How Embedded Finance is Driving Revenue for Early Adopters with Epos Now & McKinsey

Hemmo Bosscher - 00:00:01:

Welcome to Adyen Presents: Embedded Finance, real talk for SaaS leaders on embedding payments and financial products. Software platforms today are no longer just about software. Winning platforms embed payments and financial products like business loans, accounts, and cards to become full-service operating systems for customers, building loyalty and new revenue streams. Now, the opportunity is clear, and we've heard much about it, but tactics are largely undefined still, and that's why we're launching this podcast, to hear from the platforms and experts shaping the strategies. This episode explores how embedded finance is driving revenue for early adopters. I'm joined by Jason Downing, SVP of Products at Epos Now, the leading cloud-based POS system used by retail and hospitality businesses across 80,000 locations worldwide. And  Blazej Karwowski, partner at McKinsey & Company and seasoned fintech expert. First up, we have Blazej. Welcome back, everyone, to Adyen Presents: Embedded Finance. We are here today with Blazej, a partner at McKinsey & Company. They also have a big role to play in the embedded finance ecosystem. Blazej, would you be so kind as to introduce yourself to our guests and perhaps tell us a bit about what McKinsey has done over the past few years in the space of embedded finance? Thank you.

Blazej Karwowski - 00:01:23:

Absolutely. And thanks, Hemmo, for the invite and Adyen for having us. Very excited to be here and share some thoughts on how we see the space. Just very briefly, I joined McKinsey. It's actually my 10th year now. Joined the firm in New York and immediately started working in embedded finance. So I can claim that I worked on embedded finance before it became so popular as it is today. And the origins of that story are, we've been working with merchants, actually. And we've been working with merchants on payments and just to understand, what are their payment needs? And we quickly realized talking to the CFOs, to the treasurers, to people who are actually responsible for payments. Imagine some of the largest retailers, imagine, you know, the Zaras of the world, et cetera, et cetera. And they said, well, payment is good and we need to get the right authorization rates. And we need to make sure that the platform is working super well and that you have the right APMs, et cetera, et cetera. This is all the bread and butter. Frankly, we expect that we wouldn't say that anybody doesn't provide those services. But what we actually do care about is a little bit different. Like, how do I move money quickly? How do I think about managing some of my currencies? How do I get a partner that is actually growing as fast as I am growing and entering new markets and new verticals? And this quickly became a very different conversation. It wasn't a payment conversation. It was an open finance banking conversation. And how do you do that? So that's a little bit of personally how I got excited by this phase. I think it is at the intersection of,  how does the consumer pattern change in terms of how people think about buying stuff, research, talk to their family, interact socially, then go on to do the things that they want to do in their lives? The merchants as well, which is the B2B space where I spend a lot of time. And then the payments infrastructure, the payments players, which is quite exciting for me as well, and the embedded finance players.

Hemmo Bosscher - 00:03:11:

Thank you for sharing that. What time span are we talking about? Is this like the late 2010s that you first got into it?

Blazej Karwowski - 00:03:16:

It's the mid 2010s.

Hemmo Bosscher - 00:03:18:

Did you think at the time that it would become as big as it is today?

Blazej Karwowski - 00:03:23:

I think we always had a house view that the preference of the consumer or the end user, doesn't have to be a consumer, it can be an SMB or a large enterprise merchant, is to solve the problems at the point of need and in the moment of need. And a lot of these are the basic idea behind embedded finance that solving those customer needs at that moment, at the right time, in the right place, is something that is still fueling the growth of the business. And I think we did go through a lot of cycles of maturity, boom-bust hype, but through that, some things are really, really constant. And again, we spend a lot of time with the end consumers because I think this is where you get the insights to understand what are really the products that you want to get into the market, where do you want to go in terms of your go-to-market, etc.. And some of those things change, but also remain constant in the way they want to fix the solutions. And that's what few awesome better finds.

Hemmo Bosscher - 00:04:16:

That's interesting. And when you say the point of need, that then is often presented through the OS for the small and mid-sized business owner, which is a software platform. So that's then the obvious avenue through which to solve that problem, I think.

