Episode 7: How Embedded Finance is Driving Revenue for Early Adopters with Epos Now & McKinsey

0:01 Welcome to Aben presents embedded finance. Real talk for SAS leaders on embedding payments and financial products. Software platforms today are no longer just about software. Winning platforms embed payments and financial products like business loans, accounts, and cards to become fullervice operating systems for customers building loyalty and new revenue streams. Now, the opportunity is clear and we've heard much about it, but tactics are largely undefined still, and that's why we're launching this podcast to hear from the platforms and experts shaping the strategies. This episode explores how embedded finance is driving revenue for early adopters. I'm joined by Jason Downing, SVP of products at EPOS Now, the leading cloud-based boss system used by retail and hospitality businesses across 80,000 locations worldwide. and Bl Carvosski, partner at Mckenzian Company and seasoned fintech expert.

0:57 First up we have Blas. Welcome back everyone to Alten Presents embedded finance. We are here today with Blas Carvski, partner at McKenzie and company. They also have a big role to play in the embedded finance ecosystem. Bl would you be so kind as to introduce yourself to our guests and and perhaps tell us a bit about what McKenzie's done over the past few years in the space of embedded finance? Thank you. >> Yeah, absolutely. And uh thanks Haml for the for the invite and uh Adian for having us. Very excited to be here and share some thoughts on you know how we see the space. Just very briefly uh I joined Mackenzie. It's actually my 10th year now. Um joined the firm in New York and immediately started working in uh embedded finance. So I can claim that worked on embedded finance before it it became so popular as it is today. And the origins of that story are we've been working with merchants actually and we've been working with merchants on payments and just to understand you know what are their payments needs and we quickly realize talking to the CFOs to the treasurers to people who are actually responsible for payments at you know imagine some of the largest retailers imagine you know the Zaras of the world etc etc and they sort of said well you know payments is good and you know we need to get the right authorization rates and we need to make sure that the platform is working super Well, and that you have the right APMs, etc., etc. This is all the bread and butter. Frankly, we expect it. We wouldn't, you know, say that anybody uh doesn't provide those services. But what we actually do care about is a little bit different, right? It's like how do I move money quickly? How do I think about managing some of my currencies? How do I get a partner that is actually growing as fast as I am growing and entering new markets and new verticals? Right? And this quickly became a very different conversation. It wasn't a payments conversation. it was a sort of open finance banking conversation right and how do you do that so that's a little bit of you know personally how I got excited by this phase I think it is at at the intersection of how does the consumer pattern change in terms of how people think about buying stuff research talk to their family interact socially and sort of then go on to do the things that they want to do in their lives the merchants as well which is the B2B space where I spend a lot of time and then the payments infrastructure the payments players which is which is quite exciting for me as well and the embedded finance players. So that's a little bit of the origin.

3:24 >> Thank you for sharing that. What what um time span are we talking is this like the late 2010s that you first got into it? >> It's the is the mid uh is the mid2010s. >> Mid2010s. Did you think at the time that it would become as big as it is today or >> uh I think we always had a house view that the preference of the consumer or the end user it doesn't have to be a consumer it can be an SMB or a large enterprise merchant is to solve the problems at the sort of point of need right and in the moment of need >> and a lot of these sort of the basic idea behind the embedded finance that solving those customer needs needs uh in that moment at the right time at the uh you know in the right place um is something that is still fueling the growth of the business right and I think we do we did go through a lot of cycles of you know maturity a sort of you know boom bust hype but through that you know some things are really really constant and again we spend a lot of time with the end consumers because I think this is where you get the insights to sort of understand what are really the products that you want to get into the market where do you want to go in terms of your go to market etc and some of those things you know change uh but also remain constant in the way they want to fix fix the solutions and that's what fuels and better finds >> that's interesting and when you say the point of need that then is often presented through the OS for the small and mid-size business owner which is a software platform right so that's then the obvious avenue through which to uh to solve that problem I think >> I think that's right but you know in the era of AI agentic AI you know some of those platforms will we believe uh change quite dramatically, right? It might not be you know the way you interact with the software that is able to do things for you might be quite different than the platform that everybody sort of comes into. So we actually you know I personally and that um you know have a view that this space of platforms and of aggregation of sort of bundling the um the traffic uh you know for SMBs for example or for merchants will actually change quite a bit right and you will be um you know free to go at a very small cost and actually procure the most you know helpful you know lowest cost most effective solution for yourself versus going to one platform where you know This is a >> you think there will be an unbundling.

5:48 >> Yeah. I so you know in in some sense you know there's always a sort of bundling unbundling cycle. I think you know the unbundling in a way happened right so you know if I think about consumer but we can talk also about SMBs you know what is fascinating is you know people are multi- apt they're very happy to use you know different apps for different purposes. They uh you know do banking very differently. Um, you know, I I really, you know, I really like the stat from the UK which shows that the sort of the percentage of people that consider themselves to have one bank sort of decreased by, you know, I think 20 25 percentage points over the last, you know, let's say 10 years, right? There's a dramatic shift.

6:28 >> Do can I can I interject? Do you um do you think that's a permanent state of affairs or is that more the intermediate that they still hang on to their old banking relationship before they go all the way over to a rail like a I don't know a tide or a monzo? >> Yeah. Yeah. I think >> how do you see that? Cuz that that would be my personal view. >> It really depends by the generation. So so what we see you know I'll give you I'll give you one example. I'm a millennial. Yeah. Um the percentage of and we spend a lot of time just understanding that you know how the consumer thinks and and what do they do.

