Episode 44: Banking in disguise — When every app becomes a bank

Elizabeth (Liz) Dempsey:
Welcome back to The SUMMIT Summer Series, a special presentation by The PayPod, the podcast from Payments Canada that explores the trends and topics influencing payments in Canada and around the world.

I'm your host, Liz Dempsey.

Today, we are bringing you a panel from the breakout stages at The SUMMIT on embedded payments. Entitled "Banking in disguise: When every app becomes a bank," the session explores the changes happening in the payment landscape as retailers, tech platforms and service providers increasingly embed financial services directly into their apps and platforms.

In this episode, we join moderator Dina Vardouniotis, CEO at Payments and Partnerships as she guides an expert panel featuring Shirley Sue from FreshBooks, Tim Morris from Neo Financial, Rojin Nair from VoPay International and Daljit Singh from EQ Bank.

Their conversation explores how regulatory shifts and new access to payment systems are creating opportunities for innovation and asks the question, as the boundaries of banking dissolve, who really owns the future of money: the bank, the brand or the app?

Enjoy the conversation. Here’s Dina Vardouniotis.

Dina Vardouniotis:
Welcome everyone. The title of the session is banking in disguise. So it sounds very sinister. That's not the uh intent especially in a room of many people where regulations are top of mind. So welcome. I'm going to start with asking each panelist to introduce themselves and I will start. My name is Dina Vardouniotis. I head up a company called Payments and Partnerships. A few people in the room from the company and we're excited to be here today.

Shirley Hsu:
I'm Shirley. I am the GM of payments for FreshBooks. And for those of you that don't know what FreshBooks is, we are a small business management software helping small businesses run their business and focusing on their financial aspects of their business. So, bookkeeping, processing payments. We've just started embedding lending as well that I'll talk a little bit about.

Tim Morris:
Tim Morris, I'm the Chief Banking Officer for Neo Financial. Neo is a westernbased, Calgary based fintech. We offer deposits, uh credit cards, mortgages. We have uh investment and referral relationships. We've grown to serve over a million Canadians. Uh we're about 650 employees, really passionate about helping the average Canadian get ahead. So, hope to talk a little bit about that today, too. Perfect.

Rojin Nair:
My name is Rojin Nair. I'm the chief strategy and growth officer of VoPay International. So for those of you who don't know VoPay, we are a middleware and infrastructure as a service for embedded finance. We started in Canada, expanded to the US. Now I'm in the process of expanding to LATAM and EU and we just announced our global HQ in Doha Qatar as part of the expansion to the Middle East and Asia Pacific.

Daljit Singh:
Thank you. Last not the least, I’m Daljit, I lead the payments and partnership at EQ Bank and we'll talk more about EQ Bank. If folks who are reading the news article today, there's a bit of the development that happened out in the market. We'll talk more as the panel progresses. But yeah, payment nerd like most of you, I have worked across a couple of global markets. So definitely I bring a broader perspective about the evolution and the innovation which has led to the disruption in payments across markets and most of these will finally happen in Canada. I worked across at some large like I've got experience at networks, visa side for a couple of years and obviously at HSBC and some large issuing houses like G.

Coming to the EQ side of the house my role at EQ is exactly like we play the role of the two sides of this transformation journey. We are a direct to consumer bank of our own and we also provide embedded finance or a banking as a service payment as a platform as a service platform to the fintecs which is where obviously banking in a disguise the topic that we are going to chat about exactly synergizes with that. So I'm looking forward to this interesting conversation with my panel members.

Dina Vardouniotis:
Amazing. So the big theme today so far has been these two converging forces. One is regulations moving very very quickly. Some would argue not quick enough. And infrastructure as well, a massive change from an payment infrastructure. Many uh in the room are working on those things in parallel. So setting the context around that.

I wanted to start with you Daljit because there's a duality in EQ strategy from the very start. There was a vision around EQ's direct to consumer play, direct to business as well now. But there was also a vision around EQ being an enabler of the ecosystem which was very unique, right? There was no sense of competition but very much a contributor to an ecosystem builder. Do you want to talk about that a little bit?

Daljit Singh:
Yeah, perfect segue into this discussion for today. Like as I mentioned about EQ or Equitable as we were known as like we have been Equitable Bank our parent entity has been in the market for over 40 plus years. Primarily we started as a lending institution into mortgages and commercial lending. Now of course this institution working like a challenger bank was at the outset started by the vision which was created by Andrew Moore for a couple of years was to make a difference in this banking infrastructure and obviously enrich every Canadian's life like when it comes to the providing the best of the banking capabilities and we wanted to ride on best of the access best of the products and best of the technology investment that we wanted to do now as we continued in this particular pathway.

We started our direct to consumer arm a couple of years back, almost 10 years back, and while we were setting up the infrastructure for our direct to consumer arm, the EQ Bank, we realized that there is definitely a scope to take the infrastructure that we have created to the wider community which was a natural extension of our capability set to cater to the growing needs of the fintech side.

