‘The number one thing banks want right now is the fastest account opening software’: Fiserv’s Sunil Sachdev
- As interest rates have risen, banks are getting more competitive over deposits.
- We speak to Fiserv's head of fintech and growth about what the largest banking software and card processor is seeing in this new environment.
On our most recent LinkedinLive session, we spoke all about partnerships and how today’s environment of higher interest rates, inflation, and less venture money flowing through is impacting how firms collaborate with one another.
Joining me was Sunil Sachdev, head of fintech and growth at Fiserv. Sunil’s role cuts across the Fiserv organization as the company aligns the way it works with merchants and banks to the demands of today’s customers.
The following excerpts were edited for clarity.
The role of head of fintech and growth
Sunil Sachdev: Head of fintech and growth, Fiserv: I work horizontally across Fiserv — across our banking unit, our merchant unit, and our issuance unit to take products and services that we’ve historically sold to financial institutions or merchants or corporations, and reconfigure the Lego blocks in a way that will expand our addressable market.
We’ve heard a lot about embedded finance and how that momentum continues to increase in the market, regardless of new cycles and where the economy is going. We’re just seeing growth in that area that’s unprecedented. And there’s an opportunity to take capabilities and relationships that we have in the ecosystem between banks and merchants and extend that to user experiences, making it much easier for people to perform different types of financial transactions through the user experience they enjoy.
The team’s been around about 18 months. We spent a lot of time working with fintechs initially, helping them set up neobanks, helping them tailor services for specific sociodemographic segments of the population. And over the last six to 12 months, we really picked up in terms of engaging the merchant community, ISVs and payfacs. These are technology companies that cater to large swaths of small businesses in different industries. And we’ve worked with them to increase their capability to bring banking and acquiring together.
When we first created the group, we felt there was a lot of opportunity in the neobank space and modern issuance space. We were taking capabilities and trying to position ourselves next to some of these BaaS platforms that existed in the market. And then over the that period, what we started to learn was that the commercial models behind some of the initial forays for fintech into into banking would not scale well.
Then what we what we saw was that there was a deep desire within existing commercial entities, mostly enterprise merchants that have digital platforms of their own, that acquire transactions from an omni channel perspective, looking to embed different types of financial services. It started buy now, pay later. They’ve always had a private label credit card scenario. And what we’re seeing now is this movement to engage their customers in a much more meaningful and comprehensive way.
They want to be able to tailor financial services, beyond those cookie cutter capabilities, to ensure that they are embedded within whatever cash flow their retail customer, our small business customer, is living from a day to day perspective. So we’re really seeing the partnership angle move horizontally across the spectrum from standalone fintechs, looking to launch a neobank, to now moving into platforms that already have existing customers, whether they’re retail or small business, that want to add capability to move into a greater wallet share scenario.
An organic trend
I think the turmoil has come in and it’s impacted funding cycles for certain fintechs. And it’s impacted business and commercial models. But I really do see this as a kind of a maturity curve. I think where we started a couple of years ago from a fintech perspective with point solutions, and now really focusing on platforms that basically cater to a much more comprehensive set of use cases that already have existing customers, and then being able to embed that — it seems to make a lot more sense, both commercially and from a go to market perspective.
Embedded finance’s reach
I think it’s happening. The hero brand for us has always been Walmart and the work that they’ve done historically. They’ve had a desire to bring financial services to their customers, either through the store, or through their e-commerce platform for a decade or more now. Over the last couple of years, they’ve made bigger investments into One Financial, and other products and services.
We’re starting to see other large enterprise merchants think through that same kind of calculus. We’re also seeing it in the marketplace and platform area, where you have large merchant platforms thinking about how they can help their customers, both in the US and globally, with money, movement, data, and everything else that accompanies that. So I really do feel that we are in kind of a growth mode in that stage of the market.
A lot of these merchants and enterprise customers are coming to us asking about how they can embed different types of wallet services to enhance the experience of their customers, whether that customer is in the store or connecting to them online.
How market changes have called on Fiserv to evolve
For us, historically, we’ve gone to market to financial institutions and catered to their needs. The merchant division has gone to the merchant population, both SMB through our Clover product, and then the enterprise through Carat. And then we’ve got the issuing areas that’s done really well in the PLCC, private label credit card, market, as well as a whole host of other BNPL and credit offerings.
Now what we’re doing is building a lean microservice platforms that stretches across all three areas, and we’re trying to work so the enterprise merchant population, or the ISV, or the payfac, or even the fintech has a single front door to enjoy services from across the enterprise. That is stretching us a bit, as you can appreciate working horizontally, integrating systems that historically haven’t been integrated.
But the juice is definitely worth the squeeze — at least that’s what we’re seeing. And there is an opportunity here to really differentiate what we can bring to the marketplace versus some of our competitors, because we have the variety of capabilities across those divisions that few have.
