‘Everything else is just digital, digital, digital’: Wells Fargo’s Ulrike Guigui on enterprise payments trends

This podcast was recorded live from the podcast stage at Money 20/20 this year. One of the things I find striking is how the event has evolved over the past few years. Where in years past we saw a lot of consumer, we’re beginning to see more and more solutions targeting the enterprise. I think that’s clearly the case in enterprise payments – they’re just much harder to solve for. 

I’m joined today by Ulrike Guigui, head of enterprise payments strategy at Wells Fargo. We’re going to jump right in and talk about large firms' needs in today’s payments environment and what technologies they’re turning to in order to make it happen.

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The following excerpts were edited for clarity.

Payments strategy at Wells Fargo

I am responsible for enterprise payments strategy at Wells Fargo. And really what that means is everything to do with payments that spans more than one LOB. We have a new rail such as real time payments that really has an impact on the entire organization. Our 25 person team also manages all our payment partnerships to bring new capabilities to the business, which is why we're meeting with a lot of fintechs while we're out here.

Customers

Wells Fargo has 70 million customers -- we are very large retail bank with over 5000 branches. We also have 70,000 corporate customers, typically very substantial enterprises. Our small and medium sized business unit has 3 million customers. For enterprises, our end customer is typically, the treasurer or the CFO.

Enterprise customer needs

So when we talk about customers, let's start on the corporate side. Really what we're seeing there is continued automation and the move away from checks. That said, we met with the Federal Reserve last week, and we asked when will we have that party where we celebrate the last check having been signed, and we decided that it wouldn't happen in our lifetime. But corporations will need help with that. Because once you digitize the payment, you can do more payments optimization. I think that that is really where a lot of the investment is also going: can you help me direct the payment down the right rail so that I get the optimal advantage there in terms of liquidity, cost, and speed.

Moving beyond checks via RTP

I think it's going to take integration of payments. And really the cost of switching to digital payments and to enabling automation needs to be less than a cost of check handling, and right now, check handling for the business is really not an expense. It's more an expense for the banks. So that's where the incentives are misaligned. The banks really need to find a way to make it easier, and not cost prohibitive for the enterprise to move onto newer platforms.

I also believe that the advent of real time payments can really make a big difference here, in terms of replacing the check, which is this instrument that has a lot of benefits, but very limited information, and also very limited certainty that you can actually find the other person in possession of sufficient funds. Real time payments really has a lot of advantages. I think that might be the use case that gets corporations to automate or digitize their payments.

What consumers are doing

On the consumer and on the corporate side, we're also seeing a lot of embedded finance. The payment is no longer the event, the payment is just enabling the transaction in a more seamless way. On the consumer side, we're seeing continued adoption of digital payments. Of course, P2P has exploded: it's the first time actually that fewer than 50% of P2P transactions are conducted using cash. We can thank Zelle and Venmo for the growth of digital wallets.

Our cards are all enabled in Apple Pay and Google Pay. And that is seeing tremendous double digit growth rates. We still see a strong demand for traditional credit cards -- our core card portfolio has expanded with the launch of the Active Cash Rewards Card. So I think even with all the new payment rails coming out, the cards business continues to be extremely strong.

The impact of COVID-19 on payments

COVID has really changed things -- it's accelerated this tremendous innovation that's happening in payments, because it's shifted away from physical payments to digital payments. First, because a lot of the sales actually moved online. But then even in an offline or store environment, a lot of the transactions are now conducted through online channels, whether it's a tablet or something else, or the the type of checkout solutions that Amazon is piloting. So consumers are increasingly using digital payments. The growth of wallets has been tremendous, as well as alternative payment methods that are not so easily available at the physical point of sale, such as Buy Now Pay Later.

Digital transaction are great, because there's more data that you can collect and act on the benefit of the customer or the bank. It also opens up the transaction for third parties who are very good at designing those endpoints, whether it's an Apple Pay or Plaid or others.

In-demand tech

I would say every customer, whether you're a CFO, a treasurer, or the CEO -- they're all also a private individual who has expectations now in their business interactions that are driven by what is possible in their personal lives. I think the iPhone is really setting the standard for what your expectations are. So if you have this great experience with a Wells Fargo Mobile App, which we just launched this year, which is top ranking in the JD Power survey (quick plug for that), you have a great experience. But then you go in and you try to have that experience replicated when you're interacting with our commercial payment solutions, and you find that that because of the way that those products have come together in the underlying stack, then that is going to be a source of disappointment.

If you can find somebody who can present what you need as a treasurer or as a CFO, in a way that's more aligned with your expectations of a digital experience, then that really becomes a risk then of losing the customer. A lot of investment is going there currently to make sure that we have a similar experience for commercial customers that they are used to in their private lives.

More about embedded finance

With embedded finance, embedding the payment into the workflows, that is really driven by three major factors. One is customer expectations. The second one is the ability to streamline the workflow. So I no longer have to leave the workflow in order to make the payment, but the payment is automatically executed as I'm moving through my invoice processing, for example. And then third technology, it's just gotten a lot easier to pull information that you need through APIs. 10 years ago, nobody was talking about APIs. And now, this is the way that you make your data and your information discoverable and easy to plug into without having to have very heavy integration on the customer side.

