Embedded banking with Metro AG and Vodeno
I have spent the last 25 years trying to make sense of the complexities of financial services and working mainly with technology to create the best and most customer-friendly experiences I can.
As I have stated in previous articles, this has primarily been an exercise in process optimisation. While achieving amazing things, at no point have we really been able to point at a project and claim it to be truly transformational.
One of the promises of the emerging models of embedded banking and banking-as-a-service (BaaS) is the ability to create new products and services quickly and at scale. But like so much that happens in the world of technology, the hype and promise have far outstretched the reality, and honestly, the actual in-market case studies have been relatively thin on the ground.
However, things are changing, and some fantastic examples of true transformation are emerging as companies start to stand up to the opportunity. As a passionate believer in the power of digital to transform financial services, it feels like we are at the moment in time where all the stars are aligning.
Regulation, technology, devices and consumer expectations overlap, providing a sweet spot for new thinking, products and services. When I hear something interesting, I want to shine a light on it. This brings me to Metro AG, Vodeno and Aion.
Metro AG is a German multinational wholesale company based in Düsseldorf which operates business membership-only cash and carry stores primarily under the Metro and Makro brands. It was founded in the 1960s, and its customers are mainly hotels, restaurants, the catering industry and independent merchants. It serves 17 million customers in over 30 countries through a network of stores, delivery services and an online marketplace.
A few years ago, it recognised that its customers’ pain points were changing as the world digitised and “Uberised” around them, e.g., the rise of food delivery services and online bookings. It saw an opportunity to use finance to develop a deeper engagement with its customers, moving away from a purely transactional relationship to one that supported them across their entire lifecycle and business model.
According to Michael Zyber, the CEO of Metro Financial Services, inspiration came from the auto manufacturers and Amazon and Apple, which have all identified financial services as a way of deepening customer relationships. Metro started researching its customers’ pain points. It could see that its customers had current banking relationships (hospitality businesses rely on the bank branch networks for depositing cash) and wallets full of “neobank” cards doing very little. But these existing relationships were entirely transactional and offered almost no added value. The hospitality sector is run on wafer-thin margins, so it identified cashback as a potential benefit.
So, unlike some other retailers, it did not look to start a bank. Instead, it conceived of a new product, a decoupled debit card that could work alongside customers’ existing banking relationships but add tangible value. The card is free to customers, can be used for all card-based expenses and offers up to 1% cashback. It uses open banking to connect with customers’ existing banks.
Another pain point that Metro identified is working capital and cash flow. The hospitality sector relies on upfront payment for goods and services, with payback from the end consumer sometime later. Depending on the circumstances, customers are offered a credit line when they are onboarded to Metro Financial Services. This has also enabled it to launch a buy now, pay later (BNPL) product. Rather than being offered at the check-out process, post-purchase customers can opt to postpone the payment by up to 60 days or pay in up to 48 monthly instalments. Having identified other pain points, Metro FS is also rolling out employee cards, which go live in the Autumn.
The Vodeno BaaS platform has enabled this excellent example of embedded banking. Metro Financial Services did not have to build the technology or endure the pain of obtaining a banking licence. Through Aion Bank, Vodeno has access to the requisite licence and all the regulatory angles covered. Under the hood, Vodeno is doing some exciting things. Its cloud-native, fully API-based platform uses PSD2 open banking standards to enable the Metro Financial Services app to check a customer’s bank balance in their existing bank four times per day to ensure funds are available for purchases.
Then, via SEPA, direct debits are taken automatically from the bank, so customers do not have to worry about repayments. This occurs once at the end of every business day, and all balances on the Metro app update dynamically, e.g., the available BNPL credit line. The intricacies of what is happening are hidden from the end customer. They just see an elegantly simple interface. Metro Financial Services has access to all the transactional data, with the legacy banks losing access to the richness of that data – instead, they just see one transaction with Metro daily.
Metro has been able to think about its customers and develop products and services that add real value to them. It has taken the concept of financial services and made it much more of a business and marketing response to customers. It has not had to worry about the platform and the licenses. Vodeno, for its part, has built a flexible platform that leverages technology through APIs as the enabler. Wojciech Sass, co-founder of Vodeno, explains: “It is like we have the magic pen (from those cartoons we all used to watch), that draws something, and ping it becomes real. We provide the pen and our customers the ideas, and together we can make them a reality.”
Brands with large customer bases can use BaaS platform providers to create deeper relationships with customers, offering embedded finance products.
This feels like modern FS in action.
About the author
He is a passionate customer advocate and champion and a successful entrepreneur.