Blazej Karwowski - 00:04:28:

I think that's right. But in the era of agentic AI, some of those platforms will actually, we believe, change quite dramatically. It might not be the way you interact with the software that is able to do things for you might be quite different from the platform that everybody comes into. So I personally have a view that this space of platforms and of aggregation sort of bundling the traffic for SMBs, for example, or for merchants will actually change quite a bit. And you will be free to go at a very small cost and actually procure the most helpful, lowest cost, most effective solution for yourself versus going to one platform where this is a little bit unbundled.

Hemmo Bosscher - 00:05:09:

So you think there will be an unbundling?

Blazej Karwowski - 00:05:12:

So in some sense, there's always a sort of bundling, unbundling cycle. I think unbundling, in a way, happens if I think about the consumer, but we can also talk about SMBs. What is fascinating is that people are multi-apped. They're very happy to use different apps for different purposes. They do banking very differently. I really like the stats from the UK, which shows the percentage of people that consider themselves to have one bank decreased by, I think, 20-25% at once over the last, let's say, 10 years. It's a dramatic shift.

Hemmo Bosscher - 00:05:43:

Do you think that's a permanent state of affairs or is that more of the intermediate than they still hang on to their old banking relationship before they go all the way over to a rail like a Tide or a Monzo? How do you see that? Because that would be my personal view.

Blazej Karwowski - 00:05:58:

It really depends on the generation. I'll give you one example. I'm a millennial and we spend a lot of time just understanding how the consumer thinks and what they do. The percentage of millennials that actually invested before the age of 18, did some sort of investments, right? It's 5%. And that has been consistent. It's very difficult. You can open a broker account, like go to your bank, et cetera. Typically, your parents have to sign an agreement in a non-digital world, that's actually very clunky. The percentage of Gen Zers that have invested before the age of 18 is 26%. That is a 5x on that. How do they do it? Obviously, it's a digital app and so on. It's easier to do that. So in a way, yes, you kind of unbundle into those different providers, different apps. There's a question of, to your point, are they going to then rebundle into platforms that are sort of the fintechs of tomorrow that provide everything, which is obviously where they're going. They start to have a relationship, they want to monetize the full potential of that relationship and I think that's one avenue. I think this is where you're pointing us. I think another avenue is, are you going to have your agentic AI friend that will actually help you? And this can be your front interface, essentially like your digital assistant that will do the commerce for you and will take away the burden. And we'll say, you could get those types of ETFs and funds at this platform, but actually based on your very specific criteria of what you want to do, I found something else somewhere else. And I think the key notion there is what we consider digital trust. Banks used to say, well, we have to have the branches because otherwise people won't see us. It was like, won't see us, won't trust us. I think what is much more important right now and what is the currency of tomorrow is who do you place your digital trust in, in terms of holding your data, making sure you get the right advice, making sure you get the best deal. And it could be the fintechs, the large platforms, or it could be a completely different smart assistant that is actually procuring for you the best things at a minimal cost.

Hemmo Bosscher - 00:08:01:

Absolutely. But that's the consumer end. And I think I could buy into that. But if you think about the world of a business owner, if you and I ran a pizza place or a barbershop, we have seen a great bundling over the last half decade where these software platforms first just did maybe our reservations and that are our staff management, and now they can do much more for us. Do you think that AI will have a similar impact on our lives as the owners of a pizza place or a barbershop?

Blazej Karwowski - 00:08:28:

But on the lower end, which is where you're going, and even, say, the micro merchants and SMB merchants, I think maybe not immediately, but over time, I can see that happening as well. Because if you look at the development of software, for example, in Europe, it has been uneven. It has been difficult to do. Some of the largest platforms that offer integrated payments and software in Europe specifically are not that successful. The reason they're not that successful is different currencies, different language, different VAT, different sales tax everywhere. And then you add to that the sort of vertical specialization. The way a boulangerie in France thinks about, how to move the tables, get the reservations, integrate with Uber Eats, or whatever else is a little bit different than, let's say, in Spain. And even at that level of, like, I only have one outlet, that customization by country does matter. So, the question is how to take away the pain, everybody has a slightly different need in terms of how they integrate with, let's say, food delivery apps, how they run the job, how do they manage their inventory, how do they get orders out. And at the end of the day, something that is by design customized to yourself could be an interesting answer. I don't think it will happen quickly because everything in B2B seems to move a little bit slower for good reasons. I think there is a reason to think that it will happen. And I think the expansion of platforms, integration of software and payments has been tremendous. But let's just also be honest, there are certain markets where it was much more successful than in others. The US is one example. I think Europe is a bit of a different flavor where a lot of those players are not equally or evenly successful across markets.