7:03 The percentage of millennials that actually invested before the age of 18 and so did some sort of investments right is 5% and that has been consistent because it's very difficult. You have to open a broker account like go to your bank etc. Like typically your parents have to you know sign an agreement in a non-digital world that's actually very clunky. The percentage of Jenzers that have invested before the age of 18 is 26%. Right? So that is a 5x right on on that. How do they do it? Obviously a digital app and so on you know it's easier to do that. So in a way yes you know you kind of unbundle into those those um those different uh providers different apps. There's a question of to your point are they going to then rebundle into platforms that are sort of the fintex of tomorrow right that provide everything which is obviously where they're going right so like you know if you think about the you know the fintex now they start to have the relationship they want to monetize the full the full potential of that relationship >> and I think that's one avenue I think this is where you're pointing us I think another avenue is you know are you going to have your agentic AI friend that will actually help you, you know, and this can be the sort of your front interface essentially like your digital assistant that will help that will do the commerce for you, right? And we'll take away the burden and we'll say, well, you know, you could get those type of ETFs and funds at this platform, but actually based on your very specific criteria of what you want to do, I found something else somewhere else, right? And I think the key notion there is what we consider digital trust. You know, we used to say and banks used to say, well, we have to have the branches because otherwise people won't see us, right? It was like won't see us, won't trust us. I think what is much more important right now and what is the currency of tomorrow is who do you place your digital trust in in terms of holding your data? You know, making sure you get the right advice, making sure you get the the best deal.

9:07 And you know it could be the sort of the fintex the large uh you know platforms or it could be a completely different smart assistant that is actually procuring for you the best things at a minimum cost. >> Absolutely. But that that's the consumer end. And I think like I could buy into that. But if you think about the world of a business owner, if you and I ran a pizza place or a barber shop, we have seen a great bundling over the last half decade where these software platforms first just did our maybe our reservations and that our staff management and now they can do much more for us. Do you think that AI will have a similar impact on our lives as the owners of a of a pizza place or a barber shop?

9:47 >> It really depends on the segment probably, right? like you know a >> let's take the let's take the pizza place and the barber shop >> uh but on the lower end which is where you're going right and even you know let's say the micro merchants and the and the sort of SMB merchants I think maybe not immediately but over time I can see that happening as well right because the um you know if you look at the development of software for example in Europe like it has been uneven it has been difficult to do you know some of the largest platforms um that offer integrated payments and software in Europe specifically are not that successful, right? The reason they're not that successful is different currencies, different language, different VAT, different sales tax everywhere. And then you add to that the sort of vertical specialization, right? So like the the way a bulangerie in France thinks about how do I move the tables, get the reservations, integrate with Uber Eats or whatever else is a little bit different than, you know, let's say in Spain. And at even at that level of like I only have one outlet that customization by country um does matter.

10:53 So the question is how to take away the pain of you know everybody has a slightly different need in terms of how they you know integrate with let's say food delivery apps, how they run the shop, how do they manage their inventory, how do they get orders out, right? And you know at the end of the day something that is by design customized to yourself could be uh could be an interesting answer. Uh I don't think it will happen quickly because everything in B2B seems to move you know a little bit slower for for for good reasons. Um but I think there is a reason to to to think that it will happen and you know >> okay >> and I think you know the the sort of the expansion of platforms like integration of software and payments has been tremendous but let's just also be honest like there are certain markets where it was much more successful than in than in others right and um you know US is one example I think Europe is a bit of a different different flavor where a lot of those players you know are not equally or evenly successful across markets But do you think that's a matter of time or do you just think that's that's a cultural element in Europe that it will never happen?

12:03 >> Um, very difficult question. I think it's it's still a matter of time. >> Difficult. >> I think it's still a matter of time. Um, >> a cultural thing because at the end of the day sort of, you know, customer need and convenience trumps everything else. And when people do see the value, um, I think they will see it. But we have to be careful. You know what we see in this market right now is like it's actually not that straightforward. So I'll give you an example. talk a lot of to talk a lot to merchants that let's say have two three you know four locations right what they suddenly see is actually is this really the best deal for me to work with a PSP that offers software but actually on the payment side they will never offer the you know the similar economics to a sort of full stack let's say merchant acquirer because >> they're essentially a reseller right we we can call it whatever we want we you know we can say they integrate software etc and they integr read the payments but they get the payments processing from someone like an idea right and you know suddenly as these guys actually go down market talk to those you know let's say mid-market merchants those merchants say well I'm actually okay with having the terminal on separate and having the you know the payments separate I think we can live with that they actually I prefer the economics and I prefer the >> but I mean that's that's logically plausible but that's not what hap what's happening right now and I I would know I do this for a living. So we see it every day that these platforms move up market and there's something about the um the software suite holistically with all its functionality that these merchants even the ones with 30 to 40 locations forget three or four are quite happy to take the integrated payments and not want to direct relationships. So how do how do you marry that? No, absolutely. And I think, you know, by the way, just to be clear, I still think the trend is there.

13:55 The trend is strong. There is enough tailwind, right? And so, you know, hence it will take time, but it's like that's the direction we're going. All I'm saying is like there is more bumps on the word on the road that you would think. >> Oh, for sure. >> And you know, and it just doesn't happen in three years, right? It happens in 10. >> Absolutely. Well, we we can agree on that. So let's zoom out a bit because I think it's nice talking to you some good anecdotes here. Um just to get us back on track. If you if you look at the whole space of of embedded finance and you've been looking at it now for well let's let's call it a decade since you just said you started in the mid2010s.

