Payment collection versus payout: is it better to give or receive this Christmas?
For the seventh edition of Fintech Chain Mail, Oliver Werneyer – CEO & Chairman at Imburse Payments – discusses intermediation services in payments. Imburse Payments offers clients integration-free access to the global payments’ ecosystem through a cloud-based enterprise solution.
Why would businesses want to introduce an intermediary in the payments process?
The key question when it comes to introducing an intermediary is whether the benefits outweigh the costs. The problem for many companies is not the variety of payment options. There are plenty of payment providers (Stripe, Braintree, AliPay, WeChat to name a few) and new payment technologies out there. Efficient connectivity to payments is the issue.
If you start an e-commerce store today, the new systems in place mean that working with modern payment technologies won’t be a big issue. However, many enterprises have complex structures, old IT systems and finance processes.
Large insurers with 1980s or 1990s IT systems cannot accept APIs, for example. When they want to make changes or additions to their payment workflows, integration is required; and when you include collection and payouts, the number of integrations is significant. In any large organization, this requires IT resources and inevitably takes longer and costs more than expected because payments are not a core competency.
Gartner estimates that CIOs globally are budgeting to spend $3.7 trillion on IT infrastructure: that’s how inefficient IT spending can be. Looking specifically at the areas of digitalization, system migration, move to cloud and product revitalization, the spend is expected to be $600 billion.
For European financial services companies the number is $105 billion.
Imburse comes in as technical integration layer, creating value that is multiple times the cost. Payments are a strategic topic for our clients and by using us, they can reduce implementation costs significantly, increase speed to market and focus on their core business. Clients only need to connect to Imburse and we will do the rest.
They can initiate a collection or payout and receive reports and reconciliations. They have the flexibility to choose the type of transfers (real time or delayed) and have back-up providers to ensure payments go through every time. The choice of which provider or technology to use, for which business lines, and in which market, is one they can make without being boxed in by IT limitations.
Payments intermediation, or aggregation, is a very competitive space. How does Imburse's solution differ from traditional payments aggregators?
Although payment aggregation is competitive, payment orchestration solutions at enterprise level occupy a very empty space.
Payment aggregators allow businesses to offer their clients different payment options: cards, e-wallets etc. These payment gateways only exist for incoming payments (collection) and not for outbound payments (payout). However, in most industries payout is as important as collection.
Even in e-commerce, where collection occurs before you send a product to the consumer, there are instances where you will need to make payouts and sending money back to clients often seems a bit like the Wild West.
Imburse approaches the problem as an enterprise solution, providing enterprise licenses (rather than charging a percent per transaction) as a completely unbiased provider. Our broad offering includes collection and payout options, vouchers for loyalty rewards program, treasury and interbank system solutions.
We don’t compete with payments providers, but we do make them easy to switch out. Our competitors (e.g. Optile in Munich or datatrans in Switzerland) focus on orchestration services for collections in ecommerce, retail and travel. We focus on Insurance.
Imburse focuses on insurance clients, offering tailored payout solutions – how did you get involved in this space?
Like many start-ups, we found our path through a pivot. We created one of the first flight-tracking apps on the app store in 2014.
Because of my involvement in the insurance industry, we had early access to parametric insurance such as flight delay insurance from AIG. While insurers could provide the insurance product, they were unable to provide real-time payout capabilities.
This is critical to the moment of truth for the customer: If you cannot pay me out real time, I don't need your product because my pain is at the airport, when I don't have a flight, or my flight has been cancelled or delayed.
We grew our offering based on end-customer needs – for instance, you have lost your luggage and need to buy clothes – where push to card becomes important. When you are in a hospital in the US and a $50,000 deposit is required, you will need a way to pay it.
There are many payment technologies out there that can service all these needs, and we tactically deployed these to the customer. We started in travel insurance and moved into life-insurance claim payouts, motor payouts and reward payouts.
How does the payments landscape differ across the geographies you operate in, in terms of competitiveness and regulation?
The main impact of regulation is in relation to Service Level Agreements and obligation to clients – i.e. who is responsible for settlement? In Europe, even if a broker is in the middle, the insurer is responsible for paying the client. Insurers cannot pay the broker, who then pays the client.
This creates a communication issue because the customer might be connected to the broker, who has all the details of the transaction, but the responsibility to execute sits with the insurer. You need to create an environment in which the independent advisor still feels like he owns the relationship, but the insurer has access to the details required to easily execute the instruction.
Regions also deal with personal data differently. The general trend is for companies to become more nationalistic – meaning they don't want the data to leave their own country borders. For example, one of our clients is an insurer with clients in Ireland, Germany, the UK, Australia and New Zealand. Their operations in Ireland and Germany can use their European cloud server but the UK business needs to connect to a UK cloud server, and Australia and New Zealand need to connect to a local cloud server.
We've built our architecture in such a way that we don't need personal data on our system, and money doesn’t need to pass through our accounts. This has allowed us to engage with regulators to exempt us from being a payment entity; we are a software solution.
Can you envisage some point in the future when you would leverage data for insights? How would this work if not having control of that data is an advantage from a regulatory perspective?
Today the prevailing view is that a company can only do the analytics if the data is on its server. However, with decentralization becoming popular, companies are getting more comfortable with the idea that Imburse can send analytics tools into their environment, do the analytics and come back with the results.
We have no physical record of that data, which means that if somebody hacks our systems it's physically not there (it's not encryted). The insights that we do have from them are submitted by the owner of the data.
This is good for Imburse, because the results are not regulated – the data is.
Looking forward, what do you see as being the most disruptive Fintech or insurtech trends in addition to data management? Also, how is Imburse’s business being impacted by Open Banking and Open Finance?
Open Banking and PSD2 are guidelines from regulators placing the ownership of data and the decision to transact with the customer rather than the bank. Customers can trigger payments or decide to share their information.
However, as a third-party service provider, there is still no single API. Every bank has its own. Thus the need for aggregators still exists despite the newer technology stack.
The lines are also being blurred between consumer relationship owners and product providers.
In the past, a client needed to come into the bank branch to open an account because of KYC requirements; it was a captive environment. But now, other providers – Big Tech and online retailers – can provide financial services too.
Financial services companies may need to let go of historic business models and ask, “How do I build a good dev shop?”, or “How do I get my underwriting knowledge into an API, so that a third party can just build it into a solution?” This is a fundamental change for banks and insurers who have armies of distribution and customer staff.
I think it will be extremely painful for the industry to make these changes, and it will require change management and culture changes. I expect there will be consolidation in the industry with incumbents looking to buy Insurtechs, to bring their tech in-house and make the leap required.
However, for it to work there needs to be a willingness to do something completely differently and reconceptualize an industry that's been working in a set way for many years.
Interview conducted by Stephanie Hurry, Olabisi Ayodeji, Matteo Conti, Emon Goswami