So that exactly led to the evolution of our platform as a service business. So which is where exactly we have the same infrastructure which we created whether the infrastructure is around regulatory licenses managing the money movement from A to B or ensuring the regulatory compliance and working like a sponsor bank behind the rails we play that particular role for the fintecs. So there are a couple of interesting programs which are already running.

Now as we strengthened and as this ecosystem and the infrastructure was created obviously, the role of the sponsor bank also evolved over a period of the time like one of the larger play is around strengthening of the oversight framework and the regulatory compliance angle which in the last 18 to 24 months which we have seen there are a couple of interesting changes which have started happening.

So the role of a sponsor bank is obviously to take all those changes in and try to create the best out of it. Now everything ties back into the vision that we created like everything that we do should be to make a meaningful impact to every Canadian and that obviously includes our wider community of the fintechs either these are homegrown fintechs or these are fintechs who are coming from outside Canada but they want to make a difference here.

Dina Vardouniotis:
So yeah and and looking to your right Rojin, an amazing homegrown fintech who is making waves like you talked about internationally. So we always love that story. EQ's role as a sponsor has been important to VoPay. But you also work in other geographies, other jurisdictions with various different models, various different approaches to go to markets and different regulatory frameworks. Can you talk about how that has impacted your approach to building your business?

Rojin Nair:
Yeah, it's definitely a lesson learned, right? So we started like everybody else as a payment company and soon started realizing the value in payments alone. It's a commodity. So it's like if you offer payment for 10 cents, somebody's going to offer it for 9 cents and then it's going to be a race to the bottom in many ways. So we started realizing the value is around what happens around that payment right. So the ledgering the uh smart routing the treasury and the cash management all of those value add so this companies you know like a software company recently had an insurance company they're in 34 countries and their biggest problem is every jurisdiction they go to now you have to have a different compliance reporting regulation all of those overheads.

So what we did was we started moving towards infrastructure as a service for embedded finance. You know, think of it as a toolkit like a bunch of Lego boxes. So we have the core ledger treasury cash moment all of those in the middle and we kind of wrapped it with compliance onboarding all of those wonderful things. And the top end of that is connection to the banks to the payment rails and the ERP systems. So now I can go to the market and say to these companies, hey you don't have to really worry about that last bit of complexity. Our job as a middleware is to absorb that complexity.

So like sitting in the middle we just connect um you know this big software platforms uh from different jurisdiction through you know solutions that help them with risk with compliance and basically the connectivity. So it's an installation layer.

So that's basically what's allowing us to now I was talking to somebody we had a global expansion which is not through going and opening an office in every one of this country. We integrated software in Canada three weeks ago. That company is now expanding to eight countries in LATAM so the only thing I have to do in LATAM is to change my compliance module, regulatory modules, the reporting modules to those count's jurisdiction and connect to the local rails. So that one integration is going to carry them into any countries they expand to. So the more you actually can act as a central Lego piece that you can add you know pieces as you need, the more your survivability globally would be and the banks who provide the backbone to support that will be a great partner for us.

Dina Vardouniotis:
Excellent. So Tim, I will always call you the banker that went to the other side. And so, you bring a lot of credibility and perspective. You've joined one of the most successful fintechs in Canada and are, you know, started with payments and are on a huge path to scaling through embedded finance and an ecosystem of relationships. Do you want to talk a little bit about the infrastructure and regulatory frameworks that allow or promote or block a challenger like NEO to scale?

Tim Morris:
Yeah. And I guess full disclosure, I didn't mention this at the beginning. I've been with Neo for about three years, but I spent about five years with a digital bank and before that almost 20 years with a traditional large FI. To your question, yeah, the embedded finance or the intermediary model I think has been very important for Canada to provide a safe and straightforward path for FIs to participate who aren't traditional banks. That's probably the best way to put it.

With that though, it's come with some challenges in that it is very much a balance sheet first mindset as in if you're a balance sheet or you're a bank, you're safe. And if you're not a bank, you're not safe. And it actually has had unintended consequences. It's created some barriers from a trust perspective in the ecosystem for new entrants or those who are innovating fintech are one of those categories in spaces but we've seen some very positive changes I think from a policy standpoint. Neo actually just announced today, again full disclosure, that we became a member of Payments Canada. A huge milestone, thank you. Yeah we're very proud it's a massive step forward for a traditional non-bank to take and what it does is it gives us the platform to really access the ecosystem and to drive change and innovate in that space.

The key is that it's just the first step and what we're really advocating for is how do we embed some of the thought process that went into some of the competitive policy changes some of the forward thinking we're seeing from organizations like Payments Canada and then that flow that through into the ecosystem because it, you know policy starts here but there's just a series of stacked conditions that you actually need to meet to get to that trust point that I was talking about at the beginning. So, you can say, "Yeah, I'm a member of Payments Canada now." But you're going to need to actually do step two, three, four, five before you get to this point where you'll be held in the same regard as some of the more traditional FIs.

