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PayPal’s Embedded Finance Vision: Michelle Gill reveals how cash flow lending is reshaping SMB access to capital

As General Manager of PayPal’s Small Business and Financial Services Group, Michelle Gill is responsible for bringing together the products and services that help small business owners run and grow their business. She is my guest for this episode of the Tearsheet Podcast.

Michelle brings deep financial expertise and experience building platforms and tools that help customers manage their finances to her role on PayPal’s Senior Leadership Team. Michelle was previously Senior Vice President of Intuit’s business money management, payment, and banking service, QuickBooks Money Platform. Prior to Intuit, Michelle successfully integrated and expanded SoFi’s lending business as General Manager and Executive Vice President of Consumer Lending and Capital Markets.

Drawing on her early career experience as a Managing Director and Partner at Goldman Sachs, Michelle also served as SoFi’s Chief Financial Officer before moving into the product leadership role. Before that, Michelle spent a decade leading the U.S. Assets business for global investment firm Sixth Street Partners.

Given her career and experiences, Michelle brings a broad view of fintech innovation. She focuses on user-centered solutions. At PayPal, she leads efforts to help entrepreneurs navigate the complicated web of financial tools they often depend on.

“The preponderance of [small businesses] use greater than 15 tools to run their business,” she shares. “What they got into business for is the passion… and yet they end up spending more time on things that are not what they love.”

Our conversation explores how PayPal is actively trying to reduce that complexity. It does so not by offering more tools, but by making the ones they already use work better together. Gill outlines the strategy behind PayPal’s cash flow-based lending model and how it fits within their open ecosystem, whether it’s digital lending, embedded finance, or leveraging open banking.

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How PayPal for Small Business solutions addresses complexity

For many small business owners, managing finances often means juggling over a dozen platforms. PayPal is stepping into this chaos with the goal of integration.  “It’s not the adoption of the new tool in and of itself that’s the problem. It’s how it feeds back into your broader ecosystem,” says Gill. PayPal’s strategy focuses on streamlining tools through a single integration. It aims to reduce friction and give entrepreneurs more time to focus on their craft.

How PayPal cash flow lending works

PayPal’s approach to cash flow-based lending matches repayments with earnings. It is unlike traditional fixed-schedule lending. “Repayment is predicated on the receipt of those earnings,” says Gill. She describes the flexibility of the PayPal Working Capital product. This flexibility makes the loan more manageable for merchants with fluctuating revenue.

But, until recently, merchants couldn’t access more funds until fully repaid the loan. That’s changing. “We are changing our product to allow for the ability to redraw,” she notes. She signals towards an update that will help entrepreneurs recycle capital more efficiently.

Leveraging Open Banking for better lending models

Previously, PayPal could only lend based on what it processed. But open banking now enables them to assess a holistic view of merchant cash flow. “We now can have visibility into the entire merchant account, both on and off PayPal,” says Gill. This broader perspective supports more accurate underwriting. It offers larger loan sizes without expanding the credit risk.

PayPal is embedding finance into merchant workflows

PayPal isn’t just offering loans—they’re embedding them into the workflows merchants already use. Through the PayPal dashboard, users are notified of pre-approved loan amounts as they manage daily tasks. These are like refunds and chargebacks. “We are planning to add the amount that merchants have been pre-approved for, so they know going in,” Gill shares. PayPal is also collaborating with vertical SaaS providers, as well as with marketplaces, to bring financing directly into partner platforms.

Growing with merchants in the Open PayPal ecosystem

Through its open ecosystem, PayPal aims to grow alongside its customers. “We do things from point of sale to lending to online payments for e-commerce… we’ve tried to grow with our customers as they’ve grown,” says Gill. That includes helping businesses navigate newer challenges, like Generative AI and complex commerce models. “We do that through education, tools, and end-to-end services,” she adds.

The Big Ideas

  1. Small Businesses Face Tool Overload. “The preponderance of them use more than 15 tools to run their business.” This overload creates inefficiencies—PayPal’s integrated platform is intended to reduce that friction.
  2. Cash Flow Lending Matches Business Realities. “Repayment is predicated on the receipt of those earnings.” This model reflects how small businesses operate, especially in unpredictable markets.
  3. Access to Capital Expands with Open Banking. “We now have visibility into the entire merchant account… not only borrow against your PayPal receivables, but also your off-US receivables.” This broader access supports more accurate and inclusive lending.
  4. Embedded Finance Increases Accessibility. “Merchants who use PayPal come into their dashboard generally at least once a week… We let them know they have access to capital.” In-app lending notifications simplify the financing journey.
  5. Loyalty Grows with Product Adoption. “If you borrow once from us, you tend to borrow five or six times.” This repeated usage signals that the lending tools are resonating with merchants.

Read the transcript (for TS Pro subscribers)

A unique perspective on financial services

I’ve always loved serving the customer, as you mentioned, be it at the enterprise level, the consumer level and the small business. When you think about the number of companies that serve enterprises, it’s pretty meaningful. Similarly, the number of companies who serve consumers, it’s also pretty meaningful.

When you look at the number of companies that seek to serve small businesses, it’s actually a smaller number. And the complexion of small business is much more complicated in that they vary dramatically. And so far as the types of businesses that they are, both online and in store, both, you know, they have a pretty global reach and footprint their sophistication level varies all the way down from solopreneur up to small and medium sized small businesses.

It’s a really complex group of businesses to serve with single point solutions. And so what you find is there is a much smaller set of companies that serve them. And so the thing that I’ve loved about the ability to serve them is really getting to know them a lot better, understanding the complex needs that they have.

