This following is part of a new series we’re running. It’s called the Big Bank Theory, and it’s all about the future of banking. We see three options going forward: in the march towards digital, people will gravitate towards the digital arms of incumbent banks, give their business to new upstart challenger banks, or the biggest opportunity, which is to bank with the brands they love.
Through embedded finance, people are increasingly turning to companies they frequent often — whether it’s a big retail player like Walmart or SMB accounting software like QuickBooks — to plan, store, and move money around.
The following series includes content from Tearsheet’s Big Bank Theory Conference, held in November 2021.
Green Dot’s an interesting player in the Embedded Finance market. It already powers financial service for firms like Apple, Uber, and Walmart. Combine that with an extensive prepaid business, a direct bank, and its own banking license and you can begin to see where the business is headed. Green Dot already banks tens of millions of customers and you can get a sense of the scale – it almost feels like it’s just getting started.
I spoke with Green Dot’s Amit Parikh who heads up the firm’s platform business. He has an extensive payments background, most recently at Apple. We chatted about Green Dot’s platform strategy and the role it plays in brands’ financial ecosystems. Amit shared some of what he saw are the drivers of innovation in embedded financial services and where the opportunities exist for further growth.
Green Dot’s ecosystem
I joined Green Dot eight months ago, and I am responsible for our banking as a service or banking platform services. A funny story when I joined: I’m like, well, what is BaaS? What is banking as a service? And I said, well, let’s call this banking. Because we have a bank, we have a platform, and we provide our services. Let’s call it banking platform services. I think you’re gonna hear a lot more terms. But at the end, what are we trying to do?
Our mission is giving all people the power to bank seamlessly, affordably, and with confidence. And how do we do that? Well, we have a direct to consumer business. We have one of the largest retail money networks in the country. We have world class partners — that’s my responsibility. And we have a bank charter to control our own destiny.
If I was talking to my neighbor, they’d be like, wake me up now — that’s boring. What does that really mean? So I’ll take us all on a little bit of a journey. I traveled two weeks ago and I got an Uber. I think Uber is amazing, because for me, it’s seamless. I find a car, I book it for when I get out of the airport, and I don’t think about the payment. So they’re seamless for me as a consumer. For that driver, they’re able to either right away, say, hey, pay me now. Or it can go into their Uber bank. So for them, it’s seamless. And so that is one example of our great partners, Uber, and what we’re doing so — that’s embedded finance. That’s an Uber experience that we’re providing the financial services for.
I have a 14 year old daughter. She walked to downtown Danville. The other day, she sends me a text. Hey, Dad, I’m at the Yogurt Shack. Can I have some money? So I sent her 20 bucks (probably too much) via Apple Cash. Green Dot does the money movement for Apple Cash and is the issuing bank for the P2P. So when that money lands on my daughter’s Apple Cash account, she’s able to tap that Yogurt Shack, and instantly, seamlessly she’s able to get her yogurt and be happy about not having to worry about it.
That Yogurt Shack is a small to medium business. We have partnerships with QuickBooks and with Kabbage. We provide the banking services for both of them. And so if that Yogurt Shack is a QuickBooks customer and they have Money by QuickBooks or QuickBooks Cash, they’re able to seamlessly move money.
Not just money movement
We’re also focused on spending, savings and investing. We have a partnership with Stash. If you go to the Apple Store and you have a Stash account and buy an iPad there, you get fractional ownership in Apple. So it’s teaching people the power investing. And lastly, when you walk into the largest retailer in the world, Walmart, we have Walmart Money Cards there that you can add cash to or take out cash. Our money network is available to 95% of Americans within a three mile drive. And so, at the end, all these things are just trying to save people time. That comes back to convenience. The opportunity for all of us is to leverage our assets to help people achieve their financial hopes and needs.
I don’t know where I read this, but fintechs are not disrupting the big banks or the legacy financial infrastructure. It’s consumer demand. What’s fascinating here is, the last time we spoke we talked about three things that are really driving things. First was the fact that we all carry a computer in our pocket with a smartphone. That’s the beginning and then the advent of cloud computing, the continual digitization of cash and how seamless e-commerce solutions have become. So those three things really are the consumers saying, hey, if I can do this easily sitting in my house — seriously, if an Amazon flex driver can achieve the last mile (we provide the financial services for Amazon flex drivers) and I get that package either same day or next day, why am I waiting for my funds?
And it’s hard, right? Because of the fraudsters and risk, etc. At the end, what’s really driving all this innovation is consumer demands — like you should not have to wait to be able to move money or get the goods and services at your doorstep. All thisl comes down to how quickly people can move, but also doing it prudently.
One of your other guests earlier in the conference talked about if you’re designing products for everyone, you’re not designing products for anyone. I think that’s really, really critical. How do you distill down what the true need is? And I think that’s what this world of exploding fintechs [is doing] — I think that’s what people have been very good at, being able to say, okay, let’s get back to first principles. What are we trying to solve for? You don’t necessarily have a legacy business that some of the other folks in financial services have to protect.
As an example, think about the rise of P2P. Well, you know, clearXchange has been around for a long time that could move money bank to bank but people didn’t understand, because branding matters and experience matters. I always come back to it’s all about saving people time, and that’s convenience. In my opinion, that’s what is disrupting this whole market: being able to provide a great experience and making it super super easy and saving people time.