And I'll just give you a quick example on the deposit side through the the Retail Payment Activities Act (RPAA) legislation, which was another good step for Canada from a competitive standpoint, from a safety and security perspective for customers. Neo is a registered PSP, a payment service provider. That means we're there's oversight from the Bank of Canada. We meet all the requirements. The point is it has given us the platform to be able to place funds in safeguarding with a CDIC member institutions. So think large banks, small banks. The point is money is taken care of, insured like meeting all all of what our customers expect from a trust perspective. And even though the deposits are CDIC eligible and they're with CDIC member institutions, we still can't put the logo on our website, it's just one of those friction points that is downstream that we've got to start to knock down to really open this up some more. So we're making really good strides. It's been a huge uh I'm going to say uh amplifier for fintechs. The the key now is okay, how do we take it to the next step? Because if we really think like the payment ecosystem is statecraftraft as we heard this morning, this is imperative. This is really key. Yeah.

Dina Vardouniotis:
It's the first time I've heard uh anyone refer to it as a balance sheet mindset and it's an incredible lens to then view our ecosystem through. And so that was fascinating when I heard you mention that. Shirley you've led FreshBook's payment strategy and you've made some choices around how you've built the partnerships to deliver embedded payments and lending solutions and other and was wondering if you could speak when you look at the regulatory tradeoffs that you've had to make in determining the right partnership structures and the right approach. What did you learn?

Shirley Hsu:
I want to take a step back for a second and talk about why embedded finance or banking in disguise just makes sense, right? So FreshBooks actually serves a heavy US market, but we're homegrown in Toronto. And the US market is very advanced in their embedded finance journey and we're catching up, right? So some of the regulation points we hit on I would say 80 percent of the subscription tech companies in the US are on this embedded finance journey. And it just makes sense.

So someone like FreshBooks, our customers are on our apps every day. They are, you know, invoicing their customers. They're tracking their expenses. It just makes sense for the financial aspect of their business to also live on it. So that was the first step of our journey recognizing that it makes sense.

Then the next step of our journey was how. What's part of the infrastructure available to achieve this? There were three key infrastructure points that we had to weigh the pros and cons and you know the margins and the ROIs and so on. The first way is the simplest way and there's a reason we're sitting like this because EQ is the sponsor bank and then VoPay and Neo are uh the layers or front end and I'm the front front end. So the first way is hey I can just send my payment volume all the way to the sponsor bank and it's a gateway model and EQ Bank pays me a rev share for that. I can probably get 30 to 40 bibs on a card transaction on that model.

The second model, which is the one we ended up choosing. So, a little bit of a surprise is called the payment facilitation light model. So, it's where we partner with someone like VoPay. So, the middle layer to manage all the infrastructure while they have a sponsor bank. We ended up partnering with Stripe. But we take on the risk, we take on the customer experience, but we do not take on the compliance, the tech, the build and all of that. That's way too much. It hurts my brain. Rojin, thank you for taking it on. So in that model, I can probably make anywhere from 60 to 80, 90 bibs in margin. So, significant lift, worth the effort.

Then there's a third model where we can become an MSB. So some more like I think what Neo is work doing now we can become an MSB but then the tradeoff was so significant right so I can probably get about 90 to 120 bibs to become a proper MSB but imagine the team I would have to have to manage the compliance aspect to manage the risk aspect we're talking probably 25–30 people in a team alone that the margin increase for our volume and the team that was required just didn't make sense for us. So, we ended up choosing the second model.

But what we did do, we did payments first, right? Which makes sense. That's your core getting paid, invoicing and billing situation. But then we said, you know, we kind of really like that 120 bibs margin. How can we expand and get that without doing all the infrastructure and owning the compliance? And we started expanding into embedded lending, embedded financial aspects of, you know, buy now pay later, instant payout, embedded insurance. We started expanding into those areas like other embedded financial services that are incredibly high margin that are now adding to the RPO that uh we are seeing from our customers. So that's the model we ended up choosing.

Dina Vardouniotis:
It's a great example of SAS companies who are really monetizing embedded finance as a key P&L driver. Yeah, fantastic.

Daljit you ended off your comments talking about the oversight requirements in RPAA as well as others and your role as a sponsor bank. There's an interesting question around the clarity of customer ownership and your role as a sponsor bank and how you see your role as a direct to consumer bank as well as the PSPs that you support. How have you been able to frame that? Um and what are your thoughts around it?

Daljit Singh:
So great question Dina. If I just take a step back basically in this entire journey that surely explained the FreshBooks example or the Neo journey because Neo has so many different kinds of the programs rolling under them. It's sometime it's a very difficult thing to understand exactly where is the customer experience going through like, who is exactly the customer belongs to whom? Whether in this example the customer belongs to FreshBooks customer belongs to the option number two which you have chosen where there is a downstream or a middle layer sitting like a VoPay in between or the customer belongs to the sponsor the bank which is managing the complete backbone from our experience and I would say how the regulatory environment is shaping up it's a very shared responsibility model. Why I say that is obviously the entire the original fintech or the program manager who is actually bringing the customer it manages the complete experience for that particular customer whether it is about acquisition or it is about onboarding, doing the mandatory KYC checks and ensuring the day-to-day transaction are happening the way these are designed for.

