‘Just because you can build a bank account doesn’t mean you should’: Helix’s Ahon Sarkar
- Helix’s GM Ahon Sarkar joins us on the Tearsheet Podcast to break down what it takes for companies to win in embedded finance (and whether they should even try doing it at all).
- What’s common among the winners? Established client relationship with trust, in a unique context, with a focus on differentiation, history of building user-centric products, and the right business model.
The following was produced by Tearsheet Studios in partnership with embedded finance platform Helix by Q2. Watch, listen, or read our conversation with Ahon Sarkar, GM of Helix, where we talk about what it takes for companies to succeed in offering Banking as a Service today, and all the important questions they must ask themselves, like:
- How to make sure your company should even be thinking about doing banking
- Five core traits common to all the companies that succeed in Banking as a Service
- How to prepare for jumping into the process and be ready for the expected unknowns
- What to consider when choosing the right technology and banking partners
And, we wrapped up with a sneak peak of what Helix is busy doing and will be getting into the rest of the year.
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The following excerpts were edited for clarity.
Ahon Sarkar, Helix: Hey, I'm Ahon Sarkar, the general manager of Helix, which is one of the largest embedded finance platforms out in the market today.
Last time we spoke in late March, the background noise was a little bit different. What's going on in the markets from your perspective?
From a macroeconomic perspective, we’re seeing inflation on the rise, spend is coming down, and real GDP is coming down. We’re also seeing the Fed hike rates more than we've seen in almost 30 years, in an effort to try and prevent us from going into hyperinflation, but also not curb it so much that growth is completely stopped.
On one hand, that's making ripples in the broader market, as you see companies that have for the last five to seven years – in one of the biggest bull run markets we've seen – focused on growth.
I think the macroeconomic paradigm has changed. So too, has the company-investor mindset changed to focusing on profitability and cutting out the things that you don't need to do. As a result, we've seen the economy slow down, companies are forced to focus on efficiency and profitability above all else. That, then, impacts the strategies that a lot of firms have as they go out into the next five years thinking: How do I capture my market? How do I win this game?
Given the current market forces, what impact do you see on the clients Helix works with?
Three or four years ago there were a whole bunch of ‘influencers’ in this space talking about how every company should build a bank account. And that made sense, because seven or eight years ago, nobody except for banks could build a bank account, so as Banking as a Service providers like Helix popped up, it made it easier for different companies to build.
But one of the things that people are realizing now is that just because you can, doesn't mean you should (that's not to say that there aren't dozens of use cases across all different kinds of verticals). Not every company should build banking – it should be those for which this is a core part of their strategy and have existing context about the user they can use to make a better product.
At the end of the day, neither you nor I would sign up for a new banking product if it's the exact same thing we already have.
If you have the ability to make something new, have an advantage, and play to win – you should totally still go build banking. But for those that were doing it as a means to, as an afterthought, or thinking about it as a small feature in the corner of their business (as opposed to a core part of their business) – take some pause and assess: Does it make sense for my company to do embedded finance? Or should I apply those focuses somewhere else that might have a longer term return for my business?
We've written about this sea of sameness: if all the products look the same, and you're not really differentiating yourself, there isn't really a great value proposition for your user. You have to be looking at yourself and say: ‘Is banking something I really want to get into?’
There are different players in this space who are, for lack of a better phrase, looking to ‘have their cake and eat it too’ – they want to launch something unique that uses their existing ecosystem, but they're also afraid they won’t be able to execute on it, so they want someone else to build or manage it for them.
Look at the predecessor to Banking as a Service (like white label prepaid cards), and how people tackled program management in the prepaid world: it was by defining a box. The way that you scaled a business like that was by saying ‘It is always this, and it is never anything else. It's going to be this box, because I have to hire risk people to manage it and product people to build it.’
But in this new paradigm, where one of the keys to winning is not being the same, you can't do the traditional model of program management and still build something unique. You have to pick. So what you're seeing now is the companies that thought they wanted to launch something as a quick path to market are second guessing themselves, realizing they needed not only to launch – but to compete and win.
