‘Open finance can lift all boats while creating more efficient commerce’: Fiserv’s Sunil Sachdev

The following was produced by Tearsheet Studios. We worked with payments provider Fiserv to create a podcast series about open finance and the work of empowering fintechs, brands, and FIs to collaborate and innovate together.

In our first conversation in the series, we’re speaking with Sunil Sachdev, SVP and head of fintech at Fiserv, about where we are on the open finance journey, the technologies under the hood that are helping to enable the evolution, the potential hurdles to look out for, and what’s next.

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The following excerpts were edited for clarity.

Sunil Sachdev, Fiserv:  My name is Sunil Sachdev, and I head up fintech and growth at Fiserv. I'm responsible for taking a lot of the assets and capabilities we have within the company, that have historically been positioned to financial institutions as well as merchants, and opening them up to fintechs, technology companies, and any third party that wants to participate in financial services.

What is Fiserv looking to do by opening its assets and capabilities up to new entrants to embedded finance?

What we've seen over the last couple of years is that any major brand with mind and wallet share with their audience is looking to monetize that further. One of the ways that they're looking to do that is by embedding different types of payment capabilities and services that not only enhance the digital journey, but also result in some income for that brand and fintech.

It’s resulting in a little bit of leveling of the playing field, and probably raising the bar in terms of expectations of customers; but we also see it as kind of opening up the tech, so to speak, for our traditional customers, because the current regulatory framework still requires any brand that wants to offer financial services or banking services to participate in work and partner with a financial institution.

Especially given where the Durbin regulations are, our sweet spot has always been community financial institutions. And we see this as a great opportunity to lift all boats by bringing in more transaction value, and extending the charter and diversifying revenue for our community institutions.

If we were having this conversation a couple years ago, we would probably be talking about open banking. From our own coverage, it’s clear that we’re not talking about open banking as much as open finance. What’s your perspective on this trend? What does this transition look like behind the scenes for the industry?

Open banking was the initial foray into how financial institutions partnered with third parties to bring innovation to their customers. What we're starting to see now is that those third parties are also looking to embed different types of services for their customers. So there’s been this evolution over the last couple of years. 

And that's being brought on, I think, by a lot of the tailwinds around the API economy, the growth in the internet of things, the ability for more and more folks to do different types of transactions digitally, leveraging mobile devices, the electronification of cash – all of these things are happening at the same time, and driving the momentum. 

At Fiserv, we support the core banking system of close to 40% of the financial institutions in the country. After our merger with First Data, we now see roughly 40% of the card transactions that happen in the country. So we're truly at the nexus of commerce.

That's where I think open finance is evolving towards: the ability to enhance commerce as the way we see it today. And that requires both a healthy participation from the financial services arena and FIs, as well as those merchants, fintechs, and third parties that are enhancing user experiences for the end customer. 

So open finance, in a nutshell, is an evolution from open banking. And we're not really surprised to see the puck’s going there, because of all the tail winds we've been seeing.

Fiserv having a share of 40% in core banking software and 40% in transactions gives you a very interesting perspective into the industry. As we continue talking about the moveq to open finance, what would you say are the benefits for your constituents, particularly consumers and small businesses?

Both consumers and small businesses are arenas that have been underserved. On the consumer side, we hear a lot about the underserved, underbanked, and unbanked – there's definitely a financial inclusion element to it. 

On the small business side – the growth of fintechs in the arena has really provided a wake up call to traditional providers of those capabilities, whether it's folks like us at Fiserv or others that are processing payments for small businesses. There's now a realization that those small businesses on Main Street have been underserved. It really came through during the pandemic; everybody recogni`ed immediately the importance of small businesses on Main Street in every community across the country. 

There's an opportunity here to deliver capabilities and services that get them to par with all the other cohorts we've been supporting over the last couple of years from a digital payment and processing perspective. 

A lot also has to do with tailoring financial services. One of the things that fintechs shine a great light on is the ability to tailor financial services for specific socioeconomic segments. When you look at how the gig economy is growing, 40% of the labor force now has a side hustle. So the growth of the 1099 economy continues to accelerate, and with that comes a different expectation from FIs to tailor their offerings to meet the cash flow needs and requirements of the gig worker. Looking at underbanked, unbanked, gig workers, and SMB, all of these trends are helping to deliver products and services that make them more efficient; that actually are tailored to their lives from a financial services perspective; and allow them to have a better experience all around.

We're definitely seeing somewhat of a renaissance within small business finance. The access and types of tools and services they have now totally outshines what they had just a couple years ago. From the perspective of open finance, what does this move towards opening mean for financial services companies?

For FIs, the move means the ability to augment a business model that's been in place for decades, if not a century.

FIs make money by paying very little on deposits, then taking those same deposits and lending it out for a better yield; that interest margin has been the hallmark of many FIs’ business models for decades. 

With the emergence of open finance, what FIs are realizing is that they can diversify their business model, and extend their charter to work with fintechs and third parties that allow them to capture a bigger piece of the transaction pie. For those FIs that have been thinking about their communities or MSA as their footprint, open finance allows them to now deliver products and services much more nationally, as well as services that are more tailored. By leveraging the expertise of fintechs and third parties to do that, they don't have to worry about the uplift on the tech spend or the operating side.