But when it comes to managing the movement of the money where the actual money movement happens with the minimum of the friction the payment rail gets involved whether the payment rail gets involved directly by getting connectivity to the sponsor bank or through a payment processor like VoPay sitting in between, that's where our role gets little bit complex and a technical. Because as a sponsor bank, especially the last 12 months, nuances and the developments which have happened like whether it is the MS B requirements by the FINTRAC or it is the RPAA requirements which is around the safeguarding of the funds and strengthening the oversight. The sponsor bank is something which is putting their name under the hook. So anything any transaction that goes as part of this entire design or the workflow it's finally the customer from the regulatory lens the customer belongs to the sponsor bank.

If tomorrow they figure out anything like in the recent past there are a couple of things that happened in the Canadian ecosystem like it's the sponsor bank which is always always the first one which is being asked that okay what exactly happened in these scenarios. Like first, are you aware of it, how did you approve it, what actions did you take to fix the gaps and everything blah blah blah. So that's why that's why I say it cannot be a silo it has to be the shared responsibility because end of the day depending depending on the option that surely mentioned about option A option B or option C whether you work like MSB, end of the day the sponsor bank definitely is giving those responsibilities to the fintech to run this particular piece but we still need to have oversights and the oversights are not only around AML transaction monitoring controls the fraud it's around the daily reconciliations it's around the operational stuff which keeps on happening and which obviously all of this combination of this leads to the lot of the reputational and the third party risk which we bring to the ecosystem.

So that's why historically if you look at the couple of examples. Suddenly there is a wave of fintechs which are coming up, then a lot of the interesting use cases because historically the banking and it was very difficult for the banking licensing to remove files. Yeah the capital requirements were quite tough. The compliance requirements of the rules were not exactly framed for the fintech environment. But suddenly yeah regulators have started shaping up. There are a lot of interesting changes which are happening. The regulatory approval if all of you would have read uh this recent announcement by the ministry of finance that going forward they are looking at a pilot where any of the neo banks when they or the fintechs who come for a banking license they will try to move this application at the fastest way possible.

I just mentioned starting off like just on a side note like EQ Bank just acquired PC financial and this morning we just got the final approval from the regulatory that the entire approval happened in three months time. So this is the fastest approval that we have seen in the Canadian banking ecosystem. I would say I just came out in the afternoon from a talk by our CEO to a larger banking community like in the last 20 years. He just quoted this fact like the so the regulators have started changing. But regulators have started changing because they believe that okay change can happen in this ecosystem but change can only happen if all the pillars all the drivers have to move together it's not only the fintech which can build the best of the infrastructure they can build the best of the experience. Fintechs generally are always want to have the product as of yesterday yeah but the moment they start talking to the enablers and the sponsor bank because there various things which we need to do to ensure that everything which is happening should happen in the right way because end of the day everyone is accountable for the same transaction.

Dina Vardouniotis:
So yeah well said. Tim I'm going to jump to you you mentioned the trust component and and millions of Canadians are obviously trusting NEO uh with their banking and not just one product but several products. You were recently in Ottawa and so you've spent some time right advocating and and to Daljit’s point we are seeing a faster more responsive regulatory climate if you will and and I think that's been refreshing for a lot of us. Can you speak to your observations being a challenger bank and really wanting to sort of earn that right to the level playing field that we're all looking for?

Tim Morris:
Yeah, it's interesting, like as an industry we've got an obligation to be clear about accountability, ownership, safety of the customer and their funds that is unambiguous right like very clear even if at times there are some models that are more complex. I think the introduction of some of the pieces that everyone's talking about — the RTR, open banking, everything — is actually creating the condition for a much more, let's say like empowered or independent customer. So when we talk about ownership of a customer, it's kind of an industry talking to itself and important from a regulatory standpoint not to look pass it. But at the end of the day it's just like customers are like no I I bank with X Y Z whatever it is. The whole point here is the customer is going to own the customer going forward and that's coming together fast and this is not meant to be a Zen kind of statement. It's more about the conditions are there for agency for people to realize that they own their data, they own their information and they can actually use it to help themselves get ahead.

And this is not like a fintech bank, you know, adversarial thing. This is actually more around as this gets adopted and introduced, I don't think there's anybody in the room here who's going to be like, "Oh, I don't want Dina to have her information like that." like no one's going to do that regardless of where you sit organizationally. So it's a question of okay with some of the changes from a policy perspective with some of the frameworks that are coming in with the fact that people are coming to this realization are we as an organization or industry for that matter going to lean in on the fact that we can help empower the actual customer to get done what they need to get done. And I think that's a new value lever that you don't have to be a bank or a fintech to really grab a hold of but it is going to change it's I think in our hands collectively as to how quickly some of that changes. So just a different perspective on the question.