Hemmo Bosscher - 00:10:08:

But do you think that's a matter of time or do you just think that's a cultural element in Europe, that it will never happen?

Blazej Karwowski - 00:10:14:

That’s a very difficult question.

Hemmo Bosscher - 00:10:15:

Not that difficult.

Blazej Karwowski - 00:10:17:

I think it's still a matter of time, a cultural thing, because at the end of the day, customer need and convenience trumps everything else. And when people do see the value, I think they will see it. But we have to be careful. What we see in this market, it's actually not that straightforward. So I'll give you an example. Talk a lot to merchants, let's say, have two, three, four locations. What they suddenly see is, actually, is this really the best deal for me to work with a PSP that offers software? But actually on the payment side, they will never offer the similar economics to a sort of full stack, let's say, merchant acquirer. Because they're essentially a reseller. We can call it whatever we want. We can say they integrate software, et cetera. And they integrate the payments. They get the payment processing from someone, like an idea. And suddenly, as these guys actually go down market, talk to those, you know, let's say, mid-market merchants, those merchants say, well, I'm actually okay with having the terminal separate and having the payments separate. I think we can live with that, I prefer the economics.

Hemmo Bosscher - 00:11:17:

That's logically plausible, but that's not what's happening right now. And I would know, I do this for a living. So we see it every day that these platforms move up market and there's something about the software suite holistically with all its functionality that these merchants, even the ones with 30 to 40 locations, forget three or four, are quite happy to take the integrated payments and not want direct relationships. How do you marry that?

Blazej Karwowski - 00:11:40:

No, absolutely. I still think the trend is there. The trend is strong. There is enough tailwind. And so hence, it will take time, but it's like, that's the direction we're going. All I'm saying is there are more bumps on the road than you would think. And it just doesn't happen in three years, right, it happens in time.

Hemmo Bosscher - 00:12:00:

Absolutely. We can agree on that. Let's zoom out a bit because I think it's nice to talk about some good anecdotes here. Let's get us back on track. If you look at the whole space of embedded finance and you've been looking at it now for, let's call it a decade since you just said you started in the mid 2010s. Are there any specific industries or business models that you think, here, it has the most impact, the most traction? I think we just talked a bit about geographies in the Anglo-Saxon societies. It's obviously a bit further along than in France and Germany, for example, but any specific business model or industry where you're seeing a high adoption?

Blazej Karwowski - 00:12:31:

I think there are pockets of growth. What we are excited about overall is the savings to wealth to investment space. And we think this is an area of clear growth right now, not only because interest rates are still at a better place than they were three, four years ago, but this really does change the economics. The clear takeaway we have from the space is players want to stick to what they do well, which could be investment advisory, could be providing people with investment choices and want to take away the banking. And this is a space that also in Europe is quite fragmented. You have a lot of specialists. Banks do that, but also specialists do that as well. So, that's an example of what we believe is a little bit of a pocket of growth because, especially in the Western world, a lot of the savings volumes are substantial, growing quite a bit. That's sort of one area. I would say the other area is still around B2B more holistically. And on the lower end, it is the digitization of the SMB. We talked about it a very long time ago. We talked about it 10 years ago, but I think this is still a sort of a secular long-term trend. And that is very important to play. Remember that if you look at how much banks make on retail customers, if they don't have the more evolved products, let's say this is only daily banking, right? Transacting paid. And how much banks make on SMB, this is a completely different space, especially in Europe, because the fees around daily banking are actually either regulated or they're just low by design. We talk about free banking. Well, banking is not free for the SMB if they do wires, make payments, et cetera. And I think there was a lot of space for disruption there, whether it's cross-border, whether it's managing payments, whether it's lending, that is still a sort of area of underserved. So that's on the lower end. On the higher end, which is more the corporate, I think there was this point where we started the story because the need was always there and the need was 10 years ago. But I think right now people are trying to finally meet the need where it is, which is how do I move the money in an easier way? How do I not get burdened by KYC AML, which are all important things, but the reason that you're looking for one bad actor in your sort of book and try to meet regulatory is not the reason I should be waiting four or five days to prove you where I got the money from as a large corporate, actually move it. I think, you know, Adyen and others that are in the flow are in a very different position to actually make that banking happen, again, at the point and moment of need versus go for this increasingly traditional international banking system. And I think also another area, I want to point others, which is, governments and the digital infrastructure of countries is changing quite a bit. I think there is a lot of space there. What do you think about payouts? What do you think about the benefits? How do you make sure that the cost of healthcare in Europe is actually sustainable and the healthcare gets to the right people in an equitable way?

