Coffee with Innovate Finance, Series 4, Ep. 23 - In Conversation with Numeral

Speaker A: You're listening to Coffee with Innovate Finance where we speak with experts from the industry on the changing face of financial services and the future of fintech and financial innovation. I am Rashi Pandey, Associate Director of Membership and Growth and I'm very pleased to be joined by Victor Mithua who is VP of Growth at Numeral. Numerl is a cutting edge payment technology platform catering to fintechs and banks with a focus on automation and efficiency. Numeral streamlines payment processes for businesses enabling them to automate bank payments seamlessly through existing banking channels. So Victor, thank you so much for joining us today.

Speaker B: Good morning Rashi, thank you very much for having me.

Speaker A: Thank you for joining us. And you know first of all for those of us who haven't heard of Numerable, how is what you're doing revolutionizing the fintech and payments industry?

Speaker B: Numero is a payment technology company. Uh, we are born like we were born four years ago. Our co founders were actually fintech executives in scale ups like Iban first quanto and they realized that there actually was no easy way for fintechs to build multi bank, multi scheme payment operations across Europe or even at the global level. What we do is we help these first generation of fintechs that are now grown to working from a single bank to multiple banks to connect all these banking partners in one place, access all the local payment schemes that they need at a pan European level and automate the relevant payment operations on top of those banking partners. These are things that uh, when you are revolut, uh, when you're wise, you've had to build yourself, you've had to have I think between 300 to 400 engineers to build and maintain infrastructure. We enable that infrastructure out of the box for fintech companies that do not necessarily have the resources to do it themselves that they can really compete with those large companies at the European level.

Speaker A: That's amazing. And can you share with us a little bit about your professional journey and background and how did you find yourself in Numero?

Speaker B: That's actually a great question. And it was not actually a linear path to get to Numeral. I've actually traveled a lot and my background is originally in consumer packaged goods. So nothing related to fintechs. What happened uh 4 years ago is that I set up a company which was a B2B wholesale marketplace in the US with a very strong component around payments and by building this payment product I uh, realized how deep the world of payment is and how many opportunities there are uh, in helping Companies that have payment embedded at their core to do this better in a more seamless manner. And that's where I think numeral and uh, I've been at numero now for over two years is really changing the game, uh, giving small and scale ups the infrastructure that helps them build their products, build the value proposition they have for their customers without having to have you know, tens, hundreds of engineers required to maintain the payment infrastructure with their banking partner.

Speaker A: That's great to hear and you know, shifting gears slightly and you know, talking about, you know, fintechs and how they're embracing multi banking. In your opinion, how do you think are fintechs adapting to the need for payment resilience and continuity?

Speaker B: In Europe there have been so many changes in the past few months alone. Um, you've had banks going under with SVB that have changed the center shockwave in the industry because you have had fintechs that were relying on a single banking partners and they actually realized that in order to develop, build, grow and ensure that they were perceived as the source of trust based on the service that they provide their customers, they had to have multiple banking partners underlying their payment infrastructure. You've also had signals uh, from the FCA in the UK which has blocked certain banking as a service provider like Modular from onboarding new customers, which obviously is a signal that you know, preferred partners that have been usually making most of the payment infrastructure of these fintechs, uh, they have to be challenged. You have to be careful about how you plan these things. And so you've seen fintechs naturally start thinking about should I work with more banks, uh, should I be more strategic about the banking partners that I work with and how do I fit this into my roadmap. So that's been the immediate m consideration on the back of uh, some fallouts like svbs. On the other end of a spectrum, like looking into the future, you have regulation in Europe PSD 3 that is mandating that fintech companies, payment institutions, electronic money institutions regulated in the future, safeguard their customer funds not just into one bank but actually in at least two banks to ensure that in case one of the banking company, the banking institutions, sorry goes under, the consumer funds are still always protected. So you're in that moment where both experience from the past year and a half, two years and what is mandated by the regulator in the future are really tailwinds for fintechs to really rethink how they approach banking partners being more strategic about it, being more intent about who they're working with and how uh, these partners with their own unique strengths and services are going to find a place within their operations.

Speaker A: I love the experience bit that you've brought in because we don't um, talk about it enough. Right. But um, those are the biggest teachers and, and you have to keep obviously those considerations in mind and you know what factors do you think are driving the shift towards multi banking strategies among fintech companies besides the ones that you've obviously just mentioned?