Dina Vardouniotis:
It's a really great perspective. It's leveling the playing field by actually shifting the power to the consumer and and that notion of instead of talking about customer ownership or creating a moat around you know not having customers leave us, it's about how do you put the customer at the center of their financial journey and having more choice and competitiveness.

Speaking of which, Shirley, so small businesses — close to my heart — have always been underserved traditionally in in our financial services landscape at least in Canada, not sure in the US, but FreshBooks has played a very interesting role through the reach that you've had and the interface and connection to small businesses. How do you feel about your role through embedded finance actually making a small business more competitive, more able to to survive and thrive in this very challenging market that we that we all live in right now?

Shirley Hsu:
Yeah, I think that I 100 per cent agree. The customer ultimately owns their experience and their data. I think that the complexity of the models I described is you need to have a really close partnership with all your partners within that flow right — VoPay and the sponsor banks — you have to have very close relationships to work together like Daljit’s point to make sure that the customer experience is protected, to make sure that the data is protected. Even though Freshbooks technically owns the data for certain products, certain products we don't own the customer experience. For example, embedded lending, we have a specific you know deal with Stripe where they actually own the lending experience. We own the payment experience, right? So the lending experience is we co-market together, but then Stripe owns it, but then it's super confusing to the small businesses that are using it. It's like, so do I talk to FreshBooks or do I talk to Stripe? Do I talk to VoPay? Like who do I talk to? Sometimes they call both. And sometimes we give different answers and so to better the business experience, we need to ensure that we are constantly partnering together well and at the end of the day your contracts need to be super clear and clean.

Dina Vardouniotis:
That's a great point. Rojin, this is an important role that you play.

Rojin Nair:
So it's an interesting thing. So I'll give you two lenses. It also varies by market. You go to the Middle East, Europe and Latin America, it's a completely different perspective right because they're much more mature. So you if you take North America, basically in embedded finance I believe that you don't 100 per cent own customer in isolation any one of us right. So you know we share the data you talked about the data we share the instructions we share the context that's what between all of us we got. So if you take property management, you know, if they went through a property app, the app owns the experience, you know, the rails move the money, the bank holds the deposit and a company like us does the orchestration. So, it's a kind of a completely symbiotic ecosystem and it's not a monopoly. Great.

You go to Asia, you go to India and State Bank of India, they launch something called Yono. You only need one. They do everything. So in that case everything that I just told is wrong. Okay. So there is that and then it's interesting some of the comments office made. Uh so if you look at the Canadian banking ecosystem there's a lot of consolidation happening. It's a fascinating paradox but if you look at the financial infrastructure distribution channels, so meaning companies like us you guys are doing your own lending you have your own deposit. We're all coming in and opening these channels which means like for example after RPAA now all of us can get direct participation with Payments Canada with Bank of Canada I mean look the degree of separation is not five layers now I can provide that service straight to the underlying fintechs so all of a sudden in this well regulated and governed system, the way I see it is, banks, they realize that they probably move at a slower pace but they can be that financial mother ship the rails can be the digital enablers and every fintech can be the new digital branches I mean you're a digital branch you're a digital branch I am not a branch but you have the option to be the branch and the enabler of the branch.

So I think all of this at the end of the day from the customer centricity is connecting and I think we've finally turned that corner with, you know, even though there's a lot of RPAA related things that are still unsure. Kudos to Payments Canada. Great. You want to get an account with the Bank of Canada and directly deal with us? Welcome. Here's a red carpet. So, it is really helping with this customer sharing with the service. The customer wants the customer because they don't really care about payment rails or you know whether VoPay or EQ Bank. they just need to do the rent payment at the end of the day. So, it's happening at a great time.

Dina Vardouniotis:
It is happening, right? RPAA was almost that first step in making sure that fintechs had an operational risk compliance environment at a level of maturity. Also understanding who's who in our ecosystem and mapping all the different players. But certainly that maturity piece created a gateway to direct relationships within Interac, Payments Canada. When you think about, Daljit, EQ's role, how are you thinking about continuing to be this enabler to the ecosystem and whether that will lead and fuel inclusion and competitiveness?

Daljit Singh:
You know we completely fully agree because going back to my point that okay who is EQ? EQ is the first challenger bank and one of the largest challenger bank I would say in this particular market. Let me just step back again going back to the vision that Andrew created the EQ again going back to that okay we wanted to make a difference to every Canadian's life. We wanted to have the best of the banking which obviously we wanted to challenge the traditional banking model. The traditional banking model was very closely controlled. You were not able to offer any kind of flexibility, no flexibility of lending out your API or like exactly there was no flexibility. The doors were locked. Now when we entered this particular market a few years back, we were the first one to actually come out with the no fee banking. We were the first one to come out with one of the highest interest rates. These were really great concepts at that particular time which have been carried forward by a couple of interesting banks including Neo in the recent past.