14:34 Um are there any specific industries or business models that you think here it has the most impact the most traction? I think we just talked a bit about geographies in the Anglo-Saxon societies. It's obviously a bit further along than in in France and Germany for example, but any any specific business model or or industry where you're seeing high adoption. >> Yeah. So I I think you know I think there are pockets of growth, right? Um what we are excited about overall is the sort of savings to wealth to investment space and you know we think this is you know this is a sort of area of um of of clear growth right now. Not only because interest rates are still at a better place that they were you know three four years ago but this really does change the economics right. The the sort of the clear takeaway we have from this space is you know players want to stick to what they do well which is you know could be investment advisory could be you know providing people with investment choices and want to take away the banking and this is a a space that also in Europe is quite fragmented. you have a lot of specialists, right? So, it's like banks do that, but also specialists do that as well. So that's an example of like what we believe is a little bit of a pocket of growth because a lot of and especially in the you know right now in the western world a a lot of these the sort of savings um volumes are you know substantial growing uh quite a bit um and that's that's sort of one area I would say the other area is still around B2B more holistically and on the lower end it is the digitization of the SMBs like we talked about it you know a very long time ago we talked about it 10 years ago, but I think this is still a sort of a secular long-term trend. Uh that is very important to to play. Remember that if you look at how much banks make on retail customers if they don't have the more evolved products, let's say this is only daily banking, right? Transacting >> and how much banks make on SMB. uh this is a completely different uh different space especially in Europe because a lot of the you know the fees around daily banking are actually either regulated uh or they're just you know low by design we talk about free banking well banking is not free for the SMB right if if they you know do wires uh make payments etc and I think there is a lot of space to sort of for disruption there whether it's crossber whether it's managing payments whether it's lending that is still you know a sort of area of of of underserved so that's on the lower end on the higher end which is more the corporate. I think there is this point where we started the story because the need was always there and the need was 10 years ago but I think right now people are trying to finally meet the need where it is which is how do I move the money uh in an easier way. How do I not get burdened by KYC AML which are all important things but the reason that you're looking for one bad actor right in your sort of book and try to meet regulatory is not the reason I should be waiting four or five days to you know prove you where I got the money from as a large corporate >> actually move it right I think you know Adi and others that are in the flow are in a very different position to actually make that banking happen again at the point and moment of need um versus uh you know go for the sort of you know increasingly traditional you know international banking system right and I think also also another area I I want to point outs which is you know governments and the digital infrastructure of countries is changing quite a bit I think there is a lot of space there you know how do you think about payouts how do you think about benefits how do you make sure that the cost of healthcare in Europe is actually sustainable and the healthcare gets to the right people right in a sort of equitable way.

18:17 >> Now we're going very broad, but I'm interested to see where you'll take us. >> Yeah. And and you're right, but but I think that that's uh you know, again, that is a space where use cases will continue to emerge, right? How do how do you collect taxes digitally in a way that is actually not making the burden on reporting the taxes on, you know, uh on on people, VAT, customs, etc., international crossber transactions. I think all of that has an embedded finance component using data and actually a payments component as well.

18:48 >> Okay. >> So I gave you I gave you a big uh a big uh overview of the landscape. I think you know our message is a little bit you know there are pockets. It's not like the industry is going sort of in in one way and I think it's a sign of maturing uh as well which is a good thing. >> Yeah absolutely thanks for sharing that. Um if we can just pivot back may let's restrict ourselves for this next question to to software platforms. Um you worked on for 10 years. I mean you've read all the research your your your house has produced I assume. Um is there anything you can tell us about what in your experience separates the the winners from the losers in embedded finance? Because I think when I talk to founders and executives and software platforms everyone gets it. There's no one who goes, "Well, I don't I don't think me offering working capital to my customers that that makes a lot of sense." Everyone gets it, but you still see a huge spectrum of achievement basically between the unsuccessful ones and the successful ones and everyone in between. What do you think? There are a few lessons here for for potential founders listening to this.

19:51 Yeah, I you know I I think there are a couple but I it is as you say a lot of it is in execution uh and sort of getting the points because the you know pe people have identified needs relatively well right um and I think that's that's true I think there's maybe a couple things that we're saying right one is um embedded finance doesn't mean serving products to people in a channel like in in you know in a in a crude way it is but I think what's much more important that this is where you know some of the success most successful uh players are uh it is fully embedding in the sort of customer journey the way customer thinks about it right in a digital way and I'll give you one specific example the uh you know every merchant acquirer or payments player in the world has some sort of lending for merchants probably by now you know or most of them right everybody understood this is important >> I think that's fair yeah >> and and uh everybody uh you know gets the get gets the point especially for SMBs. But the ones that actually are getting the right adoption are the ones that have an exciting merchant dashboard to start with that you can actually use have, you know, pre-approved offers in the journey there, you know, in the important moment and proactively offer it to customers. I exactly know where I'm in the journey and, you know, you have to find the customers that are in the market and not the customers that will consider it in six months. This is not how you drive drive penetration. So I think there is you know there is this one piece. I think the second piece is and this is what a lot of I think traditional players struggled with is scale does take time right and just making sure not compromising on the customer experience on the economics on the technology. um you have to be patient in that space, right? And what we found is a lot of players that try to, you know, deploy the solution into many countries very quickly, right? Uh a lot of players that have tried to, you know, find as many, you know, sign up as many partners as possible. Let's sign up a 100 partners, we're going to grow, right? What you end up doing in a year and a half is actually all of those partners have different requirements.

22:00 There is no way for you to serve them, etc., etc. So I I think there is something around sort of the scale pace time uh piece. >> So you you propose then a sort of a one bite at a time approach but make sure you you keep the the all the functionalities of your offering that it remains bestin-class but you don't try to do sort of this this growth at all costs. >> Yes. And also in a world where we price so much oh we're so quick to market you know we're going to you know we're going to develop a product in 3 months etc.

22:31 take 12 months but build really the product that you you think is going to scale in the market. Right? This is not going to save you now the nine months. >> What will be important is like down the road you're going to be >> that's a good point >> three five years out and it's not going to be scaling because you kind of >> you know you know that you created something that is like 60% good.

22:51 >> Yeah. And and now to your point you're already late. So those uh those nine months you said it correctly they uh they're not going to save you now. That's true. Um, a next question I got for you. You've written in the past about the convergence of banks and customer platforms. Um, obviously banks here are trying to defend territory where they can. It's it's a lucrative space and it has been uh by them unfortunately underserved. I think over the last decade platforms now are moving more into hey we're all becoming fintex ourselves with partners like shore or they get their own licenses in some cases. How do you think banks will try to remain relevant, remain in play and remain as they are now at the center of all of that?