Hemmo Bosscher - 00:15:26:

Now we're going very broad, but I'm interested to see where you'll take us.

Blazej Karwowski - 00:15:29:

Again, that is a space where use cases will continue to emerge. How do you collect taxes digitally in a way that is actually not making the burden on reporting the taxes on people, VAT, customs, international cross-border transactions? I think all of that has an embedded finance component using data and actually a payments component as well. So I gave you a big overview of the landscape. I think, you know, our message is a little bit, they're pockets. It's not like the industry is going in one way. And I think it's a sign of maturing as well, which is a good thing.

Hemmo Bosscher - 00:16:02:

Absolutely. Thanks for sharing that. If we can just pivot back, let's restrict ourselves for this next question to software platforms. You worked on it for 10 years. You've read all the research your house has produced, I assume. Is there anything you can tell us about what in your experience separates the winners from the losers in embedded finance? Because I think when I talk to founders and executives of software platforms, everyone gets it. There's no one who goes, well, I don't think that offering working capital to my customers makes a lot of sense. Everyone gets it. But you still see a huge spectrum of achievement, basically, between the unsuccessful ones and the successful ones and everyone in between. What do you think? There are a few lessons here for potential founders listening to this.

Blazej Karwowski - 00:16:41:

I think there are a couple, but it is, as you say, a lot of it is in execution and getting the points because people have identified needs relatively well. And I think that's true. I think there's maybe a couple of things that we're saying. One is embedded finance doesn't mean serving products to people in a channel. In a crude way, it is. But I think what's much more important than this is where some of the most successful players are, it is fully embedding in this customer journey the way customers think about it in a digital way. And I'll give you one specific example. Every merchant acquirer or payments player in the world has some sort of lending for merchants probably by now, or most of them. Everybody understood, this is important and everybody gets the point, especially for SMBs. But the ones that actually are getting the right adoption are the ones that have an exciting merchant dashboard to start with that you can actually use, pre-approved offers in the journey there in the important moment, and proactively offer it to customers.

Blazej Karwowski - 00:17:41:

I know exactly where I'm on the journey. And, you know, you have to find the customers that are in the market and not the customers that will consider it in six months. This is not how you drive penetration. So, I think there is this one piece. I think the second piece is, and this is what a lot of traditional players struggled with, is scale does take time. And just making sure not compromising on the customer experience, on the economics, on the technology, you have to be patient in that space. And what we found is a lot of players that try to deploy the solution into many countries very quickly, a lot of players that have tried to sign up as many partners as possible. Let's sign up a hundred partners. We're going to grow. What you end up doing in a year and a half is, actually all of those partners have different requirements. There is no way for you to serve them, et cetera. So, I think there is something around the scale pays time piece.

Hemmo Bosscher - 00:18:31:

You'd propose then a sort of a one bite at a time approach, but make sure you keep all the functionalities of your offering, that it remains best in class, but you don't try to do this growth at all costs.

Blazej Karwowski - 00:18:41:

Yes and also in a world where we price so much, oh, we're so quick to market, we're going to develop a product in three months, et cetera. Take 12 months, but build really the product that you think is going to scale in the market. This is not going to save you now, the nine months. What will be important is down the road, you're going to be three, five years out, and it's not going to be scaling because you know that you created something that is like 60% good.

Hemmo Bosscher - 00:19:05:

And now to your point, you're already late. So those nine months, you said it correctly, they're not going to save you now. That's true. Hey, next question I've got for you. You've written in the past about the convergence of banks and customer platforms. Obviously, banks here are trying to defend territory where they can. It's a lucrative space and it has been by them, unfortunately, underserved, I think, over the last decade. Platforms now are moving more into, hey, we're all becoming FinTech's ourselves with partners like Atien of Shore, or they get their own licenses in some cases. How do you think banks will try to remain relevant, remain in play and remain as they are now at the center of all of that?

