been a long journey.

SPEAKER_00 2:59

Yeah. A good one. A good one. Well, and uh and one that has, you know, lasted the test of time and uh has really become so important for banks and for other coffee shops and the like. Um consumers, exactly. Yeah, yeah, hilarious. So I want to really try to build this up and I want to understand how do banks actually do Bass or banking as a service? Um, what would what do you start doing? If you're a bank and you're wanting to launch banking as a service, where do you start? And you know, build this up for me. What do you think about the team, the people you need to hire, the technology? Try to build it up for us from the ground.

SPEAKER_01 3:36

Yeah, so I think banks may think it's simple because it's something that they're doing today. Um and the truth is it's it looks deceptively simple from the outside, but on the inside, it's almost like the duck on the water that's paddling underneath. And it looks, it looks like it's it's an easy swim, but um it there's a lot of hard work that goes in there. Um, banks that are doing it correctly are are treating it as a business, as a unique business with its own operating model and its own operating rhythm, if you would. Um, they have to have, you know, if you think about a bank just on its own, it has uh their operating model, governance, risk, compliance technology, day-to-day supervision of the bank. But when you introduce these programs, you're doing that, but you're doing it and you're overseeing another entity. So it becomes even more complex because it's not the people you know, it's it's a different organization that you have to create frameworks for and govern. So it while Bass is at the from a consumer's perspective is supposed to be simple and seamless. Everything that goes into it from the bank and the fintech perspective is nothing short of simple and seamless.

SPEAKER_00 4:53

Mm-hmm. And so and so it's this own product line, it's sort of this own business that is being built, just like if you were to launch a whole new business within a bank, it's out of it.

SPEAKER_01 5:03

I think so.

SPEAKER_00 5:04

I think so.

SPEAKER_01 5:04

I think that if you don't treat it that way, it's it's um doomed to fail, in my opinion. Um if you think about the the the core teams that you need, and you'll have teams like this within the bank, but they have to be really focused on the Bass business. So of course you've got your sales and your marketing and your go-to-market teams. They're the ones that are talking to the fintechs, they're the ones that um are sourcing the partners, they're building out what you know, what is it that the bank could do for the fintech in order to bring this unique product to market? Um, they're negotiating commercials, they're doing all that. Eventually, they're after contract, they're handing it over to a relationship team. So none of that is new or novel to a bank. They have those teams today. Um, but where it gets interesting is, you know, your risk and your compliance team, your BSA AML, legal ops, tech, like the list is long and it sounds heavy because it really is. All of those teams have to be in service of building kind of a muscle or discipline to build these processes for a fintech and then find ways of managing and overseeing and making sure that they are an extension of the bank, essentially.

SPEAKER_00 6:17

Interesting. So in a bank, normally you would have a chief compliance officer, a BSA officer, you'd have a chief operating officer, a chief financial officer. Do you literally replicate all of that in in Bath, or do you have somebody in Bath who reports to those people? How would you structure it if you were to start it today?

SPEAKER_01 6:37

Yeah, so I think um if from if if it's a traditional bank, um, yes, I think you'll probably you're going to have whether it's the double the people, I don't think that that's necessary. But certainly you're going to have people that are going to be focused on the BASS programs. But I think actually the unique bit here is the fintech actually has those people. And you're going to have the the relationships between the bank and the fintech at those levels. They need to have someone that they go to that they feel, like if I'm a chief compliance officer, I want to feel that the fintech understands what I need to deliver and what I need to show from a compliance perspective. And you can't just teach that to someone at a fintech. It has to be someone who really understands your language and has been in your shoes. So it's less about replicating those roles within the bank. It's replicating those roles within the fintech.

SPEAKER_00 7:29

Oh, interesting. And so then the bank's banking as a service area or arm uh becomes more of the sort of communication and the management between the bank's expertise and the fintech's expertise. That's correct.

SPEAKER_01 7:42

Yeah, I think the bank is taking this position of um, you know, they're going to do diligence on the fintech themselves, but then they have to design like oversight frameworks and monitoring uh how the the fintech is doing TPRM as an example. Like they need to they need to create the guardrails for the fintech and then make sure they stay within them.