23:35 >> Yeah. Yeah. Um, so I mean that's like you know a conversation we're having in every bank boardroom at the moment like who you know what's your house view and I think you know there are two components of that. What is your house view of how the market is going to evolve? have to have it, right? Even if people don't don't know, no one has a crystal ball, which means to me, you know, where are people going to consume financial services and where are they going to be spending uh you know, time uh in the first place? I think that's kind of that's kind of one um important consideration for us. I think the second is who do you want to be in that space, right? And the models are, you know, very different and are really, you know, now getting challenged, right? Some people went for scale across markets you know think about the sort of crossber M&A of banks you know you know banking groups that are present in 10 markets etc etc some people try to do the old model of scale but digitally so you know look at some of the European banks that are launching in different markets and sort of actually quite successfully right with a sort of more digital um model some banks are kind of saying what will happen if I'm just the product factory right in that in that space and others are going to I actually want to win in this. If I believe the platforms are the future, let me create a platform myself. That is easier said than done.

24:57 And it's actually >> not very not a lot of examples of of people doing it successfully. But I do think that um you know again it's not three years it's more 10 and banking is a very backbook driven industry. You sort of you know get 90% of your revenue from um from what you what you sort of acquired in prior years. So it will take time. Um but they're in for a large disruption. There is a space you know for regulated financial services entities.

25:29 It doesn't need to be banks um at some at some moment. I think what banks are doing extremely well um or you know better than anybody else is balance sheet capital management risk you know overall across and making sure you fulfill the regulatory and sort of customer duty obligations in the right moment there is still a lot of space and need for that doesn't mean that banks have to do it in the in the future. Yeah, interesting. Thank you. Um, we already touched on it a little bit here, but um, can you talk a little bit more about the challenges associated with embedded finance because we're saying now might not be 3 years, but it will definitely be in 10. This is um, you know, it's inevitable really that that embedded finance becomes a defining feature of our uh, society or at least when you think about the the long tale of markets, small businesses, mid-size businesses. um any risks or challenges you see other than banks defending territory?

26:29 >> Yeah, I think I'll give you three um you know quickly one. >> Yes, please. >> Um the difficulty of adapting to a regulatory environment that is not natural for all of the players. It's a highly regulated um space. It you know um it's you know it takes care of people's money. um you have to think about the sort of the the the sort of the the good the the the good of the customer etc etc. I think that's one and will continue to be a challenge and the reason it's a challenge is like marrying that with a fantastic customer experience is some is sometimes quite difficult and I think you will see maybe not in embedded finance space but also but also in fintech space players that have not done this well and they stopped growing or they're no longer here or people stop stop talking about it about them as successful. I think that's one.

27:19 I think the second one is this constant challenge of how do you not solutionize for every customer and at the edge when you build embedded uh embedded finance and how you do you actually trade off you know getting the next deal which as a sort of growing fintech growing embedded finance player you're so focused on doing and making sure you do everything that you can for that platform for that e-commerce player etc. and sort of have the strength to actually walk away and say those are not the economics we can sustain the business on and those not the product features that we now want to customize for this player because we might win this RFP but it will be very difficult to do something you know in the future >> and this just classic execution risk that's true in uh you know any new uh growth avenue I think right >> oh absolutely >> do you go do you go deep with one customer just because you've secured the deal or do you retain the the the sanctity of your product.

28:18 >> Absolutely. But it I think it's worth repeating because 90% of the time we have those discussions with embedded finance players. They say, "I completely get you. We still did the other thing." And >> can I ask you a question on that actually now that we're on this topic because it's something that I sometimes think about is you had this low rate environment for a long time around COVID. You still see now a massive amount of private equity money flooding into the space. Do you think um I'm sort of answering my own question with what I think, but do you think that there might be some founders that that are a bit quick to draw and shooting from the hip in the moves they're making having suddenly gotten this influx of private equity cash and like hey buddy go buy a few companies and attach payments and financial services.

29:03 >> Yeah. I you know this is one of the traps of the of the business right. So like if you're if you're trying to scale yourself to a you know enter number 100 million revenue a billion revenue etc >> and it's really difficult to do one of the avenues is try to you know buy the uh buy the revenue um and you've seen this over and over you know like you know a large number of and I won't name names but a large number of deals in the industry has been about frankly we're not growing anymore but we have this war chest and you know let's try to buy into that right I think that's um you know it's a way to build a sort of smaller unicorn I don't think it's a way to build a global platform I think that takes time that takes effort and a lot of what you should have in in place is actually um you know should be in house uh versus a sort of amalgamation of different platforms and we've seen where the large mergence of payments players went to right this is a sort of classic of 1 plus one equals two but never equals more than two right you just like you make your businesses and you still run two businesses with one board. Um so so I think it is um it is an issue of the of the um of the industry. Organic growth uh takes more time and it's more difficult but uh pays pays better at the end.

30:22 >> Yeah, that's certainly our philosophy here. So thank you for sharing that. Um, if we think about the future, right, we both agree it's not going to be an overnight success this, but the the case for embedded payments, for embedded working capital, embedded accounts, issuing, etc. that that's quite clear and there are several players already with very successful businesses built on that premise. Is there anything over the rest of this current decade or maybe the next that you think is a very obvious inclusion in that suite? So if you think about financial services offered to small business owners through these software platform portals, what do you think is the is the logical next avenue there?

31:01 >> Yeah, I think you know we do believe that this is uh there is a lot of space to make it broader in terms of finance and financial needs or like everything I don't need um that is not core of how I you know run the business. So if we unpick and give you a sort of pizza parlor example, right, >> there's just like maybe four or five things that are absolutely critical in terms of like >> making sure you have the competitive advantage actually customers come to you, right? Which is a lot about the, you know, food quality, the ambience, the atmosphere, the service, etc. Those are the core things you have to worry about. Everything else I think could be taken by the platforms. And I'll give you one example which is still, you know, again, we've talked about this for so many years. it didn't fully happen.