We obviously wanted to take this forward to the embedded finance and embedded banking space as well. So that's where we expanded and we already have a couple of very interesting programs already under that umbrella, whether it is about doing government dispersals program. All of us remember the wildfires that hit the northern part of Canada. So EQ, the banks like EQ stepped in we partnered with the government because traditional banking was to cut a cheque, mail the cheque and you know how much time the cheque will take and then how much time it takes to clear a cheque out. We stepped in. We stepped in, worked with the fintechs again. Where the last milestone of the payments exactly were happening through the prepaid cards whether it is a virtual or a physical prepaid card. We had another interesting use case like we partnered with a small business fintech who operates in this particular domain, where they have a set of the clientele who wanted to make multicurrency payouts and because they had lots of vendors which are spread all over the world. The traditional banking model they had is, it's a very costly affair. Every wire will cost you anywhere from 50 to 200 bucks depending on which currency and then different kinds of the foreign markups. We stepped in again, we said okay these are the kinds of use cases where EQ definitely can step in because this again ties into our fact that we want to play like a challenger bank here, we want to continue with that particular spirit forward like we are definitely opening up to this.

Now there are few infrastructural things which are still required — open banking as Tim mentioned because open banking stack is definitely going to help us because the moment different set of the partners open up and talk about data portability this will definitely open up many interesting use cases to come in. How does it all tie into the oversight framework? I think it’s still early days to talk about. The second thing is we definitely need more of a platform as a service model in this. The regulatory environment is opening up which is really good. Payments Canada is giving direct membership in track. Opening up and giving a direct connectivity to the fintechs, these are great signs and the RPAA within a year, 1800 PSPs have been cleared by the Bank of Canada. These are great signs but how RPAA evolves over a period of time, I think that definitely yet to be tested out. So once all these things are in place, definitely there is lot of room for players like us to provide this embedded banking because at the end of the day we all need to ensure that what we bring to the table is building trust and the governance in the whole ecosystem. So that there are no bad actors in the ecosystem because one bad actor can actually spoil the whole game and this is something that the regulators definitely will watch out very closely.

Why the regulators historically were not opening up because there was a fear of failure. Like the regulatory licenses used to take a lot of the time because they were not so clear when once there is a bad actor how much time does it take to wind down and how does this impact the end customer whose funds are sitting with that particular entity.

But as the environment is opening up and there are a lot of learnings which are coming across markets, regulators are actively talking with the other regulators of the different markets. This is where the players like VoPay and other fintechs who operate in the different geographies bring a lot of knowledge from those particular markets which is definitely helping in strengthening the complete oversight engine. So coming back to EQ, we are really excited about both sides of the coin that we operate in. One is the direct to consumer channel. So obviously our own EQ Bank which has got four times kind of the jump in our portfolio because of the PC Financial acquisition which all of us would hear about in the next couple of the months.

We are really excited about how about this because this opens up many more opportunities which currently we didn't have, like this gets us credit card lending, auto and the different kinds of the insurance business and not to miss the loyalty rewards platform. How can we leverage that infrastructure for the platform as a service business? We are obviously looking into that particular space because there are a lot of synergies which we can take forward.

Dina Vardouniotis:
Excellent. Tim another founder created company, Neo, bringing the outside in perspective financial services and really to fundamentally create choice. We heard Alex in the other room from the Neo team really talk about in parallel, right? Running open banking and the RTR, committing to those, really being at the forefront of what's to come and making sure that you're ready for the future. When you think about being a challenger bank, how do you think about the big bets that you're making?

Tim Morris:
We think about ourselves as being a primary financial institution for our customers and a big part of that is actually knowing what you're good at and focusing on that and and I'm raising it because partnership is a really key theme hopefully everyone's picked up on here today. But it's knowing that if you are a traditional FI like great at balance sheet, great at managing the lending book deposit holding, like those are those are core strengths. If you're a fintech or a payment uh provider, you probably have the front end innovation and tech on your side. So the world that we're in right now, while there may be restrictions, there are doors that are open where partnership actually allows you to accelerate and leverage the strengths of others around you. So this is not like a winner-loser category. This is in fact okay like how do you win through those partnerships in the industry to achieve your goal?

So for us like we were founded on partnerships, like actually our tech chops uh actually was a competitive advantage in the commercial space for credit cards. We actually created our own and launched our own processor. Like if you if you're in the card space, you know there's a massive deal that turned into becoming a Mastercard issuer, which turned into co-brand partnerships, which opened the door for us to have relationships with over a million Canadians, having a level of insight and depth around their payments and their lending profile, which has allowed us actually to reach an audience that most traditional FIS do not either want to reach or invest in reaching. It's just too hard for them to do it. So, we reach those customers. We're a distribution channel that a bank can't get to and those people actually have deposits. And so, we partner with the banks to place those deposits. And so, like this is the kind of, we focus on what we're really good at. We partner with those who are really good at what they're good at. And that just creates the opportunity. So, if you're taking anything away, fintech space, payment space, partnership can open the door to channels that you otherwise wouldn't reach. Talk to someone like a Neo, talk to anybody up here or today about that opportunity because I think it'll open huge doors. So, like that for me is kind of where we're going in this.