SPEAKER_00 8:04

Yeah. Okay. TPRM being third-party risk management for those who don't know their acronym. Yeah. Um I keep being told off. Well, don't doesn't everyone. Um I keep being told off on these uh for not explaining the many, many acronis acronyms that we have uh in the finance world. So let's say you've got the right people in place and you found a fintech that you want to work with. Um what technology needs to be in place to actually make it all work? Like what is the bank actually doing for the fintech?

SPEAKER_01 8:36

So there's so many players in this, and you can have a whole host of players that do bits and pieces. I would it's the analogy is like when you build a house, you have a contractor, and the contractor subs out all of these different things for you to have this beautiful house in the end. There are it's it's almost the same thing. There are players, self-servingly, I'll talk about Green Dot, that offer, you know, the whole suite of services. They are your contractor, but because they can do it all themselves, right? Some of the fintechs decide they want to be their own contractor and they want to take pieces. They want to take the best of the best and build their own, if you will. Um, ultimately, the bank is the has the deposits, the bank is risk and compliance. The bank doesn't have to be the ledger, but has to know where the money is. And I talk about acronyms. I'm sure we're gonna start talking about FBO versus UBO. And I I can I can explain the four benefit of accounts versus underlying beneficial ownership accounts. Um, that's the bank's role, but there are lots of players. There's processors, there's program managers, there's lots of players you can stack in between. Um and the tech infrastructure today is there's just so much to choose from and you can layer on, or you can simply find a one-stop solution. There's so many ways to build this. Cool.

SPEAKER_00 10:09

I want to get super in the weeds here. And yes, we are going to talk about FEO and UBO, and I will ex well, I won't. Renato will explain what all that means later. Um, let's start with. You mentioned like deposits. So in the in the Starbucks example, in the, I don't know, like Amazon has a credit card example, in the um uh Walmart card example. Fundamentally, a consumer who is going to Starbucks, going to Walmart, going to Amazon, they want to be able to pay for something using this card that actually is linked in their minds more closely to the brand. And so they are either loading money onto the card or they are using a credit card. Um, and the money then moves from the brand, from the consumer to ultimately the bank behind the brand. But does it does it technically go through the brand? Like how does the money actually flow?

SPEAKER_01 11:06

No, I mean the the the money shouldn't go through the brand. That's the whole point of having the bank, right? And then there's the fintech. So you've got a brand, you've got a fintech, and you've got a bank. In some cases, the fintech and the bank are the same. Uh-huh. So in your um we could just use Amazon example. They may have cards in the wild. They're those are issued by a bank. There's it could they could be there could be savings accounts linked there. There's DDA's uh demand deposit accounts linked there as well. Um, it doesn't go through the brand because those brands, they don't have money transmitter licenses. They don't, they don't want to be the bank. They're outsourcing this to the fintech, to the bank, or both, in order to have this uh product in market.

SPEAKER_00 11:56

Interesting. So when you say fintech in in this example, you're meaning a company, a technology company that might issue cards for the bank or a fintech, a vendor that might um enable the onboarding of new customers for the brand. Those sorts of be those sorts of players, right? Yeah. Okay. Exactly. If I'm Amazon and I am wanting to enable customers to have some kind of uh deposit account that I can then spend money and save money and earn interest, then it's like it feels like an Amazon product. Behind the scenes, then I'm working with a fintech that can help me on board those customers, fintechs that can help me maybe issue cards and and they're the regulatory, they're all the bits and pieces.

SPEAKER_01 12:48

Sometimes that fintech is the bank, sometimes that fintech, that fintech requires a sponsor bank. So that's why there's all these players in the mix. Okay. At the end of the day, the brand wants to bring a product to market that a consumer's gonna want to use that is frictionless, that doesn't cause issues because this brand has a good trusted relationship with this consumer, and they don't want to introduce a product that might jeopardize that relationship. What they are trying to do is bring products that make that relationship stickier and you know hold that consumer longer. And on the flip side, all those deposits, all that interchange, those are ways in which the brand can also find, you know, different sources of revenue.