31:47 You know, embedded insurance. How do you make sure that you protect your business, protect your employees, customers, your property in a different >> You mean on the on the business owner end because we've seen embedded insurance for like I'll buy my plane ticket. Do I want to ensure that the plane actually departs? But you mean really how do I protect my business from a fire for example >> in the portal that I use? Yeah, that's interesting.

32:09 >> Exactly. But but also something that is a little bit more more tailored. So again, you know, back to the personal insurance that you started with. If I'm a sort of cautious skier and frankly I'm uh you know only doing it re recreationally and I only do five runs a day um that I should have a different premium to someone who's like doing it uh eight hours a day and is actually a sort of you know a performance person that uh you know spends a lot of time you know and there's a question of how do you translate it into you know a space of SMB around geoloccation really tailoring things etc etc most in our you know they don't buy the insurance because they kind of don't feel the need or like they don't feel this is sufficiently tailored to them and insurance products are not made to be uh tailored at that level but I think you know based on usage patterns etc I think is this is a space that that could be interesting in the future >> yeah that's really interesting yeah all right and um we touched on this a little bit earlier in the in the podcast but just maybe to reiterate for anyone looking to get into the game now with it well and truly uh a foot.

33:19 What would your advice be to them? Still worth it? >> I think it's definitely worth it. I, you know, the space is probably, you know, let's say the third inning of sort of maturity, but it will come um uh in different spaces. >> Third inning of a nine inning game. >> Just for our European listeners that are not into baseball perhaps. >> No, go on. >> Thanks for clarify clarifying that. I think you know that's that's how it feels. So there is a lot of space uh to cover. Uh we do think that you know the easier use cases um uh a have been uh largely you know well covered that's a b the competitive sort of environment is actually quite um you know quite strong but if you're finding the right um niches if you're able to fish in the you know in the in the in the right moment let's say of an SMB or a B2B player journey I think that's definitely possible the only thing that we as important here is it's almost never to us in technology right now. Right? So like so the technology is like more available. Of course it takes time to build and it's still super super important but you know how the technology is actually solving the need.

34:33 What is the value that you're adding beyond connectivity beyond APIs beyond the fact that you have access to you know you have an orchestration layer to many many other players. I think that model is very difficult to get right. Um and it's very replicable. I think the models that you know are a little bit more customiz customized actually answer the the sort of the need and etc uh will be the the sort of the quite powerful in the future and for those uh for those already in the game who do you think will be the big winners over the next 5 years?

35:09 >> Yeah, it's that is a I will still repeat that. I I think a tough question. or you can give us your own opinion and then we can let the Mckenzie coms team uh redact it uh prior to publication. >> Uh I think it is still you know it comes back to what we discussed before. So um I really like the players that play by the book all the time in terms of regulatory consumer you know um expectations. I think they win over time. Look at look at look at you know BNPL space is a sort of mixed outcome right but you know a lot of the players that I consider the most successful they had the economics from the beginning that made sense for everybody and they also you know went through the pain of getting the consumer finance license you know getting all of that in place and I think this is if you look at the space in embedded finance there are others that are not growing maybe the not the most fleshier but they have all of that in place and I also think you know others that have talent from the industry uh also so it's not only the the sort of the younger you know more tech oriented but it's also the people that actually take care of risk compliance and some of the traditional institutions because they know to how to navigate that that industry and those are some of the players that like if I look for and I understand who is even in the management committee I I'm getting a better sense of um who's who's good I will mention the last thing sell extremely well. People are underappreciated, right? It's a sort of it's a people-driven trustbased industry. You have to be able um to go and sort of paint a vision for someone that you can that you can help them with their problem. Um and people again who do that you know if you listen to the CEO and you hear the vision there's like well that is a person I would like to work with. I think that's a sort of sure sure sign that they will do well in future.

37:04 In the end, it's all a people game then. Story is all this time. Thank you very much, Bl for for coming on the podcast. I had a really good time speaking to you. I hope you uh were able to say everything you wanted to. If you didn't, then uh one last opportunity now for you to say anything that was left unsaid. >> No, I think thank you so much for your time. Uh we're expecting you soon in Warso. So hopefully you'll uh come and join us if you travel around Europe. Uh and if not uh let's uh >> I'll certainly say hello. I promise.

37:36 >> Let's let's do a follow-up uh soon. Thank you. >> Yes sir. Thanks very much for the time. >> With the big picture in mind, let's shift to the platform perspective. Welcome back to Aen Presents embedded finance. We are here today with uh Jason Dowing who leads product at EPOS now. Jason, could you tell us a few words first about yourself and then about about EPOS now please? Hi Hem, nice to see you again. Uh, I'm Jason. I lead product to Depot now. Uh, we've got a team of 20. Uh, it's a privately held business and we help merchants all over the world manage their business. We run payments for them. We do point of sale.

38:15 Uh, we're we span across the retail, hospitality, and service industries. And we're in 10 countries helping 80,000 merchants. And >> and can you tell me a little bit about the origin story of EP now? Like how did it get its start? Was it like some Eureka moment or what happened? >> Sure. Of course. So, our CEO was running a bar in Norwich in the east of England and he had kind of companies come to him and try and sell him point of sale and he realized there was a huge gap in the market. Nobody was doing it well.

38:49 Everybody was doing it locally. Nobody was doing it on the cloud. And he set up the business from scratch. uh starting small importing hardware from China and then we kind of moved from there. >> And it started specifically for bars and then you branched out or was it in the beginning already quite agnostic like hey if you have a small business we'll help you. >> It was quite agnostic to begin with. Um and really aimed at us kind of capturing a wide segment of the market. So if you if you look at EPOS systems often they specialize far too much and then you find the business wants to I don't know maybe they're a bookshop and they want to open a cafe on the side but the software for running the retail bit is very specialized and and you need a water ecosystem to >> yeah on that note I wanted to ask you about that we see in the space that hyper specialization tends to win right so if there's any grouping of of of business owners with the same needs. There will be a software platform that pops up and sort of capture that part of the market. As EPOS now, you not only serve restaurants but uh clothing stores, grocery stores, car washes, etc. Um so you've basically got a collection of verticals. How do you think about that?