Blazej Karwowski - 00:19:43:

That's like a conversation we're having in every bank boardroom at the moment. There are two components of that. What is your house view of how the market is going to evolve? You have to have it, even if people don't know no one has a crystal ball. Which means to me, where are people going to consume financial services? And where are they going to be spending time in the first place? I think that's kind of an important consideration for us. I think the second is, who do you want to be in that space? And the models are very different and are really now getting challenged, right? Some people went for scale across markets. Think about the sort of cross-border M&A of banking groups that are present in 10 markets, etc., etc. Some people try to do the old model of scale, but digitally. So, you know, look at some of the European banks that are launching in different markets, actually quite successfully with a sort of more digital model. Some banks are kind of saying, what will happen if I'm just the product factory in that space? I actually want to win in this. If I believe the platforms are the future, let me create a platform myself. That is easier said than done. And it's actually not a lot of examples of people doing it successfully. But I do think that, again, it's not three years, it's more of 10. And banking is a very back book-driven industry. You get 90% of your revenue from what you sort of acquired in prior years. So it will take time, but they're in for a large disruption. There is a space for regulated financial services entities. It doesn't need to be banks at some moment. I think what banks are doing extremely well or better than anybody else, is balance sheet capital management, risk overall across, and making sure you fulfill the regulatory and sort of customer duty obligations at the right moment. There is still a lot of space and need for that, doesn't mean that banks have to do it in the future.

Hemmo Bosscher - 00:21:36:

Interesting. Thank you. We already touched on it a little bit here, but can you talk a little bit more about the challenges associated with Embedded Finance? Because we're saying now might not be three years, but it will definitely be in 10. It's inevitable really that Embedded Finance becomes a defining feature of our society, or at least when you think about the long tail of markets, small businesses, mid-sized businesses. Any risks or challenges you see other than banks defending territory?

Blazej Karwowski - 00:22:01:

The difficulty of adapting to a regulatory environment that is not natural for all of the players. It's a highly regulated space. It takes care of people's money. You have to think about the good of the customer, et cetera, et cetera. I think that's one, and it will continue to be a challenge. The reason it's a challenge is marrying that with a fantastic customer experience is sometimes quite difficult. And I think you will see maybe not in an embedded finance space, but also, but also in the fintech space, players that have not done this well, and they stopped growing, or they're no longer here, or people stop talking about them as successful. I mean, the second one is constant challenge of how do you not solutionize for every customer and at the edge when you build embedded finance, and how do you actually trade off getting the next deal, which growing fintech, growing embedded finance player, you're so focused on doing, and making sure you do everything that you can for that platform, for that e-commerce player, et cetera, and sort of have the strength to actually walk away and say, those are not the economics we can sustain the business on, and those are not the product features that we now want to customize for this player, because we might win this RFP, but it will be very difficult to do something in the future.

Hemmo Bosscher - 00:23:14:

This is just classic execution risk that's true in any new growth avenue, I think. Do you go deep with one customer just because you've secured the deal or do you retain the sanctity of your product?

Blazej Karwowski - 00:23:26:

Absolutely, but I think it's worth repeating because 90% of the time we have those discussions with embedded finance players, they say, I completely get you. We still did the other thing.

Hemmo Bosscher - 00:23:37:

Can I ask you a question about that? Actually, now that we're on this topic, it's something that I sometimes think about is, you had this low rate environment for a long time around COVID, you still see now a massive amount of private equity money flooding into the space. Do you think that there might be some founders that are a bit quick to draw, and shooting from the hip in the moves they're making, having suddenly gotten this influx of private equity cash and like, hey, buddy, go buy a few companies and attach payments to financial services?

Blazej Karwowski - 00:24:03:

This is one of the traps of the business, right? So if you're trying to scale yourself to an enter number, 100 million revenue, a billion revenue, et cetera, and it's really difficult to do, one of the avenues is try to buy the revenue. We've seen this over and over. A large number of, I won't name names, but a large number of deals in the industry have been about, frankly, we're not growing anymore, but we have this war chest and, you know, let's try to buy into that. Right? I think it's a way to build a smaller unicorn. I don't think it's a way to build a global platform. I think that takes time, that takes effort. And a lot of what you should have in place is actually should be in house versus a sort of amalgamation of different platforms. And we've seen where the large emergence of payments players went to. This is a sort of classic of one plus one equals two, but never equals more than two. Still run two businesses with one board. So I think it is an issue of the industry. Organic growth takes more time and it's more difficult, but pays better at the end.