At Helix, we’re helping the brands and large tech companies we speak with understand that in order to actually capture this opportunity and win this market, they’re going to have to build something meaningful. And that's going to take some of their product talent, some of our expertise, and might take a third party who helps them manage some of the business. But it has to start with that core: Why should someone sign up for this? Why is this different? Why is this better than what I would get otherwise?
As you said, ‘Just because you can build a bank account doesn't mean you should.’ What type of company should do that? How does a company know? What questions should a company be asking itself if it wants to get into banking?
We can start by asking, ‘How do you know you should, and how do you know you shouldn’t?
If the reason you're doing this is because one of your competitors did – maybe you shouldn’t.
If the reason you're doing this is because you don't have any form of monetization inside of your platform, and you think this might be the quickest path to getting that – maybe you shouldn’t.
If you're building this because you're trying to raise the next round and show them that you're broadening your product scope – maybe you shouldn’t.
So long story short, if you're trying to check a box, it's probably not the thing for you. If, however, there is a core problem that you're trying to solve, if you have existing context and trust with your users, if you have a strategy for how you're going to grow that to solve more and more problems – maybe you should.
There are a few core traits we've seen in the last six or seven years in companies that have actually succeeded to cut through the noise and succeed:
- Their customers trust them. Finance isn't like a small tech product – one’s entire living is through how much money you make and how you spend that money. Companies, especially ones building something from scratch, often forget that building that type of trust is not easy and requires historical credibility. Companies like Acorns, Credit Karma, or Gusto already have that trust with customers, so they’ve seen a lot more success.
- That relationship came with a unique context. You are not launching a banking product in isolation – you're launching it in a world with 4000+ banks and 100+ fintech alternatives to your business. If you're going to convince an Uber driver to sign up for your Uber bank account, you got to use that context to make a better product – be it helping them skip some of the initial steps because you trust them, or helping them unlock rewards and utility that you know are useful to them because you know they spends their money on. It's those things that are going to make a product more useful.
- A focus on differentiating – practical differentiation, and not conceptual differentiation. The latter is doing something now, but that can be easily replicated, like planting a tree for every swipe. The former is focusing on being special and building a deeper moat around your business to prevent people from coming in. Gusto, for example, built a payroll and benefits business, then deepened their moat with helping employers get free access to their cash and solve for financial wellness needs within their population.
- A history of building user centric products. We're seeing in fintech the same transition we saw in tech – it went from focus on the product to starting with the customer, then working backwards into the technology.
- A clear target audience and business model – don’t try to be everything for everyone. For example, Square said, ‘I want to start with just this one small piece of P2P payments, but I want to do the best P2P payments in the industry.’ Or Acorns who said, ‘I want to start with just helping people invest the change they don't otherwise think about," which now expanded all the way through to helping them manage their entire life on autopilot.
With these five core features in mind, what prep work would your prospective clients need to do to be able to answer these questions about their business?
More of our buyers today are informed than they were a year ago, and we expect the trend to continue as people see which companies succeed and which companies fail.
The first thing is to understand your moat: know what you're good at and who you are, because that is what’s going to make you successful. Then ask how you're going to apply that in the context of banking. Then aside from your consumer’s problems, ask yourself what’s the business challenge you’re trying to solve for.
There's a company that helps people buy used cars effectively; they don't sell banking services, they sell cars. The problem that they have is that people go through the whole process, get to the point of purchase, and leave because they don’t have the down payment. Nine months later, when they have the money, they’ll buy something on Craigslist. When we dug into that problem, we realized that the reason they leave is because they don’t have the money, and the reason they don't come back is because they don't have that company front-of-mind. The solution we offered is to pilot a savings account for the down payment, with a slight reduction on overall cost, so instead of dropping off, they start saving towards this and will be able to buy a car at that price range six months down the line. Now I'm solving a real problem – I'm actually trying to go after something that's meaningful.
I appreciate this framework, but up until now our conversation has very much been about the strategy and philosophy of whether to do this or not. I'd love to change the lens and look outside the company: What’s next? Is it the decision between building alone or working with a partner?
Once you figure out what you’re trying to build, the problem you’re trying to solve for the customer and yourself, and how you’re going to resource it, there are two very important partnership decisions: who is the technology provider you’re going to work with, and who is the bank you’re going to work with.
