Lamps, Electricity, and Simplifying the Stack
Several years ago while at Finix, Matt Harris’ idea of financial services being like electricity grabbed ahold of my imagination. On one side of the plug, you have the software creators (the lamp makers) unleashed to create clever, specialized, and truly innovative user experiences. On the other, you have financial services (the electricity), with scale and reliability that is easily plugged into. The result is Embedded Banking, or financial products intelligently delivered within software platforms.
You then imagine something like Amazon Web Services or Azure – a cloud of infrastructure where a technology company can set up and expand with what it needs. But instead of it being servers and storage for your processing, it’s different financial microservices you can just consume into your software for your payments experience.
The problem is it doesn’t work that way. Yet.
Today, if you embed payments into software, it is sort of a mess. There are lots of wrappers that connect you to an endpoint, but behind it is another endpoint, and another until you get to a bank that is so far removed that it knows or cares little about the user experience it is enabling or blocking.
And that’s just doing one thing. The problem only compounds as you orient the user experience to the entire life cycle of money movement. The further out you are from the core, the more the number of endpoints compounds. Each with its own set of hidden business rules, each tying up capital – none of which are connected.
Want to create an invoice, accept a card, manage a net cash position, provide short-term liquidity, and then do a real-time payment to a user? (Just DM me with how insane that is for you.)
After jacking up the UX, this fracturing and layering of the payment stack then pushes the liquidity burden of inefficient money movement to the platforms and users. They have the highest cost of capital but tie up the most money in reserves and delayed settlement as work is spread across different endpoints.
The vision is to instead create a simpler stack that starts at the banking charter and builds out to a consumable set of services for platforms to “plug into.” Money in, money out, deposits, and credit together are the core of what a bank can do well. Augment this “core of bank” with extendibility and you improve working capital for the platform and cash flow for the user.
At the bottom of the stack, nearest to the bank core, you consolidate money movement and liquidity across a platform-managed subaccount structure. On top of that, it’s a risk management layer that sees the whole picture, simplifies compliance, and eliminates duplication. Then on top of that in the stack is the exposed set of services enabling the builders. This simplified model is how you solve for UX, improve liquidity for the end-user, and enable use cases that are yet to even be conceived. It’s the outlet you plug into.
Just think about how much simpler that is: a primary bank partner who you work directly with that lets you do receivables, payables, deposits, and credit together. One that is empathetic to your vision. One that gets it.
I’m pumped to make it happen.