Speaker B: In the past we talked about fear. Like fear? Yeah, uh, banks going under as we talked about fear in fear, the fear of regulation in the future. Uh, fear is potent. But uh, I think what we see is that over and above these two trends there are actually a lot of things that from a business perspective having multiple banking partners can enable. Just giving you a couple of examples. I think fintechs uh, are looking into being more efficient from an economic perspective making sure that they manage to break even somewhere in the near future, if not next year, that their revenue per payments, their margin per payments improve. And one of the things that they're doing is that they're looking at international payments, they're looking at the money, they're giving intermediaries and they're saying hey I'm giving a lot of my margin away by working with those intermediaries. Um, there is a better way, a more efficient way which is working with a local banking partners that gives me access to local schemes thanks to which my cost per payment is going to structurally decrease. So they are really economic considerations of multiplying a banking footprint, uh also of getting closer to the schemes, becoming an indirect participant. Removing intermediation in your flow of payment is good for economics overall. And we see a lot of companies that uh, have grown a lot span European that have bought services from others, starting to think hey I actually need to work directly with the, the banks because if I do this I'm going to decrease my cost per payment. And we have a company that decrease their cost per payments by around 10 times in a payments business by working directly with the bank. So you have this, I think you have an element of uh, of economics, uh, we've seen also other drivers. Take for example uh, companies which have a portfolio, Fintechs which have a portfolio of customers. Some are risky business, considered as risky business, crypto gaming, uh, within a broader portfolio of less risky customers. Banks and traditional banks have different risk appetites depending on the industry of your customers and so depending on where you want to develop. If you are looking to have these two types of customers you probably need different banking partners in order to handle the services that you offer these customers. You probably need different banking partners if you offer gaming uh services than if you are just scattering to traditional corporates and having that agility of choosing which banking partners you work with depending on the customers that you onboard ensures that one commercially you can expand and second that you can deliver on your promise as a payment institution to ensure that no payments are rejected because of compliance that you do not have month of onboarding when you onboard a new customer because you're much more the master of your own destiny when you make these strategic choices and you have this strategic foundation. So for those reasons I think there are a lot of also commercial drivers to embracing multi banking um that that have appeared ah and that keep growing. I think we see as we see the first wave of fintech maturing,

Speaker A: uh

Speaker B: these footprint considerations become more and more important.

Speaker A: Fair. Ah, enough. And Victor, you did mention obviously about you know svb. How do you think recent bank fallouts have actually influenced the approach to fintech and bank partnerships

Speaker B: on over and above the the resilience points? I think uh, that a bit of fear factor that has been injected within banks. I think there's been a bit of a correction over the you know, 6 to 12 months uh following these events in terms of make the reduced risk profile from banks of working with fintechs in general. It was not necessarily easy before but it got a little bit harder. Um, I uh think the environment got harder regulatory wise as well. What we see now is that there's still a lot of appetites from banks to work with fintechs that banks have a dedicated strategy in most, in most banks cases to gather more deposits. And I think banks have the understanding and the realization that these fintechs are a great way to capture deposits if they can work with them. Because over and above the payment services that they offer the largest fintechs have a lot of money in their accounts and therefore that's a lot of deposits for the bank to handle. Not all deposits quality is equal but there are still a lot of uh money to be made there. And I think the banks are also much more thinking as an ecosystem mindset. They want to have a partner for marketplaces, they want to have a partner for acquiring, they want to have a partner uh for payment facilitation. Ah we see those banks you know having this galaxy of fintech that they work with in order to be able to capture more funds, more money through the deposits. So I think this, it's a good Time for to be a fintech and to talk to banks. I think banks uh, uh, are uh, will always be the best fremies of fintechs but they, I think the complementarity between banks and fintechs is often more now acknowledged. Um and so it's a good time to be talking to them. As a company numeral we are built on bank partnerships. We currently have integrated 20 plus banks throughout Europe and banking partners, uh, every time we built an integration we build a partnership with the bank. We get to know the teams, we get to know their problems, their challenges so that every new customer we have with the bank allows us to better serve the next one. So we live and breathe this with its complexity as well. Like we don't necessarily talk away the same language and part of, we joke that part of what we offer to fintechs working with us to connect to banks is also being a bit of a cultural translator sometimes between the developer, uh, API friendly Sprint based way of working of a fintech and the way of working of a bank which has made them extremely successful for many years but is not on the same pace, is not on the same process.

Speaker A: Fair enough. And you know you obviously spoke about the fact that it's a great time to be fintech and all these partnerships that are coming out there. What criteria do fintech companies consider when selecting their banking partners and how do you think fintechs foster these strategic relationships with their banking partners?