So we’re very excited internally. We couldn’t work fast enough — we’ve got lots of great conversations happening within our captive customers. That’s the other piece: we’re not really throwing a net out and going into a blue ocean strategy and trying to bring in new customers into the franchise. This is the ability to just go deeper with the customers we already have. Any non financial institution needs to partner with a financial institution to offer embedded financial services. So that luxury of having some of the biggest footprint of financial institutions in the country on our core banking system and marrying that with the largest footprint of merchants that we have in the country as the number one merchant processor, we’re in a privileged position. So we’re hopeful that this cross pollination really is going to take off.
What banks are looking for now
We have been monitoring the situation with regards to the banking turmoil over the last couple of months. And I think, for us, we feel pretty good about the state of play within financial services. And in that financial institution segment, just looking at the most recent call report data that came out in Q1, while some of the regional banks have had trouble holding on to deposits, the long tail of community institutions still looks pretty good. And obviously the top four or five have benefited from deposits as well in the short term.
Longer term, I think everybody is seeing deposit leakages just because of where the interest rate environment is today. I went to bankrate.com over the weekend, and I saw more 4% plus saving accounts than I did just a month ago. I saw a six and 12 month CD over 5%. So you know, as these deposit rates inch up, what that does is basically increase cost of funds and cost of deposits for institutions. And now they’ve got to figure out how they’re going to make up for that. And it eats into some of the marginal incremental yield they have been making over the last couple of quarters. But that’s not going to last too long.
There is also lots of discussion around commercial real estate and what’s happening there. I think it was the Journal or Barron’s reported this morning that 70% of commercial real estate loans are with community banks with assets size less than $100 billion. So obviously, there’s a dependency on where the geography you are and what that local real estate market is doing. But I think people are still looking at that and seeing how is this going to play out.
So from a bank perspective, the way I would summarize it is, I think we’re through the worst of it with regards to banks failing, but there’s still a lot of concern and monitoring that’s happening to ensure those balance sheets stay healthy, in light of where we are in the interest rate environment. And I think everybody’s kind of expecting interest rates to come down by the end of the year, but half the experts think that it won’t, so it’s gonna be an interesting next couple of months.
Banks upgrading core banking software
We’re seeing an acceleration. We’re still seeing a lot of investment happening into cloud tech for financial institutions. There’s a continued desire to modernize. Maybe it’s a bit anecdotal, but the last couple of weeks to three weeks, I’ve had probably four conversations with financial institutions that are dusting off launching digital banks, outside of their MSA, because they’re looking for deposits. They’re using different brands because they don’t want to cannibalize their existing kind of set of customers.
But the number one thing they’re all asking for is the fastest account opening software that’s out there. So I think there’s going to be this kind of replay of launching digital banks over the next couple of months, even though they know it’s just for hot money. They just need the deposits, to keep the lights on, so to speak, and be able to continue the lending that they see in a lot of these markets. I feel like there’s there’s a lot happening in that area.
And to be honest, compared to over the last 10 or 15 years, a lot of the bankers are now dealing with a more normalized interest rate environment. That’s new for a generation of bankers. So I think people now need to figure out what to do.
Interestingly enough, the last thing I’ll say here is we have a couple of fintechs that cater to kind of specific segments of the population, whether it’s underbanked, unbanked or minority segments, that are seeing some momentum as well, because now backs are appreciating what they now need to pay for new customers, to get in deposits. So from a fintech perspective, there’s going to be a select set of fintechs that probably will get a tailwind out of this.
Building bank ecosystems
We’re actually putting a lot of investment into embedded fintech. We launched around six months ago what we call our Developer Studio. And our Developer Studio is all about taking our core banking systems and putting them into a self service portal. Just two or three weeks ago, we put Premier in there, which is the most popular core banking system in the country by customers. We’ve got over 800+ financial institutions, all asset sizes, now covered with Premier on Developer Studio in a free sandbox environment. So now, any fintech that wants to come in and work with one of our banks that is running Premier, can build a live demo of their product off of that public sandbox and engage with that financial institution to show them that experience end to end.
They don’t have to worry about Figma prototypes. They don’t have to worry about slideware anymore — they could actually connect to those APIs and be able to really drive the experience home with those institutions. I’ve talked to about five different financial institutions that are on Premier, and they’ve told me about fintechs that have connected to that sandbox, and then show them that experience. And that has resulted in those fintechs actually moving through that commercial sales cycle with that bank a lot faster, just because they could see it, they could touch it, they could feel it. So we’re quite excited about that. It really opens up our ecosystem. And it allows these fintechs and financial institutions to get to the point of building better experiences without Fiserv being in the middle.
Where we go from here
I think from a banking perspective, based on where deposit betas are, where cost of deposits are going, there’s going to be an opportunity for fintechs to fill the gap. I think banks are going to be more open now for fintech collaborations than they were just six months ago — anything that can help on the deposit side of the house.
In terms of embedded finance, I think you’re going to continue to see large platforms and enterprise merchants that have existing segments of of customers, whether it’s retail or SMB, incorporate financial services more and more to engage that customer and grow wallet share. And I see on the embedded fintech side, the ecosystem continuing to open up.
I think we’re working all three angles to make sure that our prospects, our clients , and their customers have everything that they need to be successful.