40:04 >> So we find every business owner runs their business slightly differently and our objective is to give them a very wide platform to do whatever they like. if they want to get into specifics and there's a use case that we don't support, we have 150 different apps that they could take off the shelf. Um, so really neat stuff around maybe they want to run their loyalty platform a different way that than the one we offer and we take an app off the shelf and do really customized special things. And then as we see the businesses grow, we of course have all the APIs if they want to do something off the shelf and properly custom.

40:40 >> That's interesting. So you're even seeing that within certain verticals business owners operate quite differently. >> Oh, everybody everybody plays to their strength and I don't know if they're a data person, they really love the data. If they're an ops person, they out. >> It's I think it's the way the world works. >> Yeah, that's interesting. Can I ask again about the beginning of EOS? Now you um so started was it immediately uh with integrated payments or did that come later in the journey? How did that go?

41:09 >> No, good point. So, um, up until maybe four years ago, we were referring to other partners. So, we'd refer to like all the common names in the marketplace, the World Pays, the Dojoos, those kind of guys. And then four years ago, we did the mega integration with Adion. And now we're selling our own payments that's fully integrated into the platform. And this helps the merchant in a few ways. So, previously if you had integrated payments from somebody else um and it broke, you'd have to phone them and then you'd probably phone us and say, "Hey, like this transaction didn't go through.

41:46 Can you help me sort it out?" And it's just a complete pain for the merchants to manage two different suppliers. Um so by integrating and offering everything end to end, we're really trying to make the merchants life simpler and they have just one person to talk to. it's us. If stuff goes wrong, it's only us they have to talk to. Of course, stuff doesn't go wrong very often, which is wonderful. Um, but that was the real reason for us to kind of start offering our own payments and the demand was clearly there, right? Like everybody was buying those point of sale systems. They needed payments anyway. And it was easy for us to bundle those two services together and sell them um as a single package.

42:29 And and on that journey, did you have any any like aha moments where like I where there was some hyper acceleration or some increase in velocity where you're like, "Oh, hey, this works. Let's do this more." I I think not really in in some sense because the we were seeing us sell to all these payment companies anyway. We understood the demand and it was just bundling it together and making sure the marketing resonated. So we we led with like a single price which often the rest of the market split stuff up and they carve out all the premium cards and and the statements are really complex. So we tried to make it much simpler for our smaller merchants just understand what they were paying for and what they were getting >> and you've you've recently also added uh embedded financial products to your offering. Um what was the reason for doing that?

43:24 >> So I think there's two reasons. Whenever we see a merchant struggle on the platform, they're struggling and and obviously some merchants leave us eventually, but they struggle for for kind of two purposes. One is they found an a more competitive offer in the market from someone, maybe better price, features, all that kind of stuff. Or their business is struggling and because their business is struggling, eventually they may turn off the platform because they no longer have a business to run, >> right? And and I think embedded finance gives us two plays there. Like we can help make our offer more compelling to the merchant. New merchants for example, we can offer them capital and say look you're not eligible for capital now but if you trade for 3 months on EOS now then you'll have the ability to get capital at a good rate very quickly and there's some kind of security element there.

44:19 >> Yeah. um for existing merchants if they're moving across to us. Kind of the same deal. And then we can start addressing kind of merchant failure by building a a suite of tools that the merchant can use um to better run their business. And I think ultimately that's the wider strategy. You see, we already see the revenue side of these small businesses with everything that they're taking on payments and putting through the till and with banking and cards and all of that embedded financial suite, we can see the cost side and then eventually you put those together and you have like a complete view of their business and you can give them more insights and help them run their business more effectively.

45:02 >> That's really interesting in um in how you think about sequencing. Is it very much you look at sort of hey this is where critical mass of problems is we'll tackle that first then the second biggest problem set we do that second or how how did that go specifically around financial products >> so I think sequencing it's important to mention that everything rides on payments you have to do payments well first and only when that's relatively smooth can you then think about the embedded financial products capital has to come first it's the easiest one to do and there's a ton of need for that. It's a USP that you can sell and and I think customers are interested. And then the banking cards piece is slightly more challenging. It's easier to get merchants at the top of the funnel, new merchants who might come to us and say, "Hey, I really want to trade quickly. I know I need to take card payments, but I went to the High Street Bank and they made me fill out this really long form and they said it was going to be four to six weeks." So that's one in for the new merchants, but for the existing merchants that already have banking relations, it's slightly harder to get them to swap and you have to add more value there.

46:14 >> Yeah. No fair. How do you think like on the whole if you look at a separate offering like capital, how do you think that compares to the offering that a traditional bank might have today? It's I I think for these small merchants, it's giving them access at where they're at essentially. So, um in every survey that we talk to or when we run customer interviews or or we kind of collect raw data from customers, they always say they always tell us that time is a problem. They say, "Yes, >> I really want to run my business >> and I've just got so many things to do.

46:51 I need to buy the stock. I need to sell >> and that is kind of one of the problems we're solving for them. It's >> giving them an offer in the right place at the right time and just making it easy for them. Um I think that's where we compete with the banks. Just we're making it easy for them. They can get the offer they need. They can select the capital amount that they want and then everything is simple. It's baked into the rest of the reports. They can see it coming out. They don't need to track another thread in their life about, oh, I took a capital loan from one of these two banks four months ago and and kind of they don't need to remember anything.

47:28 It's just automatic. >> No, exactly. Have you done any any research or like polling into those that don't take the capital product and and reasons why? >> I I we've done more research about customers why they take the capital product. >> Yeah. Um and the reasons lots of different reasons for different businesses but but lots of oh I needed cash flow the stock for example for busy trading periods. Um but we see some businesses open new locations using those loans. Do they want a kind of a proper capital investment and to go and set up like another site? Um and then just general kind of cash flow challenges. um there was I don't know something happened, a fridge broke or they needed to replace something or struggle to make payroll that month.