SPEAKER_00 13:35

Interchange being the money that you can make when people actually use your card. That's right. And so oftentimes that is split between the brand and the bank. Is that how they make money from that? Uh exactly.

SPEAKER_01 13:46

Um, there's, you know, it depends on how much the brand is doing versus the bank is doing or the fintech is doing. There's typically lots of hands in the jar looking to get a split of these funds. Um, and depending on the responsibility, uh and I'll go back to risk again, who's doing who's responsible for, you know, the the KYC or of the customer that might change economics. So there's all these different levers at play that end up being what becomes the economic package for the program. But ultimately, yeah, lots of players to bring these these uh programs to life.

SPEAKER_00 14:25

Interesting. And so a coffee shop like Starbucks, they are wanting their consumers to load these wallets. Because then if you're going for coffee, you've already got money on your Starbucks card, you'll be like, well, let's just go to Starbucks, right? That that enables that stickiness that you're talking about. Really, that card then is just a total front. Because when a customer, let's say I want to load my Starbucks card, iBank, with SoFi, let's say that Starbucks was using Green Dot. Really, the money just goes from SoFi to Green Dot. Is that right? Through some kind of payment rails behind the scenes. Um, kind of.

SPEAKER_01 15:01

Starbucks is a difficult example because they're like the gold standard. What they have built is amazing. Like they're they've they've taken consumer funds and they're sitting on them. And you may load$20 and use six and then forget that it's there for two years. So they've just, it's brilliant what they've done. But in your example, yes, if there was, you know, the bank and the fintech behind it, yeah, those would be the players. Um there's so many examples of this, and some brands have done it so well, Starbucks being in my mind the gold standard.

SPEAKER_00 15:34

Yeah. Okay. And so then the the you mentioned like the bit that the bank does. Um, they might issue cards, they might provide some other services. You mentioned they might be the ledger, but they don't have to be. Explain to our listeners like what a ledger is and why the bank would or would not be the ledger for these fintechs.

SPEAKER_01 15:58

So ultimately, um I'm I'm gonna go to the FBO UBO example, if that's okay. Can I jump there? Explain what those mean. It all it all it's it's a good package. Um, so FBO is for benefit of, and UBO is underlying beneficial beneficial ownership. These are just account types. Um, the structures are super misunderstood in the industry, I believe, but FBO is a single pooled account at the bank. It's owned by the fintech or the brand. The money in there is fintech or brand. Um, and the bank is holding those funds for the benefit of the end users. So it's important to understand the differences here. The bank holds one master account in this example. Um, the fintech maintains a subledger of individual user balances. So when I said the the bank doesn't have to be the ledger, they'll always be the ledger. They're always going to know how much money is in there. But sometimes there's another ledger. It could be a mirror ledger, a sub ledger. They've called, you know, people call it all sorts of different things. Um, but in this FBO structure, um, the end user are they're not direct customers of the bank. I think that's like the biggest key here. Um, and the KYC or AML is performed on the fintech. Um, sorry, it's performed by the fintech, and the oversight of that fintech is provided by the bank. So this is a really common way that like neobanks um and wallets bring these programs to life. And the reason they like this structure is because it's fast onboarding, um, it's flexible product design. The fintech really gets to control the user experience. But on the flip side, it's higher regulatory scrutiny. You know, the bank must ensure that the fintechs, KYC, AML, all of that is very robust. Um, and it's harder reconciliation and it introduces more opportunities for error. That's why there's been such a spotlight on FBOs in in recent years. Uh on the other side, with the UBO, each um, each end user, so the consumer at the end, like there's a brand and you've got your customer, the consumer, the consumer is um is the actual individual account owner. So they're the customer of the bank, and the bank performs KYC directly. And the end users um, they're they're bank customers, even though they're coming in through the brand or the fintech, they're bank customers. And the I would think about the fintech or the brand as kind of like the service provider, not the account owner. So it's the total, like the pros and cons are the exact opposite of FBO. So the pro is lower regulatory risk for the bank because they're doing it. Um, clear FDIC insurance, easier reconciliation. Uh, but the the con is slower onboarding and more friction. And the bank has a much higher operational load. So when you think about economics of these things, when it's a a UBO, the bank does more for that account. So they do more for that program, and that all get, you know, gets calculated in a deal model.