The preponderance of them use greater than 15 tools to run their business, and yet, the last thing that they have time for is managing that complexity. What they really got into business for is the passion that drives the particular thing that they built or are selling.

They end up spending more of their time on things that are not what they are core to them or what they love, and so our goal is really to reduce that complexity and really try to allow them to have that time back to pursue their passion.

Reducing complexity for small businesses

I think the complexity comes from, as you expand your business, or you think about doing new and different things, you often need to adopt an incremental tool through which to do that.

Whether PayPal offers that directly or through partners, the notion of being able to ingest it in a singular integration and not have to integrate with the new solution make it work with your reporting, having everything sync, right?

It’s not the adoption of the new tool in and unto itself, that’s the problem. It’s how does that feed back into your broader ecosystem, from a small business perspective, and making sure it all ties together.

That’s the place where it would be nice to have a single place to actually undertake many of these tasks, rather than having them distributed through a very broad ecosystem that doesn’t always necessarily work seamlessly together.

The challenge of scaling FinTech solutions

That’s right. As companies develop, they become incredibly specialized in one particular thing. And when I look at what I have loved about the portfolio that we have at PayPal is, we do things from point of sale, which is an in store solution, to lending, to online payments for E commerce.

We allow merchants to transact in over 200 currencies. And so the ability to migrate from geography to geography or online to in store, or complexity of the level of payments and how you’d like to accept payments, we’ve really tried to grow with our customers as they’ve grown.

Balancing growth with simplicity

At Investor Day, we talked about PayPal Open, which was bringing to bear all of our capabilities under one umbrella. One of the things I mentioned at our investor day was, you know, it’s one thing to come out with a brand. It’s another thing to come out with simplicity, and those two things are very different.

You can tell everyone, oh, everything is now housed under one umbrella, but as I described earlier, if that necessitates the merchant to have to actually do incredibly hard and challenging work to do the integration themselves, rather than having it all pre integrated on the back end and having just switches that you’re able to turn on and off as you’d like to actually utilize a particular part of a product.

In one instance, you’re asking the merchant to take on the complexity, and the second, you’re taking on the complexity. And so we’ve spent the last couple of years really taking on that complexity and ensuring that our products actually do work together under a single integration.

We came to market with that. We’ve now rolled that out in 200 countries. And we’re really excited about the ability for merchants around the globe to be able to adopt that single integration, which includes both getting the branded button, being able to accept credit card payments, being able to accept local, different types of payments, methods, locally in each geography, etc.

We’ve really tried to take all of the acquisitions that we undertook and all of the capabilities that we now have, and house them into one thing that makes it much easier for merchants to adopt.

The evolution of small business lending

Obviously, one of the things we’ve been tracking over the past few years, particularly with COVID, is like small business lending really changed dramatically, and has been doing so really over the past decade. And I’m kind of curious where you see the biggest gaps in the current market that PayPal is uniquely positioned to address.

A recent Goldman Sachs study came out and said that more than three quarters of small businesses are concerned about access to capital as they maintain or grow their businesses this year.

What we continue to see is the appetite for the simplicity of the product that we offer, and the way that that manifests itself to us is a very high net promoter score from the merchants who do take out that product. It is incredibly easy to use in that it is entirely a digitally native product.

The PayPal working capital product in particular, aligns incredibly well with the way in which a business earns. One of the concerns as a small business, particularly in a changing environment, and the current macro being amongst that, is, how do I know that predictability of the cash flow that I’m going to have coming in, such that I feel comfortable taking a loan on a fixed repayment schedule?

The reality is that businesses are cyclical, and there is a changing macro, and so you may be deciding to buy inventory to grow, and yet it may take you longer than you initially expected to sell out of that inventory. If that happens to be the case, then you’re on a fixed repayment schedule, as was the case with traditional lending, and now you’re in a situation where you have to repay the loan before you’re getting proceeds from the sale of that inventory.

The thing that we love about PayPal working capital, which our customers love as well, is it is the repayment is predicated on the receipt of those earnings and proceeds. Hence, the merchant can feel very comfortable when they take out a loan that they are not going to be in a situation where they’re forced to repay ahead of the receipt of proceeds.

Now, the downside of that structure, in current form is you could have paid down substantially faster than expected, and actually want to re up that inventory. And in today’s environment, which we are looking to change, we haven’t given you the ability to redraw on that loan ahead of the full repayment.

What ends up happening is, let’s just say that you have a small tail out there that you haven’t repaid. You’re in a position where you can’t redraw, and if you would like to recycle that capital and really put it back into inventory, you have to wait. And so we are changing our product to allow for the ability to redraw such that merchants can have the flexibility as repayments may come in faster than expected, to actually have access to that capital, to continue to double down on the growth of their business.

Product evolution and underwriting

It won’t be a difference in credit, right? Because realistically, it’s the same merchant that one is underwriting and you’re underrating again the ability to repay those proceeds. And so the underwriting box actually remains quite similar.

It’s really more of both a policy change as well as a technology change, a policy change. In the context of today, you cannot re borrow unless and until you’ve repaid. So you cannot have two PayPal working capital loans outstanding at the same time.

In the future, in order to allow this to happen, we would want to be able to have you have two PayPal working capital loans outstanding at the same time, which requires, again, like I said, both a technology change on our side as well as a policy change.

Advancements in underwriting technology

It used to be the case that we relied almost exclusively on PayPal data.

What I mean by that is, if you’re a merchant and you sell whatever your goods are that you sell and you receive X percent of your payments through PayPal, you could only borrow against that portion of your receivables, because that’s what you had visibility into.