Hemmo Bosscher - 00:25:04:

That's certainly our philosophy here. So thank you for sharing that. If we think about the future, we both agree it's not going to be an overnight success, but the case for embedded payments, for embedded working capital, embedded accounts, issuing, et cetera, that's quite clear. And there are several players already with very successful businesses built on that premise. Is there anything over the rest of this current decade or maybe the next that you think is a very obvious inclusion in that suite? So if you think about financial services offered to small business owners through these software platform portals, what do you think is the logical next avenue there?

Blazej Karwowski - 00:25:36:

We do believe there is a lot of space to make it broader in terms of finance and financial needs or like everything I don't need that is not a core of how I run the business. So if we unpick and give you a sort of pizza parlor example, there are just like maybe four or five things that are absolutely critical, making sure you have the competitive advantage that actually customers come to you, which is a lot about the food quality, the ambience, the atmosphere, the service, et cetera. Those are the core things you have to worry about. Everything else, I think, could be taken by the platforms. And I'll give you one example, which is still, we've talked about this for so many years. It didn't fully happen. Embedded insurance. How do you make sure that you protect your business, protect your employees, customers, your property?

Hemmo Bosscher - 00:26:21:

You mean on the business owner end? Because we've seen embedded insurance where like, I'll buy my plane ticket. Do I want to ensure that the plane actually departs? But you mean really, how do I protect my business from a fire, for example, in the portal that I use? Yeah, that's interesting.

Blazej Karwowski - 00:26:33:

Exactly. But also something that is a little bit more tailored. So again, back to the personal insurance that you started with, if I'm cautious here, and frankly, I'm only doing it recreationally, and I only do five runs a day, that I should have a different premium to someone who's like doing it eight hours a day, and is actually a sort of a performance person that spends a lot of time. And there's a question of how do you translate it into a space of SMB around geolocation, really tailoring things, et cetera, et cetera. Most SMBs, they don't buy the insurance because they kind of don't feel the need or like they don't feel this is sufficiently tailored to them. And insurance products are not made to be tailored at that level. But I think based on usage patterns, et cetera, I think this is a space that could be interesting in the future.

Hemmo Bosscher - 00:27:22:

That's really interesting. We touched on this a little bit earlier in the podcast, but just maybe to reiterate, for anyone looking to get into the game now with it well and truly afoot, what would your advice be to them? Still worth it?

Blazej Karwowski - 00:27:34:

I think it's definitely worth it. The space is probably, let's say, the third-inning of sort of maturity, but it will come in different spaces.

Hemmo Bosscher - 00:27:42:

Third-inning of a nine-inning game. Just for our European listeners that are not into baseball, perhaps.

Blazej Karwowski - 00:27:48:

No, thanks for clarifying that. I think, you know, that's how it feels. So, there is a lot of space to cover. We do think that easier use cases, A, have been largely well covered, that's A. B, the competitive sort of environment is actually quite strong. But if you're finding the right niches, if you're able to fish in the right moments, let's say on a SMB or a B2B player journey, I think that's definitely possible. The only thing that we see as important here is it's almost never to us in technology right now. So, the technology is more available. Of course, it takes time to build and it's still super, super important. But how the technology is actually solving the need, what is the value that you're adding beyond connectivity, beyond APIs, beyond the fact that you have access to, you have an orchestration layer to many other players. I think that model is very difficult to get right and it's very replicable. I think the models that are a little bit more customized, actually answer the need, etc. Will be quite powerful in the future.

Hemmo Bosscher - 00:29:57:

For those already in the game, who do you think will be the big winners over the next five years?

Blazej Karwowski - 00:29:01:

You know, it comes back to what we discussed before. So I really like the players that play by the book all the time in terms of regulatory consumer expectations. I think they win over time. Look at BNPL space as a sort of mixed outcome, right? But a lot of the players that I consider the most successful, they had the economics from the beginning that made sense for everybody. And they also went through the pain of getting the consumer finance license, getting all of that in place. If you look at the space in embedded finance, there are others that are not growing, maybe not the flashier, but they have all of that in place. And I also think others that have talent from the industry also. So it's not only the younger, more tech-oriented, but it's also the people that actually take care of risk, compliance, and some of the traditional institutions, because they know how to navigate that industry. And those are some of the players. If I look for and I understand who is even in the management community, I'm getting a better sense of who's good. I will mention the last thing. Sell extremely well. People are underappreciated, right? It's a people-driven, trust-based industry. You have to be able to go and sort of paint a vision for someone that you can help them with their problem. And people, again, who do that, if you listen to the CEO and you hear the vision, they're like, well, that is a person I would like to work with. I think that's a sort of sure sign that they will do well in the future.