SPEAKER_00 19:13

And that must impact the cost of the core as well quite significantly. I did an episode with Stacey Bishop about core banking systems, and we were talking about how expensive these can get. And if each individual Starbucks cardholder in this example got their own account at the bank, they would presumably have an account on the core, which is significantly more expensive.

SPEAKER_01 19:33

Yeah, then that's why early days, um, most of these early Bass programs were FBO structures. Um, after recent enforcement actions, like we're definitely seeing a shift to UBO or even hybrid models. But I I would I I actually don't know if we look back to 25 or when we're in 27 looking back at 26. I wonder, you know, if the if we're seeing another shift given, you know, current regulatory environments.

SPEAKER_00 20:03

Yeah. Okay. Um, was the the Evolve synapse tobacco um that ended in a in a cease and desist order for the bank and um money for consumers still missing? Um was that because it was an FBO that Evolve had set up for all of these uh these customers? You have to believe that's the case. I actually don't know, but I assume that that is the case. Yeah, okay. Um because then really the bank is saying we've got all this money, but the source of truth for who this money belongs to is down to you, FinTech. Yeah, so these two ledgers were out of sync. Can you provide can you provide FDIC insurance if you've got an FBO?

SPEAKER_01 20:46

Yes, yes, you can. Um it's it's um sorry, I my words aren't coming out of my mouth, but yeah, there are there are FDIC options. It's clearer when the end user is the customer versus it being uh the pooled FBO account.

SPEAKER_00 21:08

Yeah, and that feels like it would be difficult to keep track of. So for for FDIC insurance, obviously there's a maximum that can be covered,$250,000. Um, that if a bank goes bust, then the government, the FDIC specifically, will pay back consumers up to$250,000 that they kept at this bank.

SPEAKER_01 21:27

Um but if harder to prove it in an FBO structure, so there's far more complexity.

SPEAKER_00 21:33

Yeah, and and harder to keep track of how much money you've got for each individual customer.

SPEAKER_01 21:37

That's right.

SPEAKER_00 21:38

Okay. Um that's interesting. So if we think about some of the examples that GreenDot specifically works with, which are really getting into the sort of interesting embedded banking space rather than the sort of neobank, challenge bank, uh like consumer facing fintech space. So thinking of um an example that you work with being like Intuit or somebody. You work with Intuit? Have I got that right? You do. Okay, cool. Quick. Excellent, quick books. So in that example, like that presumably is more FBO because you're not providing f individual financial services for each person. Rather, you're helping the company perform their service to the consumer. Is that right?

SPEAKER_01 22:29

And the end the end customer is an SMB. So in the this example that we're talking about, um the it actually that SMB actually is an account holder with GreenDot Bank versus being a pooled. So they actually leverage GreenDot as the bank, and each small medium business has an account. Got it. Okay. Okay. Cool. That makes sense. All right. And and as a side note, in in the case of Green Dot, we we we do both. Um more commonly, it is UBO.

SPEAKER_00 23:07

Interesting. Okay. Um that's super interesting. So the the other thing on the technology side that I want to understand that I don't feel like I have a really good grasp of right now is there are so many technology providers in this space that you can use if you are a bank wanting to work with a fintech. And they all seem to do slightly different things and call themselves slightly different things. So you could work with a program manager that is just another intermediary between the bank and the fintech that actually seems to do the onboarding, do the know your customer checks, do um do a lot of the consumer-facing work for the fintech. And then you've got just card issuers and payment processes. I'm thinking more like a lithic model or a Marquetta model. Talk to me about the pros and cons. If you are just a regional or a community bank wanting to start getting into this space, like what are the pros and cons of all these different players here?