Now, with the advent of open banking, we have visibility into the entire merchant account, both the receivables that they receive on PayPal as well as those that they receive off PayPal. And so we’ve recently introduced the ability to not only borrow against your paypal receivables, but also your off us receivables, because we now have the ability to have visibility into your entire business and the receivables, and the ability to collect against both of those.

That has been a very meaningful change. We’ve seen our customers that really have gotten to take advantage of this be very happy with that change.

The other change is, as I mentioned before, by consolidating all of the properties within PayPal, some of the receivables that were coming in at the physical point of sale, you couldn’t re borrow against, or you couldn’t borrow against, and now you have the ability to borrow against those as well.

What we’ve really done, again, with that single integration point is allowed all of that data to flow for both the PayPal receivables and then again, the ability to ingest that third party data and make credit decisions based on the holistic picture.

Embedding financial solutions into business workflows

The way in which we do it today is one way, and then we intend to actually expand on that pretty meaningfully.

The way in which we do it today is merchants who use PayPal come into their dashboard, generally, at least once a week, if not greater than that, and they review their outstanding receivables, whether they’ve had any disputes, refunds, chargebacks, etc.

As part of that, on that dashboard, we actually let them know that they could actually have access to capital. And we see a lot of that through the dashboard, both on the app and on the web.

We are planning to add to that, the amount that merchants have been pre approved for, so that they know going in. Here’s how much you’ve been pre approved for. And again, one of the biggest complaints has been loan size. But now, again, as I mentioned, with the advent of open banking and the ability to lend against a broader swath of receivables, there really should be the capability to achieve the loan size that merchants are looking for. So that’s one way.

Then you mentioned embedded finance. The other thing that we are working on with some of our larger partners is also embedding it into their experience, and making sure that as merchants log on to their experience, which may be something that is more persistent. You know, they also have access through that experience.

Lending is one of those things because of licensing is a little bit harder to white label. However, trying to make sure that it really fits into their experience, we’ve done a couple of tests with some partners where partners were looking for their merchants to upgrade the integration on the partner, and we’ve financed that integration, and really given a discount, actually on the amount charged to the merchant to borrow for that integration.

We’ve really enjoyed working with our partners to help them grow, and using lending as really an ability for them to help create the growth solutions that they want for both their merchants and themselves.

The changing landscape of small business finance

I think that when you look at small business lending, it really, despite the fact that everybody understands the need, I wouldn’t say there’s been a massive expansion of the amount of lending that is being done globally relative to the need in the market.

It is a very wide open space with a much bigger need than there is supply of capital. And I think the really interesting thing is, when we talk to investors who are interested in the asset side of this, there’s a lot of appetite for this asset.

I think people understand that it’s an incredibly interesting asset, particularly because it’s tied to cash flow. Investors really like cash flow based lending. It’s incredibly tangible. And so it feels as though there continues to be a dearth of supply of capital relative to the amount of lenders that are out there.

One of the things that’s been really interesting when we’ve talked to third party investors, is the reason they like someone like us lending relative to a third party is the access to data, a proprietary access to data that we have that allows us to do that lending responsibly, and allows us to do it in a way that doesn’t put merchants into a cycle of debt, that doesn’t actually hurt businesses, but instead helps them grow, is what they really like.

They like being part of that story. They like the history that we’ve had in the business, and they like the incredibly measured growth that we’ve had.

Interestingly, as we look at expanding, we’re not really meaningfully expanding the credit box. We’re expanding in the ways I just talked about, right, bringing in third party data that allows us to better underwrite the customer and be able to underwrite them for larger loans, serving segments of the market that we haven’t served historically, because we haven’t done loan sizes that are lower or higher.

I talked about that a little bit at our investor day. Is really a focus for this year of trying to ensure that we can really grow the base that we can provide capital to.

We are incredibly excited about all of these things, because we do think that businesses have and will continue to have a need for capital to facilitate growth, and the ability to do so at such an early stage in a company’s life is what can be a real difference maker in their ability to compete.

One of the things that we hear from our merchants all the time is, yeah, sure, everyone will lend to me once I’m successful and at large, it’s when I am starting out and I really need the capital. That’s when PayPal was there for me. And I will never forget that.

I think that’s something that really shows true. As I mentioned earlier, the Net Promoter Score and it again, it is much easier for a company like us, with the data that we have and the insights that we have into these small businesses, to be able to be there for them when they are smaller, and then to stay with them as they are growing, because we can uniquely meet their needs, because we understand their cash flow.

Creating a virtuous cycle

[Growth in the product has been almost exclusively organic. We really haven’t done much outside the ecosystem to inform and so we’ve started testing really trying to get to our merchants, not just through internal channels, but also external.

I 100% agree with you. I think what we see is, if you borrow ones from us, you tend to borrow five or six times, which is evidence of the fact that you like the product and that it is working for you.

I think the other thing that we see is, as you are borrowing, we do see meaningful growth in the businesses that do borrow, which is amazing. And then lastly, we also see that the more products you adopt, the greater your persistence and longevity is on the platform.

The things that we get excited about are the notion that the more PayPal receivables that you have, the greater amount that you can borrow. Obviously, the receivables that are off us are quote, unquote riskier to us in terms of the ability to collect against them, etc.

Yes, it 100% creates a virtual cycle of the more merchants do with us, the more like they grow, both for themselves and on us, and we really want to help facilitate that growth. That’s what we’re all about.

The future of small business financial services

So I think you’re one of a handful of people that sort of been at the epicenter of this convergence around serving small businesses. And I’m curious what your perspective is, looking ahead a few years, like, how do you envision the relationship between like, payment processors, banking services and lending platforms evolving for small businesses?

I think that small businesses will continue to face increasing complexity with the advent of agentic tools, agentic commerce, etc.