48:22 That kind of stuff. >> Yeah. Know that's intuitive to understand. Yeah. Is it um do you expect that with behavioral change that these uh your offering will be more compelling going forward or are there other things you're thinking about doing to differentiate from the sort of more traditional I put on my suit, I go present my business plan to the local bank. And what else can you do to make it smoother? >> I think again it's meeting them where they're at and further embedding that flow. So at the moment we have a capital flow. You could go to the page, you can get the offer, it's paid up two or three days later. Um it's paid up the same day if you have a bank account from us. Um but then I think it's baking it back into some of the other products that we offer. So hey, you're doing your invoicing. Do you need capital here? and and really kind of showing them that it's available. Maybe they don't need all of it. Maybe we can get them to take some of it and and just kind of play the game out with them and make sure that it's it's simple for them.

49:22 >> Is there is there a next financial product you're particularly excited about? >> I a feature. >> I'm excited about revolving credit. I think the closer that we get to that the better. And just because it provides security for the merchant, you can say, "Hey, you don't need all of this money now. You might need it in the future. Just take the bit that you want." And I think we're getting closer and closer towards that. >> Yeah. That that'll be exciting. Yeah.

49:49 And really useful, I think, for the for the business owners. For sure. >> Um, okay. Zooming out, if you look at the EPOS business, what do what would you consider major threats for you today? major threats. So I think um the market is getting more competitive and and I think that kind of squeeze in the middle of well you we're offering this full platform but the guys at the bottom are getting slightly better, the guys at the top are getting slightly better. Um I think it's finding our niche and and really serving customers well.

50:26 >> Right. Right. And then my next question is on now that you've seen some adoption of these embedded financial products, has it has it changed your your business model or or drastically changed the bottom line? What are you seeing there? >> So I think it's slowly changing the business model. The >> these products are incremental revenue and certainly they're not yet eclipsing payments revenue. So that's that's kind of still the big one for us. They do lift our poo of course like we're generating money from them and and for each merchant that adopts them the merchants do become slightly more sticky especially on the capital side on the banking side and the card side we need to expand the USPS further I think because you take a bank account with us great but I mean frankly we haven't invested the same amount of money a Monzo or a stling has yet Right. Yeah.

51:24 >> But we're just saying with capital the the the revenue payoff is just immediate. It's additional without necessarily changing your business model in the short term. >> Super easy. Another product >> point and click. You go for it. >> And because it's running on your rails, >> very easy to set up in terms of like implementing the components and kind of >> moving. That's cool. And and and do you remember the reception at the time? And I know Capital for example tackles a real problem that your customers have.

51:53 So I assume it's quite intuitive if I for example if I own a bar that I get that offer because I I get that offer through multiple channels from other parties. >> Um was reception immediately intuitive like oh yeah hey this makes sense that you guys offer this or was it like what is this some April Fool's joke or how did that go? >> They customers were very happy to go and explore understand phone us if they wanted more clarification.

52:16 um really easy nice digital experience and and I think the magic there is fully embedding it into the back office and we see other providers and other point of sale companies where they have it but it's just this clunky flow and yeah you have to still fill out a paperwork or sign >> the redirect yeah >> the redirect >> we'll get in touch >> definitely embedding it is the magic there and of making it happen >> um on the banking side the magic I think is getting them at the top of the funnel and really getting them to buy into the business later. I think we'll do much more fun things around expense cards and and and kind of helping you to manage some of those more complex use cases.

52:59 >> Do you think behaviorally that that business owners in the UK are are there culturally in in running their entire business through a neo bank or or platform like yourselves? Do you know what I'm getting at? like are are they quite are they there to to sort of separate their thighs with the the traditional old school brick building bank altogether? >> From the conversations we've had, >> I don't think they care that much. Like >> like they just want the job to be done and life to be simple.

53:32 >> Yeah. >> So I I think they're happy to cut ties as long as it works, as long as it's stable. I don't think Sorbisk owner is mind in in this day. And and I certainly think in that's true for the UK, but I think it's more true for the US. Like the US is much more just, hey, if it's working and the rate's good, like move forward. >> Good for me. We do it. Yeah. >> Yeah.

53:55 >> Like the way I see it is US is a few years ahead of UK, which is >> few years ahead of continental Europe and the rest of the world. >> Yeah. >> And certainly like the uptake of capital in Australia has been exceptionally good. >> Yeah. um where it seems like there's a little less competition. Maybe there's competition from the banks but those digital experiences to get the capital. >> So the lesson is if you want to be successful in embedded finance you do the Anglo-Saxon markets first.

54:21 >> Yes, I think so. >> And then you look at the rest of the world. Okay, good lesson. And um by switching gears to partnerships, obviously we've partnered for a very long time. Um so I won't ask you uh like how important is a good partner? I I think that's not a very interesting thing to talk about. Um but but one thing I do find interesting to think about is how do you look at sequencing your product roadmap in parallel to your partners like what what what are you how much are you relying on a partner's vision for what the infrastructure they're building versus how much are you leading and uh dictating your own road map and saying to this partner like hey you can help us here and there but other than that we got it.

55:02 >> I think there's two answers. One is you have to go in eyes open. So especially embedding payments and then embedding financial services, you have to understand how those businesses function, right? Like like it's one thing kind of going to add in and saying, "Hey, yeah, I want to start a payments business." But if your organization knows nothing about payments, you're still going to make some silly mistakes. I would say you I think you have to have some expertise in house to to kind of have the right conversations and know the game that you want to play out and then the other angle I think is understanding where the market's at and what the expectation from the customer is and and in that sense you know the game you want to play and you understand the business that you are and and kind of where you want to fit like I mean back to the neo banks I I'm not a neo bank like I just my business is not an earbank and I have to play a slightly different game to say well look the experience is going to be wonderful but it's going to be all the jobs that you need to do and nothing more at this point in time and really kind of focus on the need of the customer instead of >> since you touched on the banks how do you look at uh because some of them are now looking at rolling out payments even in person do do you see that as a big threat or do you think like you know we've differentiated so much is the operating system for this type of business owner that that's >> I more a nuisance than a threat >> for now a nuisance but maybe a threat in the future um because like we have so much more depth about how to run a business on the platform that just doing payment's fine but actually if you want to build those efficiencies in and we have so much data that as we start to layer over these AI tools We can really genuinely help someone run their business.