SPEAKER_01 24:05

Yeah, so it's so complex, but I actually love this and I love this topic. Um I spent over four years at Marketa, so I understand that business really well. Um, and you could be both in that example. You could be just a processor, or you could be a processor, you know, issuer processor program manager. Um, so if you're a bank thinking about who you want to work with, it really depends on what the brand needs. So the brand may want to not do any of the onboarding, not do any of the KYC, not do any of the like have any of the burden of you know regulatory or compliance. That's when introducing a program manager makes sense. So you could choose a program manager and you can choose a lithic as an example. And now you've got two players that are helping you bring these programs to life. And there's a bank. So now there's three players. In the in the example of Marketta, Marketta is the issuer processor. They also can be the program manager. So now the brand can just choose them. So more one-stop shop with the bank on the other side.

unknown 25:11

Okay.

SPEAKER_01 25:11

I'm gonna plug green dot in here because with green dot, it's the issuer processor, program manager, and the bank in one. Oh, okay. Interesting. And that's the case. So all the different all these different players do all these different things. And so back to the home building example, you can choose to be a contractor and have lots of players, or you can, you know, have two or three or four.

SPEAKER_00 25:32

Yeah. Who so the plumber would be the payment processor? What would the electrician be the cardish? Well, what would the electrician be? Oh gosh.

SPEAKER_01 25:41

Um the plumber would be the payment processor. The I would say that the program manager is the is you're doing all of your tiling and all of your all the like the stuff that makes it a home. It puts it all together. Um Electrician. I think electrician is a little bit like the plumber example. It's like it's the it's foundational. Like you can't have a house without it. Yeah. Who's the architect? I guess that's the fintech. They want this stuff and they're kind of just like designing it.

SPEAKER_00 26:16

Yeah, working with the brand, deciding what it is they want to have in market. All right. Um, I want to I want to get on to understanding the finances behind all of this. Um at a high level, like why would a bank want to do this? What are what are the ways to make money from this? Does it make a lot of money? Is it small margins, big margins? Talk us through all the different ways that banks can make money from this.

SPEAKER_01 26:40

Yeah, so there's there's a variety of sources. So there's there's interchange revenue. So we talked about that's every single time you swipe a card, tap a card, uh, any of the ways in which you do a transaction, there's interchange revenue that's flowing uh through. So banks are making interchange revenue from the networks, network being, you know, Visa MasterCard or similar. Um, so there's a piece of that can that can get shared with FinTech, can then get shared to the downstream partner or brand. So again, lots of hands in the cookie jar wanting a piece of this. Uh in the case of having deposit accounts, not as common, but there's deposit spread that can be had. So when the money is sitting there and and making interest, depending how much is there and how long it sits there, a bank may choose to share some of that uh deposit interest revenue back with the fintech or the brand. I say that it's not as common because there's so much complexity to these programs. And so when the bank is taking ownership of program management, it eats away needing to offer that as um as a benefit, as a revenue stream. But again, there's there's so many different revenue streams that you can you can, it's there's there's all these levers to pull, if you will. Um then there's program fees. And I can, I mean, the list of program fees, there's account creation free fees, there's KYC AML checks, there's transaction processing fees, there's transaction monitoring fees, there's ledgering fees, compliance oversight, um, or just general program management fees. So there's all these uh places where you can generate fees. Um it can be super complex, it can be super simple. It really just depends on the program that you're building.

SPEAKER_00 28:36

Interesting. And so uh is it true that in most cases the fees that a bank would charge a brand or a a neo-bank fintech, are those fees generally greater than the the increased uh interest and interchange that can be made from the deposits and the card swiping? Is it greater? Yeah. Which is the biggest bucket of revenue for a bank, or does it totally depend?