Hemmo Bosscher - 00:30:28:

In the end, it's more of a people game then, the story is all this time. Thank you very much, Blazej, for coming on the podcast. I had a really good time speaking to you. I hope you were able to say everything you wanted to. If you didn't, then one last opportunity now for you to say anything that was left unsaid.

Blazej Karwowski - 00:30:43:

Thank you so much for your time. We're expecting you soon in Warsaw, so hopefully you'll come and join us if you travel around Europe.

Hemmo Bosscher - 00:30:51:

I'll certainly say hello. I promise.

Blazej Karwowski - 00:30:52:

Let's do a follow-up soon. Thank you.

Hemmo Bosscher - 00:30:55:

Yes, sir. Thanks very much for the time. With the big picture in mind, let's shift to the platform perspective. Welcome back to Adyen Presents: Embedded Finance. We are here today with Jason Downing, who leads product at Epos Now. Jason, could you tell us a few words first about yourself and then about Epos Now, please?

Jason Downing - 00:31:13:

Hi, Hemmo. Nice to see you again. I'm Jason. I lead products at Epos Now. We've got a team of 20. It's a privately held business, and we help merchants all over the world manage their business. We run payments for them. We do point of sale. We span across the retail, hospitality, and service industries. And we're in 10 countries, helping 80,000 merchants.

Hemmo Bosscher - 00:31:34:

And can you tell me a little bit about the origin story of Epos Now? Like how did it get its start? Was it like some eureka moment or what happened?

Jason Downing - 00:31:41:

Sure, of course. So our CEO was running a bar in Norwich in the east of England. And he had, kind of, Epos companies come to him and try and sell him point of sale. And he realized there was a huge gap in the market. Nobody was doing it well. Everybody was doing it locally. Nobody was doing it on the cloud. And he set up the business from scratch, starting small, importing hardware from China. And then we, kind of, moved from there.

Hemmo Bosscher - 00:32:05:

And it started specifically for bars and then you branched out? Or was it in the beginning already quite agnostic? Like, hey, if you have a small business, we'll help you.

Jason Downing - 00:32:12:

It was quite agnostic to begin with. And really aimed at us, kind of, capturing a wide segment of the market. So if you look at Epos systems, often they specialize far too much. And then you find the business wants to, I don't know, maybe they're a bookshop and they want to open a cafe on the side. But the software for running the retail bid is very specialized and you need a water ecosystem.

Hemmo Bosscher - 00:32:35:

Yeah. On that note, I wanted to ask you about that. Because we see in the space that hyper-specialization tends to win. So if there's any grouping of business owners with the same needs, there'll be a software platform that pops up and sort of captures that part of the market. As Epos now, you not only serve restaurants, but clothing stores, grocery stores, car washes, etc. So you've basically got a collection of verticals. What do you think about that?

Jason Downing - 00:32:59:

So we find every business owner runs their business slightly differently. And our objective is to give them a very wide platform to do whatever they like. If they want to get into specifics and there's a use case that we don't support, we have 150 different apps that they can take off the shelf. So really neat stuff around maybe they want to run their loyalty platform a different way than the one we offer. And we'll take an app off the shelf and do really customized special things. And then as we see these businesses grow, we of course have all the APIs if they want to do something off the shelf and properly custom.

Hemmo Bosscher - 00:33:32:

That's interesting. So you're even seeing that within certain verticals, business owners operate quite differently.

Jason Downing - 00:33:38:

Oh, everybody. Everybody plays to their strength. And I don't know if they're a data person, they really love the data. If they're an ops person, they speak that out. I think it's just the way the world works.

Hemmo Bosscher - 00:33:48:

Yeah, that's interesting. Can I ask again about the beginning of the Epos Now? So it was started, was it immediately with integrated payments? Or did that come later in the journey? How did that go?