The first question is: how big is my audience, and how complex is my offering? If it's small and not complex, go with a provider that solves for that. If it's medium complexity, you have a little bit more options. And then if it's large, you really only have a couple of options, and you want to pick the one that is geared for what you're solving – for whether it's a small payment experience or a broader sort of digital wallet.
Then the second question is: who is your bank partner going to be? It’s sort of a Choose Your Own Adventure, because some tech providers will send you to one very specific bank provider, while others will say ‘come and bring your own bank’.
At Helix, we have an array of banks, so when customers come to us, we ask, ‘What's your long term vision? What are the products that you want to add over time? What are the challenges that your demographic has? What are the core things that are important to you from a bank partner?’ We ask those questions because we've been through this before – we've seen partnerships that succeed, and partnerships that failed – and ultimately we realized that making the right marriage upfront saves you so much time and hassle down the line
If you can get those two things right, there are still going to be roadblocks, but you will be prepped for that and adjust your product to fit your changing needs of your customer; you can work with your bank on how to roll out that next piece of functionality in a compliant way, and be sure that when auditors come in and take a look at your stack, they'll feel comfortable, as opposed to being worried that you might be skirting some rules or skipping a few steps.
I appreciate describing the choice of picking partners like a marriage – that’s pretty intuitive about some of the nuances and complexities in those relationships.
So we've talked about determining whether getting into Banking as a Service is right for me as a company, and about this marriage with banking and technology partners. What other insights might you have about how a company can improve its chances of launching successfully?
Look at what is successful, and don't try and copy – just try and apply similar principles.
And so today, if you look at who are some of the most successful players out in the space, you'll see Square, Credit Karma, Chime. If you expand beyond banking, you'll see firms like Klarna.
The first thing that all these companies did is make it extremely simple. If your product is complicated, it doesn't matter who your demographic is, people are not going to use it. The reason that fintech exists is to simplify something that's historically been very complicated.
The second thing is something that we already said: build trust into your product design. Trust is not a fixed thing, it’s the sum of interactions that you have over time. If you have a bunch of negative interactions, we'll have no trust. If you have a bunch of positive interactions over time, we'll build trust. But that conversation doesn't stop when you launch the banking product; if anything, it magnifies when you launch the banking product.
I always love talking to you, Ahon, because you're able to take very complex, and deep concepts and boil them down into simple, easy to understand lists and frameworks, so I always learn when we have these conversations.
Before we wrap up, what are you working on for the rest of the year? What are some of Helix’s big, audacious goals?
The first is us finally releasing something I've been very excited about: our personalizable card controls. That sounds about as far from sexy as anything that I could say, but the reason it's interesting is not because of what it is, but because of what it unlocks.
That's what's going to take this 2.0 of banking that's been built on Banking as a Service, and turn it into the 3.0 that autonomously understands what you're doing – the one that makes recommendations and applies controls for you, the one that looks back at your past transactions, and if you tell it, ‘Hey, go cancel my subscriptions,’ figures it out and does it for you. I'm excited for that, in part because I'm super lazy and I want my apps to do the work for me. So that's one thing that you'll see coming out in a couple of weeks.
The next thing that you'll see is us pushing into business accounts. Over the last five to six years, we've transformed the way that people think about consumer banking products, and we've gotten to work with some amazing companies out there. Unfortunately, business accounts are still super manual, and pretty much the same no matter where you go. More and more small businesses are popping up than ever before, and these small businesses are going to need help, especially in a recession, whether that be help with cash flow, getting access to capital, managing their business, and those that are trying to serve them are gonna want to do that, but can't do it if it's deeply unprofitable. So we'll be heads down for the rest of this year working on those business accounts.
Third is real time payments. You may have seen that we were announced as part of the FedNow pilot program, alongside about 100 or so other companies like Square, and I'm really excited about that (because again, I get excited about new tools).
Most of fintech, at some level, is built on ACH arbitrage: creating a settlement flow that abstracts the need for ACH so I can do it instantly. When you have real time payments, you don't have to do that anymore, you can just transfer from one point to another. And I think that's going to change commerce, the way people store money, and the way we send money to each other. So we're really excited to be in that pilot program, to help define how a directory works and how to think about different consumers as endpoints in this network – because if we do it right, it'll change the way that the economy works.