SPEAKER_01 29:03

It depends. Like you could have you can have programs that offer like high interest rates, and so you're seeing consumers dump a lot of money into those accounts and not actually transact. So in that case, there would be no interchange revenue, but there'd be there'd be interest revenue. You could have uh programs where they're barely like the money gets into the account and they're spending it right away. So there's no in there's no interest revenue, but it's high interchange revenue. So that's why I'm saying like every single one of these is unique and slightly novel, unfortunately. So every single one you sit down and you try to figure out how who are who are they supporting? Like what consumer are they supporting? Are you talking with um someone who is supporting you know low medium income, or are you talking about someone who is supporting like generational wealth? Because the spectrum is is really different.

SPEAKER_00 29:59

Mm-hmm. Mm-hmm. Interesting. And so as a a leader in this space, it like could uh is your goal often to diversify your portfolio of fintechs to to you know mitigate the risk of um suddenly interest rates drop or suddenly people are not able to spend because they're stuck at home because of COVID or something. Are you trying to get one of each type of fintech? Is that really appealing?

SPEAKER_01 30:22

Yeah, so personally, yes. And not only for all the reasons that you said, which I won't regurgitate, but those are all the reasons why you should diversify. But also think about the products that someone might use at this end of the spectrum when they're like entering, like trying to just start building their credit. If you have products in market that, you know, are across the spectrum, you can graduate this consumer through there and hold this consumer for a really long time. Ultimately, the longer you have these customers, the more amount the the greater your return on them is, right? So you want to make sure that as they grow and as their financial wealth grows and as they get more knowledgeable that you have the products to serve them.

SPEAKER_00 31:03

We have got the over the revenue, the the sort of fee, the revenue generation, that is the program fees, interchange, it's interest sharing, maybe there's some deposit lending out. Um what about the costs? I mean, you mentioned the team, obviously. You mentioned some of the compliance checks that the the bank will have to do on the FinTech, although that seems like it's maybe covered by fees. So, what are the other costs for a bank associated with embedded banking or banking as a service?

SPEAKER_01 31:36

So there I mean those are the those are the major buckets. There's obviously the technology costs, you know, the count accounts on file, however they uh they think about the different cogs to just manage the bank. I in my opinion, it's hard to make money here.

SPEAKER_00 31:55

Oh yeah. Okay.

SPEAKER_01 31:57

Absolutely. Um it is a it is a scale game, right? You uh you have to have lots of scale to to make this profitable. And that's the same for the brands. Like you see you see brands go into market with a product, and if it doesn't catch on, you see it go away fairly quickly. You see a year later, that's no they're you know, they're sunsetting it. Um scale is kind of the name of the game.

SPEAKER_00 32:26

That's really interesting. Okay, so if a bank wants to get into this area, having one or two fintechs is probably not gonna cut it. You need to be getting to what is it, is it 10? Is it 20 fintechs or brands? Yeah.

SPEAKER_01 32:38

I don't know about I don't know if it's a brand number or the underlying customer number. Right? Or the velocity of deposits. Yeah. The velocity of deposits, the the interchange, all of that. I think that's actually the key. Interesting, because Bancorp for a very long time, Chime was their main, one of their only brands or fintechs, but because it was so Chime was so successful and had so many people come in that that was why you could have one fintech.

SPEAKER_00 33:07

Got it. Okay. And so for the fintechs themselves, how are they making money? This feels like a a pie that is just being shed out by more and more people. How do fintechs actually make money from this?

SPEAKER_01 33:19

It it's the same thing. So if you think about the bank sharing interchange with the fintech, the fintech then has to share interchange with the brand if there's a fintech between the bank and the and the brand, right? So if you have this multiplayer scheme, everyone's taking a cut. So sometimes your cut is bigger or smaller depending on your role in bringing that program.

SPEAKER_00 33:44

And so like is interchange the only fees or the only revenue that the the brands can make, or do they also get to make revenue from interest or from um, do they get to charge fees? Is that totally up to them, I suppose?

SPEAKER_01 33:56

Well, yeah. So the brands can charge a consumer fees. The brands can charge for, you know, for wires, for, you know, real-time payments. There's all sorts of different levers the brands can uh can put out there. Again, they want to have something that goes into market that a consumer wants and the consumer feels like it makes sense to use. So they're very price conscious. Um, but yeah, the more that that's that goes back to what we were saying. The more players involved in bringing um a Bass program to life, the smaller the cut for everyone along the way.