I think being able to be a place that can help them continue to navigate a changing landscape is really critical, and we do that through education. We do that through new tools. We do that through end to end services, and we try to take on the things that drive the greatest complexity, generally in their financial lives.

Because nobody is excited about doing their finances at the end of the month, but everyone is excited about seeing their bottom line grow. And so how do we take the stressful part of that out, and how do we bring the joyful part of that back and let small business owners spend the time doing the things that they really love doing, which is creating their product, speaking to their customers, growing their businesses in new ways.

And how can we be an agent for growth rather than that point of stress?

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APIs: Building the digital financial infrastructure of tomorrow — A conversation with Plaid’s John Pitts

APIs John pitts

APIs have evolved from simple data connectors to the fundamental architecture driving financial innovation. In this episode of the Tearsheet Podcast, I speak with John Pitts. Plaid’s John Pitts reveals how they’re driving open banking and empowering consumer control. He is the Global Head of Policy at Plaid. With a career spanning regulatory and policy roles, Pitts brings a unique perspective to the table. He discusses the evolving role of APIs in financial services. From his role at the Consumer Financial Protection Bureau (CFPB) to leading policy at Plaid, Pitts shares key insights on open banking. He explores how APIs are shaping the future of consumer financial data rights and fintech innovation.

Reflecting on his journey, Pitts shares, “I didn’t realize at the time that I was stepping into this nexus of innovation.” He explains how his role at the CFPB allowed him to witness the early stages of non-bank financial services. He shares how these experiences now inform his work at Plaid. He highlights the critical role APIs play in fostering open finance and enhancing consumer control.  

Pitts explores why APIs are essential for modern financial infrastructure. He explains how Plaid is working to bridge gaps in financial data connectivity. Pitts shares his expertise on improving fraud prevention and enabling embedded finance. He emphasizes practical steps to align innovation with consumer needs. His insights highlight the evolving role of APIs in modern financial services.

The Highway Analogy: APIs as the Backbone of Financial Services

Pitts compares the role of APIs in financial services to the construction of a national highway system. “It’s like moving from dirt roads to paved highways,” he says. Pitts emphasizes the necessity of modernized data-sharing mechanisms. Screen scraping once led financial data transfers. But Pitts highlights how APIs now provide faster and safer solutions. Their reliability is transforming how financial data moves securely. “Consumers’ ability to share their data securely is fundamental to unlocking innovation,” he adds. He stresses that the adoption of APIs by financial institutions is critical for open banking.

Consumer Control and Open Banking

A core theme in Pitts’ discussion is consumer control over financial data. He explains how APIs empower consumers to move their financial data seamlessly between platforms. This fosters open banking.  

Unlike in other countries where open banking is largely regulated, Pitts notes that in the U.S., market forces have driven API adoption. “We have more open banking in the U.S. than anywhere else,” he states, citing the high number of connected accounts as evidence. Pitts also touches on the regulatory landscape. He highlights the importance of the recently introduced 1033 rule in accelerating API adoption.

Embedded Finance: Beyond Financial Institutions 

Pitts highlights how non-financial companies are using Plaid’s APIs for embedded finance. These examples show the growing demand for integrated financial solutions. Landlords are using APIs to enable digital rent payments. Tesla is streamlining car purchases with embedded finance. These examples highlight the rising demand for integrated financial services. “Businesses like John Deere and Tesla are early adopters. They’ve embedded financial tools to improve user experiences,” Pitts explains. This gradual adoption, he suggests, will soon speed up as regulatory clarity improves.

Digital Fraud and Risk Management

Digital fraud is a growing concern in the financial services industry, and APIs offer a potential solution. Pitts describes how banks and fintechs can leverage APIs to share data and build network-level defenses against fraud. “Fraud prevention is one of the biggest opportunities in open finance,” he notes. Pitts emphasizes its importance for consumer trust. Banks can also use APIs to provide consumers with tools to monitor and manage their connected accounts. Pitts argues that these innovations can strengthen relationships between banks and their customers.

The Strategic Opportunity of API Adoption 

Pitts urges financial institutions to see API adoption as both a compliance need and a strategic opportunity. It’s a chance to enhance innovation and engagement. He highlights how APIs can help banks deepen customer engagement by becoming the “home base” for financial activity. “When a consumer picks one account as their linked account, their usage of that account increases,” Pitts observes. He suggests that banks can leverage APIs to solidify their role in a consumer’s financial ecosystem.

The Big Ideas 

1. APIs Are the Backbone of Modern Financial Services. They serve as the foundation for modern financial services. This enables secure, efficient, and scalable data sharing. “It’s like moving from dirt roads to highways,” Pitts explains.  

2. Consumer Control Powers the Future of Open Banking. APIs empower consumers to access and share their financial data across platforms. This fosters innovation. “The U.S. has more connected accounts than anywhere else,” Pitts notes.  

3. Embedded Finance Is Becoming a Key Use Case for APIs. Companies outside the financial sector, such as Tesla and John Deere, are adopting APIs for integrated financial services.  

4. APIs Enable Stronger Collaboration to Prevent Digital Fraud. They facilitate data sharing among financial institutions, creating stronger defenses against digital fraud. “Greater data sharing protects consumers,” says Pitts.  

5. API Adoption Is Both a Compliance Need and a Strategic Opportunity. Financial institutions can use APIs to increase consumer engagement and maintain account primacy.  

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Looking back and moving forward: 2025 trends for Open Banking and Gen AI

Two technologies have dominated the conversations in this industry for the last year: Open Banking and AI. Open Banking, because the 1033 rulemaking started a discussion on who owns the customers and their data, and AI, because, well, Gen AI.