The impact of embedded finance on banks

Because whenever you embed, you really get back to what the essence is of the payment: that payment enables something that I want to do as a corporation or as a consumer. Nobody gets up to make a payment -- they get up and they go to the store to buy a t shirt, or they have to pay the purveyor who just dropped off the seafood at the restaurant, right? So this payment just enables an activity, but I still have to decide how I pay, so I open my wallet or I go online. The moment that payment gets embedded, I no longer make the decision about how I'm going to pay for this. It's already like a stored credential in Amazon or an embedded payment for a corporate customer. That decision about what rails it goes down has been made.

So you lose the ability to interact as a brand with a consumer or with a corporate customer, because you're more and more in the background. And I think the big worry for banks is that we will just become dumb pipes. It's a very real conflict. We want to have the most seamless interactions for our customers. But we also want to make sure that they still realize who the brand is and to keep choosing the brand.

Adoption trends

On the corporate side, we do know that about two thirds of all banks are now enabled with real time payments. Therefore we would also assume that their corporate customers are enabled to push and receive real time payments, but that adoption has been much slower than we would had expected.

Wells Fargo's payments roadmap

For us, a big, big topic is to continue to refine our value propositions to best serve our customers' needs on the consumer side and on the corporate side. I'm very excited about real time payments and requests for payment coming up as a new functionality that can really have a lot of use cases. And then, of course, next year in May, we're going to see the launch of FedNow. Hopefully that will get us to that real time payments adoption. And then everything else is just digital, digital, digital. We don't want to be a digital only bank, but a digital-first bank, for sure. That's where a lot of the investment is going.

Becoming a digital-first bank

The physical presence continues to be important because the branches are really anchored in the communities there. They employ members of their community, they are where members of the community come to have their elementary financial needs met. And as long as we still have cash in our society, there's also a very real, practical, and tactical role that US branches play. By the way, when we met with the Fed last week, they told us that cash has gone up 17% year over year. How is that possible? I don't know. We also learned that there's a copper mining lobby that is lobbying against the evolution of the penny, which the Fed wants to get rid of, because it costs them so much money to produce -- cash apparently is here to stay. And as long as we have cash, we'll have branches.

But branches also play important roles in terms of being a center of advice, for a small business, for somebody considering opening a mortgage or bank accounts. Digital first means that a lot of the advice that you're getting in the branch, we can create that and deliver it in a digital manner. And for that we just announced yesterday here, together with Google, the launch of Fargo, our our AI powered assistants. In the first instance, Fargo will answer simple questions like 'what is my balance?' But the anticipation is that further down in that roadmap, Fargo will be able to say, 'hey, Ulrike, you have a lot of money sitting in a savings account that could be better invested. So what do you want to do with your money?' We'll never replace the human, but hopefully, it will be so intuitive that you will want to interact with the app.

The role of partnerships

Partnerships are crucial. I think we all know by now that it's very difficult for large organizations to innovate from within. And that a lot of the talent is, frankly, more drawn to smaller companies, to fintech startups. They come up with solutions that are very specific around real needs and real use cases, and then we will look at them. And that's also why we're here at Money 20/20 meeting with a lot of them.

We also can learn really in depth knowledge of verticals from our partners. We're in the Merchant Services business -- it's a scale business. But now that is moving to being a vertical driven business -- for example, Toast has a great product which enables you to not just pay at the table, but offers a customer loyalty program and integrates into your back end ordering system, so you can calculate your food cost. Restaurants are willing to pay a premium for that.

So we're on the scale business, but somebody else has built this better proposition with a lot of data, based on really deep understanding of that vertical. So how can we leverage all this work that's being done to enhance our own value proposition? So partnerships are very important. And the balance of power, of course, is always a interesting one to manage, because some of those partners may be pure technology providers and others may be potential competitors that you enable. But that is the name of the game.

Getting partnering right

A good partnership is definitely a company who has respect and understanding for what it means to work with a highly regulated business. Especially in the early stages for a firm, this could be perceived as slowing you down. But if you work with us, you have to be prepared to go through this rigorous vendor onboarding process. And also now you're going to offer your product to consumers who are protected by a lot of protection. So that understanding is fundamental. And then really, the willingness to work together, get to a proof of concept quickly, but also be willing to fail and learn from that failure and move forward.

Looking ahead

There's so much going on. It's exciting times. I think after having walked the hall today, I'm thinking we need to reconsider our investment in cross border because there's so much cross border, especially in Latin America. I don't know what it is that we're that we're not seeing there. I'm really excited about the new rails and of course, real time payments. What is going to happen with CBDC? And what are the opportunities that have been opened up with a distributed ledger? We are, of course, a member of The Clearing House and it's doing a pilot called ISP to move funds cross border using distributed ledger technology. Swift is going in that direction.

Where can we as a bank use that technology? And I'm not talking about crypto, which I think is a completely separate topic. But where can we use that technology to move funds quicker and more seamlessly? That is exciting. And then what is going to happen with the new rails? What are the use cases that people are going to build on?