Video: Kathleen Pierce-Gilmore, SVP, on embedded payments and embedded banking: What’s real, what’s hype?

Steven Ramirez:
Hi, I’m Steven Ramirez, the CEO of Beyond the Arc, and it is great to be here at Finovate. I could not be happier about our next conversation. Kathleen, welcome! I’m so happy that you could join me, and I’m really looking forward to our conversation. Tell me a little bit about yourself and a little bit about SVB.

Kathleen:
Sure! I lead our payments business at SVB. I’ve been at SVB for about two years. Prior to that, I’ve been in fintech and financial services my entire career, spanning companies like American Express, Capital One, PayPal, and several startups. What I always tell people is that I feel like it was all leading to me coming to SVB. I’m now at a bank—which I love—but I get to work with a ton of innovative companies in the fintech space that I’m incredibly passionate about.

Steven:
I know firsthand that you’re doing some really exciting things in payments. So, let’s dive right in. A topic I think we both share a lot of passion for is embedded payments and embedded banking. It’s become a bit of a buzzword lately, with a lot of hype around it. Can you help us cut through the noise? What’s real and what’s just hype?

Kathleen:
Absolutely. It is real. The simplest way I describe it is: embedded payments happen when a technology company that is not formally a financial institution—like a bank—fulfills financial services for an end user, whether it’s a consumer or a small business.

Traditionally, if you wanted to access your money or get a loan, you’d go to a bank. Nowadays, you don’t necessarily have to. You might go to a software provider that is being powered by a bank. That’s embedded payments.

Steven:
Why is SVB well-positioned for that opportunity?

Kathleen:
Great question—and one that gives me a lot of enthusiasm about being at SVB. We bank the innovation economy. We literally bank the investors investing in innovative companies, and the companies themselves.

Our customers are often the very companies doing embedded payments. I could list several examples, but basically, any company innovating with financial services is likely banking with us. Since a bank is required to provide any kind of financial service, they naturally come to us first. We know their business incredibly well—we’re underwriting massive loans for them—so it’s a natural progression from being their commercial bank to powering their embedded payments.

Steven:
There’s a huge range—from startups in dorm rooms to multi-billion dollar decacorns. From an embedded payments perspective, is there a type of company you’re especially suited to work with?

Kathleen:
At SVB, in the embedded payments space, we tend to work with more advanced, later-stage companies. That’s partly because embedded payments is quite an undertaking. There’s a lot of risk management, compliance, and operational complexity that earlier-stage startups may not be ready for.

If you’re working directly with SVB for embedded payments, chances are you’ve already built out a mature and established business model and those risk functions. Earlier-stage companies often work with “as-a-service” providers that take on that value chain for them.

Steven:
You’re working with startups, and I think of it as an ecosystem. No company—no matter how big—can really survive alone. It’s all about partnership. But it’s not easy for fintechs to partner with banks. What does that partnership look like?

Kathleen:
Partnering with a bank is not easy. Banks are highly—underscore highly—regulated institutions. Even if you’re a client of the bank, when you’re leveraging it for embedded payments, you’re viewed more as a third party. You’re fulfilling components of a financial service the bank is accountable for.

No matter who’s doing each part of the value chain, regulators hold the bank accountable for compliance. So it can be challenging—for both the bank and the fintech—to ensure compliance is upheld. The bank doesn’t want to overburden the fintech, but it also can’t risk non-compliance. There’s a lot of effort involved in managing that relationship.

Steven:
Any advice you’d give to a fintech that wants to work with a bank like SVB?

Kathleen:
Definitely. First, make sure you’re working with a bank that has you as a target segment—and that they’ve invested in deeply understanding your business type. It’s likely you’re challenging traditional underwriting and risk management models, so it’s important they’ve dedicated resources to understanding your segment.

Second, make sure they have a dedicated business unit to support your unique engagement. Working with a third-party client is very different from traditional banking. You’ll need specialists across all functions who understand your model—because your operating model, risk framework, and even the economics are going to be different. You will hit bumps along the road, so make sure you’ve got the right support.

Steven:
One last question. This is such a dynamic time in payments. What do you see on the horizon? What excites you? What’s the next level of innovation?

Kathleen:
You’ve probably heard me say “risk” a lot today. I really believe that over the next several years, we’ll see even more companies incorporating payments into their business models—not only to improve customer experience, but also to improve their economics.

As that happens, the need for robust risk management will become even more pressing. Many of the challenges we’re solving manually today—things like know-your-customer or anti-money-laundering checks—will be addressed through software and technology.

There’s a huge opportunity for innovation to make these processes easier for banks and fintech partners alike. I think the next few years will bring a wave of innovation in the risk management side of embedded payments.

Steven:
Excellent. Kathleen, thank you so much for this conversation. And thanks to everyone for joining us here at Finovate 2022.