Lets dive into how Open Banking and Gen AI impacted the industry in 2024 and how we think adoption is going to fare in 2025.

Looking back: Open Banking in 2024

The 1033 rulemaking, although contentious, is definitely pushing Open Banking from a possibility to an inevitability, and it’s a shift that is reflected globally. “Paired with innovations across the industry and regulatory advancements in different global markets have helped move Open Banking forward this year and will be instrumental to its sustained growth,” said Jess Turner, EVP, Global Head of Open Banking & API at Mastercard.

Banks’ strategies to Open Banking adoption and the 1033 rulemaking is primarily determined by their size, according to Ulrike Guigui, Managing Director at Deloitte, who says:

  1. Large banks and regional banks are building out the infrastructural and technological components needed for compliance and are also exploring use cases and opportunities.

  2. Medium-to-small sized banks are looking towards vendors to access the tech or are not prioritizing this topic in light of the lengthy timeframe to comply.

The infrastructure build that Open Banking requires can be a challenge for some banks: “For banks on their path to compliance with rule 1033, the challenge has been to put in place a cross-functional strategy that addresses the ‘builds’ that will be required: consumer portal, enhanced third party risk management and developer (API) portal. Mapping data from proprietary and vendor systems, putting in place the infrastructure to handle the anticipated volume of API calls as well as the operational capacity to handle increased consumer call volume, are time consuming tasks in an environment of stretched resources,” said Guigui.

With banks finding that they may soon need to act on Open Banking either due to competition or regulation there is also a push towards raising the overall industry standard. Mastercard’s Turner adds that she has observed a call to make the ecosystem more secure as well as an added emphasis on ensuring that consumers are at the center and have control of their data.

Trends: Open Banking in 2025

As the industry navigates the infrastructural challenges and the changing regulatory landscape, we can expect to see the following trends emerge: i) More financial inclusion for consumers: Traditional credit decisioning systems may be excluding a significant portion of customers from accessing liquidity and credit. But Open Banking may be able to bring more customers into the fold. “Open banking’s innovative use of alternative data – for example, using data like rent payment history, cash flow and balance analytics to prove creditworthiness – create more opportunities for those outside of the credit mainstream to take control of their financial lives,” said Turner. This is not necessarily a new use case but the regulation-driven adoption of Open Banking and the formalization it is making necessary may finally push alternative data usage from being on the periphery to being more widely deployed.

ii) More business for vendors: Technology providers and vendors play a huge role in helping this industry shift towards new technologies, and while Open Banking isn’t ground breakingly new at this point, the number of vendors that offer these capabilities isn’t too large. “With the final passage of the rule and revised timelines, industry participants now know they need to prioritize this broad implementation and there may well be excessive demand on the few vendors who are active in Open Banking,” said Guigui.

iii) Products and experiences: Deloitte’s Guigui expects to see product development to be focused in CX and building operational efficiencies.

  1. Customer experience: Existing customer-facing processes like account opening and underwriting may become easier due to better availability of data.

  2. Operational efficiency: Banks might be able to utilize the increased availability of data to improve anti-fraud measures. There will be opportunities for banks to leverage data to improve fraud and related back-office activities.

Looking back: Gen AI in 2024

Last year, the industry warmed up further to Gen AI. It was a welcome shift from discussing whether Gen AI could end the world towards discussing what it could do for us and how to ensure it does everything safely.

Big banks like JPMC, Morgan Stanley, and Truist all found back office tasks that could benefit from the tech. Some small but forward thinking banks are realizing that building AI literacy and capabilities in their workforce is essential and launching strategies that help their workforce upskill. Meanwhile, fintechs like Public and Lili continued to move faster and found ways to augment their customer-facing interfaces with Gen AI-powered digital assistants.

“2023 was all about education and doing proofs of concept, while 2024 was about leveraging those learnings to build enterprise AI platforms and beginning to move GenAI use cases into production. At the end of 2024, we have seen solid progress from financial institutions using Gen AI in their organizations and expect this to continue to ramp up in 2025. These use cases have been focused on efficiency plays and supporting workforce acceleration but have included a human in the loop,” said Kevin Laughridge, Principal at Deloitte.

Trends: Gen AI in 2025

So far, firms (specially banks) have used Gen AI to make their existing processes more effective. But as ease with the technology increases it’s likely that Gen AI would start to feature more heavily in products and impact firms’ bottom lines.

i) Pushing into the front office: Even though there are very few active projects that hint at banks implementing Gen AI in the front of the office, it’s unlikely that it will always be this way. It took banks years to act on chatbots but they did eventually. The natural evolution of the chatbot is enhancement through Gen AI. Similarly, as comfort levels with the technology increase driven by the formulation of internal governance policies, moving implementation to the front of the office will become less daunting.

“We expect to see the GenAI use cases in financial services begin to move from the middle and back office to supporting more front office functions and move to support more revenue generations vs. driving efficiencies,” said Laughridge.

ii) Open Banking + Gen AI: There is also a possibility that both Open Banking and Gen AI technologies will come together to enhance already existing products like PFMs – layering on top of one another to enhance product experiences through automation. “In synergy with informed consent protocols, open banking data, coupled with responsible Generative AI, can optimize a consumer’s financial management, essentially acting as a personal wealth manager,” said Mastercard’s Turner.

iii) Infrastructure builds: FIs hoping to take better advantage of innovations offered by Gen AI will need to invest in improving their technology and make bigger strides in their data modernization journey. “Financial institutions will need to galvanize their AI platform; this is more than simply picking an LLM, it is a platform that enables scaled AI with many LLMs in a controlled environment,” he added. iv) Managing people:  As firms continue to deploy Gen AI first in the back office they will need to make a concerted effort to ensure their employees not only possess the technical skills to leverage Gen AI, but the data literacy to understand its risks. “FIs will also need to work through change management of their employees, continuing to show why AI is a workforce accelerator and enabler of business value,” he said.