Dina Vardouniotis:
I love it. So, company name payments and partnerships, hence why. So, value creation through collaboration is our tagline. Rojin, I would love for you to speak about the important role you play. There are different financial institutions in the room including credit unions and non-big five big six banks. If you can speak to the role of partnership and infrastructure or platform enabler and how you supercharge these organizations to go to market to reach their customers to provide solutions.

Rojin Nair:
Yeah, I mean I was just listening to all of this conversation and and you know one of the interesting things if you look at infrastructure — I mean you remember the days of you know shared services the cloud platforms why is Google big — it's purely because of the data and the insight and the knowledge. So, if you look at the banking from a banking lens, when there's $2,500 moving from point A to B, it's $2,500 moving from point A to B. It needs to be regulated. It needs to be nonfraud. Great. Everything's a checkbox. You're done. But where platforms and players like us come into play is I actually got context about that $2,500. So, I know if $2,500 comes from an employer to an employee and this time it's 25 per cent more than the last five years, either you're getting a bonus or there's fraud going on. Okay?

Now, take another scenario. Because we connect to payroll companies, we connect to insurance companies, we connect to lending companies. We're connecting all of these dots. So, I'm sitting in the middle. So, let's say I got a $2,500 mortgage payment, you know, pre-authorized debit coming tomorrow. And as a middleware, I sit there and look at my account, meaning Rojin’s account and say, "Jesus, Roan has only $2,000." And that's because his payroll company did not pay it on time or the T+3 settlement didn't happen. Don't care. But tomorrow, if I go pull that money, Rojin is going to have an NSF. So it's my job as a middleware to tell the mortgage app, hey just give a notification to Rojin so he doesn't end up NSF. That's data sharing and context for the benefit of a customer. So we talked about customers being the empowered ones here. That's what you know companies like us do as a middleware and that benefits everybody including the customer. So that's really where I see you know this collaboration.

And I mean Tim talked about how everybody needs that partnership. So banks are playing. I wouldn't have been saying this five years ago but they're playing well into this ecosystem. When I go in and say hey I got a client with X billion dollars sitting there that could be in your balance sheet. Perfect. How can I help you? So it's no longer no no go away. I'm going to deal with that client. It's become that symbiotic ecosystem that I talked about where they're not so keen on monopoly anymore and all of this RPAA and the RTR all of those things are really really helping saying, hey digital firm you know. I know Neo from day one I mean the the amount of advancement they made a big five couldn't have been making that in 20 years, that's how fast they moved. So that realization is there and now everybody I think has come to terms that working together in a partnership model is much better than the siloed approach because that's what the rest of the world has done. Nobody really cares. I mean you know you look at UPI and Pix Brazil, 45 billion transactions. I mean right? And it's not a bank, it's not a payment rail, the government ended up building it. And you know like, the last time I went to India I took a State Bank of India card because for the 35 years I've been away I never had access. I took a card, it's a debit card. I went to Dubai and tapped into the metro and it debited money from my bank in India real time. So working towards that I think there's a realization, the US is a bit faster on us, that it's not going to work in silos. It has to be a partnership. So that's my mantra going in.

Dina Vardouniotis:
I'm still trying to get my debit account for my bank account in Greece. So I feel like an epic failure here. But anyway, using prepaid though. Shirley, you've built the embedded finance basically strategy based on partnerships. Do you want to talk about looking into the future and the opportunities you see for Fresh Books or companies like Fresh Books that are SAS companies observations that you've made in the US? I know most of your customers are in the US and how you're looking to grow.

Shirley Hsu:
And I think you know I say most of our customers in the US because that's where it was easier to get into right? We didn't have the infrastructure that we're starting to build out. I'm so excited to hear all the announcements that's on the stage today from EQ, from Neo and so on because we're moving in the right direction. We're actually moving faster than I thought we would move, which is exciting. I only joined Fresh Books about three years ago, so I was in this space and uh so seeing things is one of the big things. Yeah. So seeing things move in three years is really exciting. I was reading up on some metrics yesterday. It's a legit source, I promise. It's the embedded finance projection for the US is going to be 26 per cent compounded annual growth rate by 2030. Canada is about five to six per cent projection.

We can change that and I think the speed at which we're talking now is different. It feels different. We can change that. We can get that to 10 per cent. We can get that to 20 per cent. There's so much room and opportunity and at the end of the day, you know, maybe not a consumer, but for small businesses, you want your finance to be disguised inside what you work with every day.

You don't want to log into multiple systems and say, "Oh, did I do this right? Did I do that right? Let me just check my login." Okay, AI can do a lot of that for you now. But still, you want to be able to do that inside where you work with every single day. I don't want it in my emails, don't get me wrong, but for a small business, invoicing and billing, they want it in there.

Dina Vardouniotis:
So, you know, just there is a sense of optimism. I think finally most of us who have been in the industry for a super long time are feeling this sense of change and momentum. Where is your optimism when we look ahead and come back a year from now? And just going from my left to right if you guys could leave us with a few words.