I think the CEO of Microsoft had a great quote about in the middle of the pandemic. He essentially said that we’ve seen two years of digital transformation in two months. And there’s another article that talked about how Google had tried work from home, but there was never a high priority. So, then COVID hit, and I was like, okay, it is the priority. Everything changed, right? Everything changed.
When I was at Apple, we were working on Apple Cash and deployed it. We did a lot of work on vending machines, because these vending machines now have a beautiful screen. You could provide direction and education of how to either leverage Apple Pay or provide a discount. What COVID and the pandemic has done is one, it forced people to say, hey, I don’t need to go to the bank branch. I don’t need to go into the store, I want to be able to do what I want to do from the comfort of my home. There was, I believe, a Fiserv study that said, in the pandemic, one in five Americans added another bank account. So what you’re seeing is, people have strong inertia, but the pandemic forced people to change behaviors. From all walks of life, people are saying, hey, how do I digitize? How do I make this easier? How do I adopt tools that are better than what I currently have?
10 years ago, the numbers said that people had one bank account. And over the last five years, you’re seeing a lot more secondary bank accounts that slowly became primary. And that became much faster during the pandemic, because of the ability to put out new features quicker and quicker. The speed of innovation is just increasing.
Servicing different brands
We have a direct to consumer business, our retail business, and we have this big bank platform services business. In addition, we also have a tax business. And we also have a pay card business to be able to provide early wage access. I think one of the huge strengths we have is expertise across all of those businesses. But at the end of the day, what’s it about is opening accounts and seamlessly moving money.
How do we think about what features to offer and how to do it cost effectively? Well, the beauty is we can get all five people plus the head of the bank in a room, a virtual room, or a beautiful Zoom within a day’s notice. If we’re actually saying, Hey, I think everyone’s going through their FY 22 strategic planning, all that kind of long term planning over the last few weeks, or if we’re talking about where do you want to be in the next five years, you set that goal and march to it. But if we have a partner or if we see something changing in the environment, we can get all those people in a room and talk about the impact on our business and theirs.
I’ll tell you the knowledge that our tax business has compared to our retail business is instrumental in the US for designing our products. We’re not just building a feature for one of our verticals — like within the banking platform services, if I build this here, how can our retail business use it? Our tax business? That is the power.
That’s been an evolution, frankly. Our management team has essentially turned over in the last 18 months. And so this sort of focus to be able to essentially drive that operational leverage has sharpened. Because if you’re just building features, if we build a feature for the gig worker, and that can’t be leveraged for SMB, then that’s just added costs at a time.
I believe that one of the big benefits we bring to the table is our scale. We have deep experience in enterprise partnerships. You see a press release every day of a new funding round of a new platform provider. We’ve seen a whole lot in regards to edge cases in regards to how to scale. I think leveraging those five business unit heads to be able to come into a room and say, Hey, is this something we should invest in? Is how we how we solve for that?
Working with Green Dot
We do not have the vision to be the platform where anybody can come and join. Right, because part of it is our bank charter. I talked about that at the earlier: I want to be at a place where we have the bank charter to control our own destiny. I want to help companies grow their business, if that’s a larger company or a smaller company. We analyze what the opportunities are, and say, Okay, this is a opportunity that we believe, based on our assets and their assets, we can build a safe, secure and profitable relationship together.
Evolving customer experiences
I think, in the near future, it’s about how you increase instant funding. As a customer runs out of cash, you can find out what cash they have left with a debit account. And that’s essentially, instant. Right now, your two ways are debit, and it’s instant, or use ACH, which can be three days. But there’s a cost differential, and there’s a risk differential. And I believe that one of the next things, and we’ve seen lots of interesting things with Plaid and some other folks in the market, will be increasing the options of instantaneous, while also leveraging the overall data to bring down fraud and risk. I think that over the next one or two years, we’re going to see a lot more ways to move money seamlessly that’s safer for the consumer. And that is like a near term aspect. It’s going to be hard, and it’s going to be bumpy.
Consumers, they don’t care whether it’s coming from their bank — they just they want to be able to use it. They just want to get it done. When we listen to calls, people have no idea why either their direct deposit is taking a while, or why don’t they know exactly what’s going to happen. They don’t understand, hey, I just transferred this money out. Why isn’t it there instantaneously? And you know, the US is a laggard in that space. And I think that’s going to be a really great place of consumers’ demand: instant gratification. We will get there.
Plans for the platform
I think we are at a new normal here, where you do not need to go to a bank to get services. It looks like decoupled debit is coming back around. My vision of this business and where we’re going is this intersection of payments, access and identity. That’s how you get to seamless. Because when you have a strong authentication, the identity of the person, it’s easy to make it seamless to make the payment, and essentially the access to the funds. That is where we are marching towards and leveraging our own business plus our partners helps us actually achieve it because at the end, these big brands matter. Trust and brands matter, and if we’re able to put ourselves in the center of that and provide our services to a QuickBooks, to a Stash, to an Apple, to an Uber, there’s many other companies that we can also partner with to expand our reach.