Sidebar: Banks’ barrage-like movement when it comes to Gen AI

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Peter Renton’s Fintech Forecast: Banking as a Service, Embedded Finance, and the Future of Open Banking

Open Banking peter renton

In the ever-evolving world of fintech and open banking, staying ahead of the curve is crucial. Few understand this better than Peter Renton. He is the CEO and founder of Renton & Co., a fintech consulting firm specializing in media, thought leadership, and event support. Renton is the former chairman and co-founder of Fintech Nexus (formerly LendIt Fintech). He has been out in the lead of fintech innovation for over a decade. His work has shaped the industry during this time.

In today’s episode of the Tearsheet podcast, Renton shared his insights on the current state of fintech. He shares his insights on where he sees the industry heading. Renton has a keen understanding of the fintech sector. His insights provide valuable guidance for established companies and newcomers in the industry.

“Without doubt, the most interesting space in fintech in 2024 is the banking as a service space,” Renton states. “Because of the way the banking system in this country is structured, we need banking as a service. And it’s not going away.”

The evolution of fintech events

Renton’s journey in the fintech world was punctuated with the creation of LendIt. It is a conference that grew from a small gathering of 350 people to a major industry event attracting thousands of attendees. As the fintech landscape evolved, so did the event. It expanded its focus from peer-to-peer lending to encompass broader fintech topics and companies.

“We expanded beyond lending and started it in 2017 and got going in 2018/2019, where we became a real fintech event,” Renton explains. This evolution mirrors the broader changes in the fintech industry. These include specialized lending platforms to comprehensive financial services providers.

The changing face of fintech conferences

Large-scale events like Money 2020 and Fintech Meetup still attract many attendees. Renton observes a rising trend of smaller, more specialized events organized by fintech companies themselves. “What you’re seeing in the event space is more and more companies doing their own small events,” he observes. These specialized gatherings allow companies to showcase thought leadership. They help to engage with their target audience.

Opportunities in Banking-as-a-Service and Embedded Finance

Renton sees significant potential in the banking-as-a-service (BaaS) sector, despite recent challenges. He believes that new regulations will provide clarity and stability. This will create opportunities for community banks. As a result, they will be able to expand their reach through BaaS offerings.

“If you want to grow your community bank, it’s hard to do that geographically now,” Renton explains. “But if you open up a BaaS line of business, there are ways you can grow your bank.”

Embedded finance is closely related to BaaS. It is another area Renton highlights as ripe for innovation. He points to companies like Pipe bringing fintech solutions to non-financial businesses, particularly in the vertical SaaS space.

The promise of Open Banking

Looking ahead, Renton is particularly excited about the potential of open banking. With the anticipated release of new CFPB rules on open banking, he foresees a wave of innovation.

“Open banking… is going to be a moment in time, but then that’s going to be in place and people are going to understand the rules of the road,” Renton predicts. “I think there’s a massive opportunity once that gets going. And when all the data, when your data becomes yours and it becomes more portable. There’s going to be a wave of new fintech companies that are going to use that and take advantage of that.”

The big ideas for Open Banking and Embedded Finance

  1. There is a need for banking-as-a-service evolution. Renton asserts, “We need banking as a service. And it’s not going away.” He highlights the ongoing importance of BaaS in the fintech ecosystem.
  2. Renton highlights the rise of specialized events. “What you’re seeing in the event space is more and more companies doing their small events,” Renton notes. He points to a shift in how fintech companies engage with their audiences.
  3. He observes a growth trend in embedded finance opportunities. “If you’re a vertical SaaS company today and you’re not making revenue from payments and revenue from lending, you are behind the curve,” Renton warns. emphasizing the growing importance of embedded finance.
  4. Renton underscores the potential of community banks. He explains, “If you want to grow your community bank, it’s really hard to do that geographically now.” He suggests BaaS as a growth strategy for smaller banks.
  5. There is a rise in open banking innovation. “I think there’s a massive opportunity once [open banking] gets going,” Renton predicts. He anticipates a new wave of fintech innovation driven by data portability.

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          Resources Mentioned

          Fintech Nexus (formerly LendIt Fintech)

          Renton Co.

          Money 2020

          Fintech Meetup

          Pipe

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          How U.S. Bank is reinventing itself for the digital age with Chief Product Officer of Digital Platforms, Gareth Gaston

          US Bank Gareth Gaston

          In an evolving financial landscape, US Bank has emerged as a leader in digital transformation. It has reshaped the way customers interact with their finances. Today’s episode of the Tearsheet podcast features Gareth Gaston, Chief Product Officer of Digital Platforms at U.S. Bank. He discusses the bank’s decade-long journey of innovation and customer-centric development.

          “We’ve been on a multi-year journey on digital transformation across all facets that you can think of digital,” Gaston explains. This transformation has been more than just a technological upgrade. It’s been a cultural shift that has positioned U.S. Bank at the forefront of banking innovation.

          The journey began with the recognition that customers were using more than just physical branches. “When we started this journey, we were renting all our digital tools,” Gaston recalls. “We didn’t have a mobile app. We were kind of renting our online banking and bill pay.”

          From these humble beginnings, U.S. Bank has built its own digital platform and in doing so, laid the groundwork for successful future product development. In doing so, it has created award-winning apps and platforms that serve millions of customers.

          Here’s my conversation with U.S. Bank’s Gareth Gaston.