Speaker B: The um, it's, it's interesting because they are obviously the objective criteria like the products that the banks sell. So access to schemes, cost for this access, um, and what it takes from a compliance perspective to get to work with the bank. Banks um, sell, they try to sell, they would argue they sell different products but often they actually sell the same products, same to each other. Uh and then it becomes very much a commercial discussion. We find that the relationship is the one thing that's extremely valued by fintechs at this point in time. I think it's been the bread and butter of banks uh for a very long time for more traditional corporate customers. But now fintechs are more and more choosing their banking partners based on their uh, ability to relate to their challenges, their ability to have more uh, strategic discussions about what they're trying to achieve. Some banking partners do it extremely well. Um and I think fintechs realized that they need to spend the time and investments in terms of both people and money in fostering these relationship. Fintechs have dedicated banking organization, they have dedicated banking officers, head of banking Relationships for each region that do manage and nurture this relationship. So uh, I think it's something that's clearly uh, investment for fintechs in that trend of uh, going more and more multi bank

Speaker A: and in what ways do technology and banking institutions collaborate to build these robust payment infrastructure.

Speaker B: So that's an interesting one because a lot of the existing infrastructure for bank is actually quite uh, alien to fintech. Like file exchange is the core of the payment systems where trillions get exchanged every day. And this is very, this is very robust uh yet potentially very different than what developers are used to when it comes to APIs. Uh, it's a very robust way to do those payments. I think there's as more and more fintechs wants to participate more in those payment schemes I think they're more and more looking for technology buffers like ah numero to help simplify this journey. So the way we look at this is that there's a need in this infrastructure for players like us to enable more and more fintechs to participate in the payment schemes, to participate in those complex systems where filers are exchanged but in an easy way. That's how the democratization of participation in schemes is a critical success factor for the value creation of fintechs overall. We see this in Brazil with pix where the indirect participation model done properly has driven tremendous amounts of fintech. Uh innovation that has cascaded to customers. Benefits like the adoption of instant payment in Brazil is extraordinary. So that, that's the place where I think there's, there's a lot of, there are a lot of areas of collaboration. Uh these areas are going to expand with regulation opening, with more scheme access options opening up to fintechs and aftermarket. We feel very privileged to be at that very moment in that space of the value chain where we can support fintechs in making that jump in becoming more involved in the payment schemes with

Speaker A: their banking patterns obviously and that's very fascinating to hear actually and I want to move to the core banking side of things. And how do you think are core banking systems evolving to accommodate the demands of the multi bank approach?

Speaker B: I think it's a big piece, uh, a lot of things are being asked at the moment of core banking systems like more instant payments, uh, more complex financial products, ability to support multiple banks. Core banking are our preferred partner as a company. Uh we are uh working with most of the core banking system in the market, especially the composable ones, Mambu, Tum prime, uh example of this and we come together to really support fintechs in their development. Um so the I think the core banking systems are and uh, if I think about as well as the challenges that they face they, they are really willing to partner more and more because they realize that to embrace that change of multi banking they need to have partners that they, they can count on to connect to these different banks and because they don't have necessarily the, the, the resources to, to build all those connectivity themselves. And we found that there's a really uh, win win partnerships in the cases of projects where we bring together one core system the best of breed in its usage with the best of breed when it comes to banking partners and we that glue that sticks the two, the two in between them. So the um, co banking lots of demands, great partners from a multi banking perspective for numeral and I think there's really the uh, a lot of investment that needs to go to go in there uh uh in the future

Speaker A: and of course it does probably does not come with its challenges without challenges. Right. So what challenges? I like how you're smiling. What challenges do fintech companies face in integrating these multi banking capabilities into their core systems?

Speaker B: It comes down to, for these systems it comes down to routing. How do you uh actually have the. You extend what you've operationally done with the more uh, limited number of banks but you extend that to more banking partners across more schemes. Um and that's a daunting task because you need to work on what's in your core. Supporting multiple currencies for supporting local financial products as a co banking price system. You also need to work on um, that fragmentation of the last mile connectivity to banks. Every bank is different. You know it's like open banking. We said open banking is rolled out. They are the PSD2 APIs in Europe. It's done. The reality is that the implementation of it was so heterogeneous that you had to have uh, an orchestration layer in between all those different APIs and the companies that wanted to use open banking it's still the case. So uh, in that regard I think the challenge is fragmentation of the different systems of banks. You could argue that because these banks are uh, modernizing their system that difference is going to reduce like everybody's going to have an API. Everybody's going to be like uh, clear bank banking circle with API first connectivity. Paradoxically more API when you are in the multi banking setup does not make your task easier because everybody has a different take on APIs. So there's a different opinionated perspective on how These things should work. Therefore if you have 10 banks you have as many APIs that you need to integrate. It's actually more complicated than what it used to be in the past where you had more or less one file format or standardized file formats across the different banks. So the challenge remains fragmentation. I think we, that's why we work so well with core banking systems because we abstract the fragmentation, normalize the data, uh, and the payment flows in a single layer that then can plug extremely easily into a best in class core

Speaker A: banking and moving on to benefits and opportunities because we obviously have to talk about the positives now what specific benefits does a multi bank approach offer fintechs and their customers and how does this provide access to local schemes and currencies and ibans? Like why is it so important?