57:00 >> Yeah. Yeah. >> And I think payments for some of those other providers, it's the first stepping stone. Yes. But >> yes, >> it's not they're going to have to invest a lot more to make the next kind of step. >> No, it's it's incredibly competitive space now, I think. So very hard to to break into that. Um you touched on earlier that it's important also to evangelize payments in your own business. If you partner for example with an LTN that you want to roll out embedded payments. Um if I were a if I were a payments product leader or commercial leader um or not a payments leader actually if I were uh at a software platform looking to embed payments and I want to successfully convince my board or whoever signs off uh that this is the right strategy that we should go uh full force into embedded payments. What advice having done it successfully yourself? What advice would you have for me? Where to start?

57:57 >> I would start clearly with the unit economics like how does it run as a business for one merchant and then obviously how do you scale up? >> Yeah. >> Um and those unit economics can be positive from day one, right? Like if you buy the the hardware devices on financing like most people do, like everything can work out beautifully. But again, it's not payments is a downside, right? Like the Ford and the risk elements. And I think that's the message that has to come across carefully as well to to the board. Um that you can make revenue here, but you have to be careful not to lose revenue over here.

58:38 And just understand what the drivers are. And then I think the last positioning factor for that person would be how do you sell it? Because like we say, the market's really competitive. Where do you fit? Are you adding extra value somehow with all the downstream reports or something else? Um what are the segments of customers that you want to target? And and then how do you grow how do you grow the business up a bit? >> Do do you view the the fact that everyone's doing it as a as a good enough reason to to get in on it just by itself? I mean, I think it's a reason hemo, but just like you see everybody doing it, especially tap to pay, right? Like, oh, I've got a mobile app. I'll put tap to pay on it. But does the customer care at that point in time? Is it enough? Like, do they want to go through KYC again for the fourth time with some other provider?

59:31 >> I don't think anyone does. >> No. No. So, I think you have to be careful to frame it around the use case that you're trying to solve. >> Okay. Very clear. Right. So Jason, you touched earlier on the fact that you see payments as foundational to all these other products. Can you talk about that a little bit more and maybe where they might create a flywheel effect? >> Yeah, of course. So you've embedded payments into your business and for us it's inerson payments. So I've shipped you a card reader, you're taking payments, everything's great. Um, then there are products that I can lay on top payments products that I can lay on top.

60:05 So pay by link, maybe I can send that with an invoice. um like e-commerce transactions. So maybe I could embed it into your website and and then kind of faster settlements. So maybe I could charge you something extra if you want your money the same day. And that might be helpful for stock purchases, this kind of stuff. So there's kind of a whole payments line of business that just by doing the the basic thing, you can then kind of add extra items on top.

60:35 And that is good for the merchant because they get a single report. it's single pricing and everything's kind of together for them. And then once that's all done, you can roll into the embedded finance solution. Um, do the capital and then go deeper into everything else. And because it's on a single stack it, there's no messing around and moving money. There's no complexity. You can just step by step. >> Yeah. And I guess if you didn't have the payments layer, the capital would feel sort of out of left field. More of like a tactical thing. Yeah. Okay.

61:09 Understand. Um, switching gears, the we talked at the very beginning about the fact that EOS now serves many verticals. You said, Luke, ammo, even within verticals, business owners run their businesses in entirely different ways. Uh, you also employ a large salesforce. Um, is the instruction you give them differently depending different on depending on what vertical they go to market in? like is it a different set of people that go and talk to restaurant owners versus the owners of dry cleaners or how do you think about that?

61:41 >> The there were slightly different sales motions but broadly it's the same. So the way that we optimize the platform for each merchant >> will depend on the sector and then they get features turned on or turned off depending on who they are. Um but but the general kind of USP of run your business successfully and use our platform as your operating system remains the same and payments payments broadly remains the same too. So uh if you're retailer it's kind of simpler right like you scan it you pay everything's done. Uh if you're in the hospitality business slightly more complex with tips and all these other kind of more nuanced features. Um but the core underlying framework uh remains the same and as we kind of add new features. So recently we added um offline mode note.

62:36 >> Yeah. >> Perfect types of business like >> if you fall offline for whatever reason retail you still need to take the payment. How often we been to a store and they said like my card reader is down and you have to walk away without paying like you're sad they're sad. It's not good for anyone. And in same with hospitality business. Do you see terminal types? Any nuances between verticals? Like if I work at a bar, do I want something exceptionally shock and waterproof and I don't care so much in the dry cleaners fewer accidents happen or >> we we do and I think it's our advice back to the merchant. I don't think the merchant knows enough about whether they buy this one or that >> what's available. Yeah. Yeah. Yeah.

63:17 Okay. >> So, it's it's generally saying, "Hey, this one fits best and our recommendation is that we go for it." Yeah. >> Yeah. Got it. >> Hey, thanks so much for your time, Jason. Are there any last words from your sides? Think things you'd like to highlight, say to our audience? >> Thanks for the time, too, Hem. Um, yeah, our side really we're excited to continue focusing on the embedded finance world, making things easier for merchants and moving forwards into the future together with Adion. Uh, if you want to hear more, check out our website epos.com.

63:50 And if you want to connect personally on, I'm on LinkedIn as well. Thank you so much, Jason. Have a lovely day. >> You too. Take care. Byebye. Thank you to our guests for sharing their insights. There's lots to digest from today's conversations, but if you take away one thing, let it be this. Early adopters of embedded finance aren't just adding revenue. They're redefining customer relationships and building stickier, higher value business models. Thank you for listening.