          Evolution of U.S. Bank’s Digital Transformation

          U.S. Bank’s initial move was to shift from renting digital tools to creating their own. This allowed them to develop in-house products tailored to their needs. This shift allowed for greater control over the customer experience. It resulted in faster innovation cycles.

          “We rebuilt our app from the ground up, below the glass and above the glass, as we call it,” Gaston shares. This effort paid off. The app got the recognition for “the best app in banking” shortly after its launch.

          Expanding Digital Services

          The bank did not stop at mobile apps. They expanded their digital offerings to include:

          • A voice assistant, now recognized as a leader in financial services

          • Spanish language conversational experiences

          • End-to-end digital mortgage applications

          • Same-day business loan approvals and funding

          Gaston emphasizes the importance of these developments. He highlights, “Our mortgage experience has won awards and it’s fully end-to-end. Most of our applications and processes are done digitally.”

          Enterprise-Wide Digital Transformation

          U.S. Bank is now expanding its digital capabilities across the entire company. This phase aims to enhance digital services throughout the enterprise. “Having had great success in consumer and business banking, let’s take that across the whole enterprise,” Gaston explains.

          This expansion includes creating foundational capabilities. They can be used across all divisions. From payments to wealth management and commercial banking.

          Embracing Open Banking and Connected Finance

          US Bank has embraced the concept of “connected finance.” It has created APIs that enable various use cases. These include embedded payments and partnerships with other financial institutions.

          “We offer both real-time payments and FedNow as one API,” Gaston notes. He highlights the bank’s commitment to staying at the forefront of payment technology.

          Leveraging AI and Machine Learning

          The bank recognizes the potential of artificial intelligence. U.S. Bank has recently welcomed a new Chief Artificial Intelligence Officer. This move underscores their commitment to integrating AI across their operations. From personal productivity tools to enhancing the product development lifecycle.

          The Big Ideas

          1. Digital transformation is a continuous journey that requires both technological and cultural changes. Gareth says, “We’ve been on a multi-year journey on digital transformation across all facets that you can think of digital.”

          2. Developing in-house digital tools enables more innovation and control. This improves the customer experience. Gareth says, “We rebuilt our app from the ground up, below the glass and above the glass, as we call it.”

          3. The reusability of digital platforms across the enterprise accelerates product development and ensures consistency. “The whole idea of reuse is that we were very intentional around creating these seven different platform groups”, explains Gareth.

          4. Open banking and connected finance are key to meeting evolving customer needs and expectations. “We embraced, uh, you know, we call it connected finance. But open banking, from the start of the journey in the U.S.”, Gareth says.

          5. AI and machine learning will play a crucial role in the future of banking. This requires dedicated leadership and governance. “It’s so important. We, this week, just welcomed our new chief artificial intelligence officer”, Gareth highlights.

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          FIs and fintechs can learn to partner more intelligently with Pacemakers’ Alessandro Hatami

          open banking alessandro hatami

          As the financial world evolves, open banking and digital transformation are opening up new opportunities. This comes with several challenges for banks and fintechs. In today’s episode, I sit down with Alessandro Hatami. He is a managing partner of Pacemakers, a consulting firm that offers a systematic approach that allows its clients to find the partner that is right for them.

          Today we discuss some of these seismic shifts in the fintech industry.

          Hatami has a unique background in financial services, spanning both upstart tech companies like PayPal and traditional institutions like Lloyds Bank. His background offers a compelling perspective on the future of financial services. “Financial services is the ideal digital product,” Hatami asserts. “because there isn’t a real tangible exchange,” he says. Yet, despite this potential, many institutions are struggling to embrace digital transformation.

          I’ve been saying for years on this podcast that the ability for both larger and smaller institutions to partner – to partner well, at scale, quickly, and deeply – can be a differentiated, defensible model moving forward.

          Hatami explains, “They have gone through an evolution. But they haven’t gone through a transformation.” The challenge facing the industry today lies in balancing adaptation with true transformation. from legacy systems to cultural barriers.

          Through Pacemakers, Hatami aims to bridge this gap. He wants to improve partnerships between established financial institutions and agile fintech innovators.

          Here’s my conversation with Pacemakers’ Alessandro Hatami.

          Three stages of financial services innovation

          Hatami outlines a three-stage model of innovation in financial services:

          1. Adapting – Banks begin by adapting existing capabilities to digital platforms.

          2. Evolving – Institutions develop new digital-only services not possible in traditional branch settings.

          3. Transforming – The toughest stage is rethinking financial services with a customer-centric perspective.

          “What’s on the other side is a financial services proposition. It is not designed to sell a product to an individual. But it’s designed at understanding what the individual needs,” Hatami explains.

          Overcoming challenges in fintech partnerships

          Successful collaborations between incumbents and fintech face several hurdles:

          • Timing mismatches between fast-moving startups and slower corporate processes

          • Difficulty in translating innovative propositions into terms that resonate with traditional banks

          • Identifying the right internal champion with P&L responsibility

          Hatami advises, “You have to explain to the big company what you could do for them. But you have to explain to them in their terms.”

          Rise of open banking and banking as a platform

          The concept of open banking is transforming the consumption and delivery of financial services. Hatami predicts, “The future in banking will be. The banks will become the gatekeeper of my financial relationship. The bank may or may not deliver the services and products I receive.

          “Banking as a platform” is a major shift from the old model where banks made all their products themselves. Now, banks collaborate with others to offer a wider range of services.

          Role of AI in reshaping financial services

          Artificial Intelligence presents enormous opportunities for the financial sector. Particularly in data processing and pattern recognition. AI will likely support, not replace, human interaction in customer service roles.

          “The way I think about AI is about it as an efficient, effective, interesting way of capturing data. Through the new visualization techniques. And also processing gigantic amounts of data,” Hatami explains.