Speaker B: Uh, you have the answer in the question. I think it's really about being local. We ran a survey about six months ago uh, for European customers in the uk, in France and in Germany, asking them what kind of ibans like account number information they would trust and asking them if there were differences if the IBAN was from a country or another if it was from a uh, company that uh, was a bank in their country or not. The overwhelming response was that consumers, the end consumers using fintech products would value much more local ibans. Like they trust these local ibans at least three times more than if they see uh, an IBAN that's not in their local markets. So really the answer is local because local is trust, local is efficiency when it comes to payments. Because when you have a banking partner that allows you to access local schemes, you structurally pay less. Uh, uh, it's also local when you have to struggle with some of the issues that Europe still has which is IBAN discrimination. So the one thing that UK fintechs encounter quite quickly when they go to Europe is that UK ibans are not accepted anymore. There's a lot of operational issues with those ibans that IBANS outside of a given country, IBANS outside of French. If you're in France you'd better have a French IBAN as a fintech because otherwise you're going to run into a long tail of issues that uh, that's called IBAN discriminations where your, your non French IBAN cannot go into the certain payments, uh, interfaces cannot be accepted in some places that is still quite prevalent. So the answer is local. If you want to have the best customer experience, the lower cost, go local, go with the local banking partner.

Speaker A: Fair enough. And in what ways does a multi bank, sorry Were you saying something?

Speaker B: No, no, I would say I was about to say uh, it has a cost like it's. So it's a question of when you can do it, uh, and what resources did it take you to actually do that. And at numeral we firmly believe that you should do that earlier rather than later. Part of that facilitation is having that integration done for you across multiple banking partners.

Speaker A: And actually this, the fact that you said this actually brings us beautifully to the close and to the last point that I was going to ask you actually was the challenges for stakeholders as well. Right. How do fintech companies maintain robust integrations with multiple banking partners? And how can you guys support.

Speaker B: It's a journey, uh, building locally. Um, it's a regulatory journey first and foremost because obviously you have to make investments to have a local banking partner have commercial terms at work. You have to ensure that you're in compliance with the local regulator, whether or not you passport your license, um, depending on how you want to do it. And then there's a technical part of those integrations. And what I mean technical is not just uh, the connectivity to connecting to the bank is all the workflows that go around payments. Payments within uh, a fintech is a series of workflows like you need your product, your core banking to be able to successfully initiate and track payments. You need your finance and treasury teams to be able to comply with regulation to safeguard customer funds. At the end of the day you need your customer service team to check payments that have failed. And once you have one banking partners that's you can afford to have one way of looking at the information, it can be siloed that, that works. But when you start to have 5, 10, 15 banking partners across Europe, as many partners as their source of truth, it doesn't work. So the way we're really helping is to make sure that even though you are thinking multi bank, you are thinking multi scheme, you have a central place that's built both for product teams that require real time API, webhooks, first connectivity and for finance and operations team. We need central view of liquidity of uh, the problem with payments, the tracking of that payment throughout its life cycle. You can have this at the ready independently of the banks you work with. Um, that's the part where we really help. Uh, of course there's still a lot of work where the fintech that the fintech needs to do to set the foundation of that infrastructure, the banking relationship. Like we mentioned, fintechs are investing in dedicated banking teams and for really good reasons. Um, but from a technical perspective, these teams sometimes are blocked because they want to add a new banking partner with which they have a great relationship. But there's no space on the product roadmap. We come in and say, hey, you do not have to choose. We will help, uh, you add another bank. We'll help you reap the benefits of working with the right banking partners for you. Don't worry about the roadmap, uh, disruptions, because we will do this integration for you and because you've built an integration to numeral that can scale to any number of partners.

Speaker A: That was a beautiful end to our podcast. Thank you so much, Victor, uh, for joining us today. And if I may, um, if fintechs want to get in touch with you, what's the best way?

Speaker B: Uh, email me directly. Victor Amazingumeral IO. I'm here.

Speaker A: Amazing. Thank you so much. That's why I love Pretext. Very, very open. Thank you so much for having such a candid, uh, conversation with us. And more power to you and to the team at Numeral.

Speaker B: Thank you so much, Rashi. Thank you very much for having us

Speaker A: and to all our listeners, thank you once again for tuning into Coffee with Innovate Finance. And tune in for episodes every Friday on Apple, Spotify and Google podcasts. And follow us on Twitter and LinkedIn for more on our events and programs and for updates in Numeroal as well. As always, until next time, take very good care of yourselves.