Daljit Singh:
So I would say uh when we meet here next year. And the payment ecosystem and in the last six months we got a really interesting positive message coming in from the government. As Rojin mentioned because of these things, innovation can happen if the regulators can actually make things happen. So we have tons and tons of examples from the other markets. We have seen stablecoins commonly talking about it. We have seen an Open Banking Mandate being out. We have seen this latest mandate out on new partners, new banks, licensing process to be cut down and everything. So hopefully by next year I think we'll see because competition is healthy and it's required because competition is something that fuels innovation. We have been living for the last couple of decades because there was no competition and that's why no innovation happened.

But if you look at it, we are at the right inflection point right now. There is lot of obviously there is a growing demand like historically people used to be happy with one one bank account. They used to be born with one bank account. They used to die with the same bank account. But today as for the latest statistics I think we just ran over the CBPO like the multi-banking concept is very much prevalent. 40 to 50 per cent of the Gen Y is actually looking at the multi-banking scenario. So that exactly ties into the bank that okay people are looking at differentiated value propositions. They no longer stick to one bank for all kinds of products. So they want to shop around. So this is where innovation can play the role. So hopefully by next year we would have a different ecosystem. And at banking and disguise, we would be talking about a lot of the interesting stuff here.

Dina Vardouniotis:
Rojin, you're bringing a cultural view. You see cultures around the world really in how you operate. Is there a cultural shift in Canada?

Rojin Nair:
Yeah, cultural shift. I think the shift is going to be driven by what's happening with the tariffs and the economy right? So small businesses what do we have three million small businesses now you know every tenth person sitting here has got a small business and they need you know cash flow, they need capital. So if 100 of us have a small business dealing with Walmart and my payment is stuck with the T+5 or it's coming through a purchase order invoicing system 60 days later, I don't have money to roll. Okay, fundamental problem. So we are seeing maybe you're seeing too many invoices now the buyers are issuing card push to card push to wallet. They're embedding pay by link, instant pay by link in invoices you know top it up with crossborder remittance and collections it's all coming there is huge adoption of that why because now they are having cash with cash coming in real time there's liquidity that goes back to the economy so

I think this whole tariff you know buy can buy buy or what make in Canada you know when I go to credit unions it's huge in the prairies you coffee shops, buy local coffee shop products, buy everything local. But that economy needs faster, quicker payments. So, I think that is going to drive the government's shift in strategy now with the economy and all. I think it will affect or change the policies and all of this is going to only get accelerated in the next few years because we learned our lesson now depending on the other side of the border.

Dina Vardouniotis:
It was a pretty distressing January last year, right? Tim, your thoughts?

Tim Morris:
I'm seeing an industry that is taking an offensive mindset for the first time in a long time for and maybe the first time ever in decades. It could be ever. And this is critical because the defensive self-preservation kind of mode just you know what, you don't die, you just fade away. And that's been put to the side at least in the very short term and we are seeing concrete actions and outcomes from policy makers, policy execution teams and then those who are willing and able to in financial services are leveraging that and actioning it. So this is very encouraging. That's the positive that I see. So it's an offensive mindset.

Shirley Hsu:
I love the offensive mindset concept that you just mentioned because it is that moment, right? I want to see us get super creative with seizing this opportunity and develop unique partnerships and think outside of the box and say, "Oh, is it a VoPay? Is it an EQ? Is it a Neo? Is it like I don't want us to just think that hey we're just building tech or we're just building this small business therefore we can't input financial aspects into those businesses. A lot of times when you embed finance you get and you outsource to the first model that I described at the beginning you get a revenue share with some lift not none but minimal lift and you get a revenue share back. So, I want us to get really creative as Canadians to just figure out those creative partnerships that's going to seize that opportunity and drive that offensive strategy forward.

Dina Vardouniotis:
Yeah. And and and we heard right fraud as a defensive we've done well on the defensive side with things like fraud, right? We need an ecosystem that will collaborate. Now, we need to do the same thing on the offensive side to drive innovation. Same level of collaboration, same level of openness and same level of thirst for a better Canada, right? With lots of choice.

Thank you all very much for joining this session. Thank you to the panelists. Wonderful information, amazing ability to share your knowledge as well as transparency in how you're thinking about our market. Thank you.

Elizabeth (Liz) Dempsey:
That’s a wrap on this episode of The SUMMIT Summer Series!

We want to extend a thank you to our expert panel, Shirley Hsu, Tim Morris, Rohan Nair and Daljit Singh, as well as our moderator, Dina Vardouniotis, for sharing their time and insights with us.

As we heard, we are witnessing a shift in the payment ecosystem where value creation through collaboration is becoming the new standard. By embracing embedded finance and building creative partnerships, the industry is moving toward an inclusive era that puts the customer at the center of their financial journey.

If you enjoyed this episode, make sure to subscribe to The PayPod wherever you get your podcasts.

We’ve got plenty more conversations coming your way as we continue to highlight the very best insights from The SUMMIT.

I'm your host, Liz Dempsey. Thanks so much for listening to The PayPod.

Be sure to join us next week for another episode of The SUMMIT Summer Series!