          Cultural Transformation: From product-centric to customer-centric

          The biggest challenge is shifting from a product-centric to a customer-centric approach. This requires a cultural change. It needs banks to completely reorganize their operations. And change how they measure success.

          Hatami notes, “In a customer-centric world, banks must use customer segmentation for their profits and losses. Not just product-based metrics. This requires a complete transformation of how banks operate.”

          The Big Ideas

          1. Digital transformation in financial services is vital. “They have gone through an evolution. But they haven’t gone through a transformation,” Hatami observes. Banks must move beyond adapting existing services. They must reimagine their role in customers’ financial lives.

          2. Hatami highlights the importance of cultural alignment in partnerships. “You have to explain to the big company what you could do for them, but you have to explain to them in their terms,” he advises. Successful collaborations need mutual understanding and clear communication.

          3. Open Banking is the future of fintech. “The future in banking will be. The banks will become the gatekeeper of my financial relationship,” Hatami predicts. This shift will change the delivery of financial services.

          4. Hatami focuses on the role of AI in financial services. “The way I think about AI is as an efficient, effective, interesting way of capturing data,” Hatami explains. While AI offers significant opportunities, human interaction remains crucial in financial services.

          5. Hatami highlights the shift to customer-centric banking. “In a world where the customer is centric, they go through the segmentation P&L, not the product P&L,” he notes. This fundamental shift requires completely transforming how banks operate and measure success.

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          How Generative AI and open banking are redefining personalization in financial services with Curinos’ Olly Downs

          open banking holly downs

          Generative AI and open banking are beginning to change how banks engage with customers. Today we will look at this process with Olly Downs. He is a Chief Technology and AI Officer at Curinos. With a career spanning three waves of AI, Downs brings a wealth of experience to the table. He published his first academic paper on what we now call generative AI, back in 1999. “I’ve almost been waiting for the current wave of AI to join us,” Downs reflects. He highlights the long-anticipated arrival of today’s AI capabilities.

          AI-driven personalization will change digital banking. Banks are beginning to use it to recreate the personalized touch of traditional banking. Downs explains, “Traditional banking founded itself on personalized, high-engagement relationships. That followed families and businesses throughout their entire life cycle.” Personalizing the online experience is challenging due to the growth of digital channels. Curinos’ technology tackles this by analyzing customer journeys. It identifies the best times and ways to engage customers. This ensures that personalization continues in the digital space. The result is a more effective and tailored customer experience.

          Generative AI is not just boosting personalization. It addresses the entire marketing cycle for banks. This shift is redefining how banks approach customer engagement. It’s enabling and testing tailored interactions with numerous ready-to-use marketing creatives. The impact is both profound and widespread. The blend of personalization with open banking is shaping the future of banking. 

          1. Evolution of AI in Banking Personalization

          Downs traces AI’s progress in banking, from Microsoft Research to today’s generative AI. He notes, “We’ve done so much better in understanding language. And the human internalization of concepts.” This progress has deepened our understanding of customer behavior across different communication channels. It provides a clearer picture of how customers interact, enabling banks to create more personalized experiences. Banks nowadays are focusing on data-driven customer lifecycle management.

          2. Bridging the Gap Between Traditional and Digital Banking

          Modern banks want to replicate the personalized touch of traditional banking online. This is a major challenge in the digital age. “The most satisfied retail banking customers engage with a branch. As well as digital services,” Downs says. This insight highlights the need for a consistent experience across all channels. AI helps unify customer journeys. It offers context for both digital and in-person interactions. Achieving this consistency is crucial for a seamless customer experience.

          3. Generative AI: A Game-Changer for Financial Services Marketing

          Generative AI addresses the marketing process for banks. Downs reveals, “We’ve been able to stitch in with the help of generative AI… how can we be experimenting live?” This technology allows for real-time learning and adaptation of marketing strategies. It accelerates the creative process and campaign execution.

          4. Future of Open Banking and Personalization

          Looking ahead, Downs contemplates the convergence of personalization and open banking. He muses, “There’s an opportunity for thinking about… pricing and packaging, both of deposit and lending products that can become very personal.” Yet, he also notes the potential challenges in data consolidation open banking might present, suggesting a need for consumer-driven solutions.

          5. Micro-Personalization: The Next Frontier

          The conversation touches on the concept of micro-personalization. It means “personalization for an audience of one.” The goal of personalized banking is to integrate both branch and digital services. Downs notes that open banking trends and data privacy issues make this complex. These challenges make personalization more difficult.

          The Big Ideas

          1. AI-driven personalization is reviving traditional banking relationships. Downs highlights, “Traditional banking founded itself on personalized, high-engagement relationships.” He explains how AI is enabling banks to maintain this level of personalization. It is doing this across digital channels.

          2. Generative AI will change financial services marketing. Downs reveals, “It’s a massive unlock. It’s a hundred X unlock of the creative process in particular.” This technology allows for continuous experimentation and rapid adaptation of marketing strategies.

          3. The future of banking lies in the convergence of personalization and open banking. Downs predicts a future where banking products are highly personalized, stating, “There’s an opportunity for thinking about… pricing and packaging, both of deposit and lending products that can become very personal.” Yet, he also acknowledges the challenges that it might present in data consolidation.

          4. Customer engagement is key to long-term value. Downs explains, “The key use case has been about engagement and the path to primacy and maximizing quality of customers.”
          5. AI is enabling real-time learning and adaptation. Downs describes how Curinos technology can “generate new recommended creatives”. It does so in that “flow for the marketing team.” This allows for the immediate implementation of insights gained from customer interactions.

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