SPEAKER_00 34:32

Yeah, which is why presumably Green Dot has done everything, because it seems much more attractive for the brands to just have one person to share those those fees with. That's right. Okay, that makes sense. Um, what am I missing in terms of the revenue and the costs for banks or fintechs or brands in this world? Like what have we not talked about? The costs.

SPEAKER_01 34:55

I mean, it's it's expensive to acquire customers. So the, you know, from a brand perspective, those who have an embedded base of loyal, trusted customers, those are the ones that should bring uh an embedded program to life. The ones who don't have that, it's just not worth their time, in my opinion.

SPEAKER_00 35:17

And that's why um the likes of, you know, Walgreens and Starbucks and and Delta Airlines, it makes a ton of sense for them. And I was I I've recently recorded an episode with Susan Ehrlich from uh Core VC about credit cards because she's run credit card programs pretty much everywhere. And she was talking a little bit about branded credit cards and there are also sort of aggregated brands. So if an individual brand does not have enough customers to make it worthwhile for the brand or the bank to give them an embedded program, can that brand get together with 10 other brands who it turns out the same sort of consumers shop at all of them and bring a credit card for all of those brands to life?

SPEAKER_01 35:56

That's genius. I mean, that's one way of cutting your costs down and being really smart about doing it. Yeah, I think that's the that's how people should be thinking about it.

SPEAKER_00 36:05

And talking about talking about like uh credit cards and lending in that example, how does lending differentiate from just taking customer deposits for a bank in this world? So does Green Dot do both lending and deposits or just one?

SPEAKER_01 36:20

No, we're we're we're not uh we don't do any credit lending at this time. So um I've worked at a lender before and offered credit in market. It's you know, it's a different model. Uh, but yes, you make money on having customers take credit and you're charging them fees every month. So again, every new revenue stream means there's pieces to to build a program with, but more that you're giving back to to brands in fintechs.

SPEAKER_00 36:49

Got it. Okay. And so I guess the the final question I have is who is Bass sustainable for? Who should be doing this? Who should be trying to build embedded finance programs?

SPEAKER_01 37:01

So um we did a study, it was late last year, and I found it really interesting because more and more companies are getting comfortable with this idea of Bass and embedded finance. So it used to be that only the enterprise players were willing to take this chance and because it's an investment. Um, but we're seeing that more and more, like kind of down the chain, companies are interested in this because of the fact that they have that embedded customer base that is loyal. So that to me is the key. It's not, it's no longer the size. So we used to always think big brands that you know, consumers know. No, it might be a brand that you just trust. Those are the brands that are gonna win and should be thinking about it. But that what the study showed is that it we're definitely going down market. There's definitely interest outside of the enterprise brands.

SPEAKER_00 37:56

Yeah. And on the bank side, what kind of banks should be doing this?

SPEAKER_01 38:02

So I believe banks of all sizes should have an embedded finance strategy. So even the largest of the banks should be finding ways to leverage the technology out there if their technology can't do it, and finding, you know, partnering with program managers to be able to put this together and bring it to the brands. Because if they don't, someone else will.

SPEAKER_00 38:24

Mm-hmm. Mm-hmm. Yeah. And but to your earlier point, if they're going to do that, they really need to be thinking about huge scale and they need to be fully in and not kind of dipping toes.

SPEAKER_01 38:33

Which is back to like our very first topic in this conversation. Like it needs to be a business within the bank. It has to have its own operating model, it has to have its own rhythm, and it has to have you have to have a clear investment and not expect something back very quickly. Yeah.

SPEAKER_00 38:50

Got it. Awesome. Well, Renato, thank you so much for helping me understand how embedded banking and banking service works. I really appreciate it. Um, and if you enjoyed listening, please share this with your friends and colleagues and subscribe on Apple Podcast or Spotify. And I will see you next week.