It truly is a renaissance, because it's unleashing innovation at a level that allows people to really drive different types of lifestyles forward that you couldn't even imagine a couple of years ago.

I'd like to geek out a little bit and talk about what some of the technologies are under the hood that are helping to enable this move to open finance.

Given the position we have in the marketplace, we're obviously seeing what the fintechs are doing, and that's largely driven by the API economy, and the fact that it's become much easier today to integrate systems to one another.

If you're able to integrate better user experiences to a backend banking platform, you have the ability to delight a different sector of the market, and be able to reach folks that you may not have been able to reach before. 

The API economy, which was unleashed with the introduction of the smartphone in the early 2000s, continues to reshape how people interact and participate in financial transactions. That's only going to continue to evolve and grow. 

The other piece is the Internet of Things. The fact that everything is now connected to the internet makes it a much broader ecosystem to embed different financial services. Just the other day I heard about Samsung, or one of the other large appliance makers, allowing folks to order groceries right from their refrigerator; you're able to search for deals that local supermarkets offer around your house, and be able to put in an order leveraging either Instacart or another home delivery service to get food directly delivered to your door. 

It's just those types of experiences that are really changing the way people live their lives and think giving them more time to do other things.

My dream of the internet toaster is just one step away!

Now that we looked under the hood, let’s zoom out. Could you give a perspective of where you think we are in the cycle, and where we’re headed from here?

I still think we're scratching the surface.

Over the past 6 to 12 months, a lot of folks have focused on the emergence of Gen3 cores – core banking systems that have now been created natively in a cloud environment, fully API enabled. Adding that horsepower with APIs and IoT, I think you have an opportunity to really look at financial service not just in a cash-in-cash-out scenario, but across all asset types.

When you start talking about asset types, and being able to do transactions, leveraging fiat, crypto, rewards, securities, and having an AUM approach to your wallet, it’s all very new. That's going to result in a whole host of additional innovations and capabilities that we have yet to bring to market. I'm very excited – we're still in the early innings of where financial services are going.

From a protocol perspective, we’re consolidating a lot of payment messaging around ISO 20022. That decision was made a couple of years ago, and the benefits of it is that once you start putting more and more transactions on a single protocol, the more efficient backend systems become; the ability to then expose that protocol to multiple different use cases makes it a lot easier, and it brings the cost of transactions down a little bit. 

I think that's where blockchain is going to take us a couple of years down the road; the protocol will enable us to program payments, and leverage debit and credit card as a token and key to unlock different ways that payments then can be executed and funded going forward. 

So I'm very excited. I'm looking forward to a period like Star Wars, where you just use credits wherever you go. You don't know what's behind those credits, but everybody's on the same monetary platform and they're able to exchange value wherever they want to go, regardless of what they're buying or selling.

Sounds like the metaverse. So we’re in early innings with the groundwork having primarily been laid for future growth. Which is a good segue into my next question: What hurdles are ahead? What work needs to be done to be able to continue growing open finance?

The tech has advanced to a point where people are seeing applicability and working on commercialization. The commercialization piece is still something folks are getting their head around: What pricing model is going to emerge? Is it going to be splitting interchange like we have been? Is it purely transaction based? Is it value based? Is something else going to come in? So I think commercialization is probably one hurdle. 

The other hurdle is the regulatory environment. We talked about the goodness that comes out of open finance and delivering these fantastic experiences and frictionless seamless experiences to the end consumer or business. But the regulatory environment needs to be caught up as well. 

For example, let's just use the discussions around crypto in the last couple of weeks. I just came back from a discussion in a conclave led by Cornell in DC, and we had academics and industry participants; one of the things that we realized was that people couldn't agree which regulatory body needs to take point for blockchain – the SEC, the OCC, the CFTC, the CFPB. There are all of these agencies out there trying to figure this out. 

When you think about open finance, those agencies need to come to the fore as well to say, ‘Hey, what are the guardrails and consumer protections that we need to have in here?’ Because one of the things that comes out of the exhaust of open finance is all of this data that gets exchanged; and if that data is not handled appropriately, there's an opportunity for things to go sideways. So I think there's the regulatory hurdle around who needs to dictate the policies.

So again, early innings and lots of excitement, but there's still a lot of work to get done.

Sounds like there's still a lot of opportunity, and a lot of work. To put this all in perspective, how do you position Fiserv in this narrative of open finance? What's Fiserv’s role?

We're very privileged to be in the position that we are in the US, which is close to 40% of the financial institutions with core banking systems, and being one of the largest processors in the country for card transactions.

From that perspective, our goal is to continue to increase the size of our tent and bring more people in; there's an opportunity within open finance for shared benefits across the ecosystem. For us, it's all about driving goodness to all points of the network: helping consumers and businesses get access to services that once were not available to them, allowing technology companies to build those user experiences and monetize them in a way that delivers benefits for their captive audiences, and then allowing financial institutions and merchants to diversify their business models by participating in the ecosystem. 

We see this as an opportunity to lift all boats, increase the size of the tent, while we're creating more efficient commerce and creating more channels of growth for everybody.