Jason Downing - 00:33:57:

Good point. So up until maybe four years ago, we were referring to other partners. So we'd refer to, like, all the common names in the marketplace, the WorldPays, the Dojos, those crowd guys. And then four years ago, we did the mega integration with Adyen. And now we're selling our own payments that's fully integrated into the platform. And this helps the merchant in a few ways. So previously, if you had integrated payments from somebody else and it broke, you'd have to phone them. And then you'd probably phone us and say, hey, like this transaction didn't go through. Can you help me sort it out? And it's just a complete pain for the merchants to manage two different suppliers. So by integrating and offering everything end-to-end, we're really trying to make merchants simpler. And they have just one person to talk to. It's us. If stuff goes wrong, it's only us they have to talk to. Of course, stuff doesn't go wrong very often, which is wonderful. But that was the real reason for us to, kind of, start offering our own payments. And the demand was clearly there, right? Like everybody was buying those point of sale systems. They needed payments anyway. And it was easy for us to bundle those two services together and sell them as a single package.

Hemmo Bosscher - 00:35:09:

And on that journey, did you have any ‘aha’ moments where it's like, there was some hyper acceleration or some increase in velocity where you're like, oh, hey, this works. Let's do this more.

Jason Downing - 00:35:18:

I think not really in some sense, because we were seeing us sell to all these payment companies anyway. We understood the demand. And it was just bundling it together and making sure the marketing resonated. So we led with like a single price, which often the rest of the market splits stuff up and they carve out all the premium cards and the statements are really complex. So we tried to make it much simpler for our small merchants, just to understand what they were paying for and what they were getting.

Hemmo Bosscher - 00:35:48:

And you've recently also added embedded financial products to your offering. What was the reason for doing that?

Jason Downing - 00:35:53:

I think there's two reasons. Whenever we see a merchant struggle on the platform, they're struggling. And obviously some merchants leave us eventually, but they struggle for, kind of, two purposes. One is they found a more competitive offer in the market from someone, maybe at a better price, features that, all that kind of stuff, or their business is struggling. And because their business is struggling, eventually they may turn off the platform because they no longer have a business to run. And I think embedded finance gives us two plays there. Like we can help make our offer more compelling to the merchant, new merchants, for example, we can offer them capital and say, look, you're not eligible for capital now, but if you trade for three months on E plus NL, then you'll have the ability to get capital at a good rate very quickly. And there's some kind of security element there. For existing merchants, if they're moving across to us, kind of the same deal. And then we can start addressing, kind of, merchant failure by building a suite of tools that the merchant can use to better run their business. And I think ultimately that's the wider strategy. You see, we already see the revenue side of these small businesses with everything that they're taking on payments and putting through the till. And with banking cards and all of that embedded financial suite, we can see the cost side. And then eventually you put those together and you have a complete view of their business and you can give them more insights and help them run their business more effectively.

Hemmo Bosscher - 00:37:18:

That's really interesting. And how do you think about sequencing? Is it very much you look at sort of, hey, this is where a critical mass of problems is. We'll tackle that first. And then the second biggest problem set, we do that second. Or how did that go? Specifically around financial products.

Jason Downing - 00:37:32:

So I think the sequencing, it's important to mention that everything lies on payments. You have to do the payments well first. And only when that's relatively smooth can you then think about the embedded financial products. Capital has to come first. It's the easiest one to do. And there's a ton of need for that. It's a USP that you can sell. And I think customers are interested. And then the banking card piece is slightly more challenging. It's easier to get merchants at the top of the funnel, new merchants who might come to us and say, hey, I really want to trade quickly. I know I need to take card payments. But I went to the High Street Bank and they made me fill up this really long form. And they said it was going to be four to six weeks. So. that's one in for the new merchants. But for the existing merchants that already have banking relations, it's slightly harder to get them to swap and you have to add more value there.

Hemmo Bosscher - 00:38:26:

Yeah, no fair. What do you think, like on the whole, if you look at a separate offering like capital, how do you think that compares to the offering that a traditional bank might have today?

Jason Downing - 00:38:31:

I think for these small merchants, it's giving them access, where they're at, essentially. So in every survey that we talk to, or when we run customer interviews, or we kind of collect raw data from customers, they always tell us that time is a problem. They say, I really want to run my business and I've just got so many things to do. I need to buy the stock. I need to sell it. And that is kind of one of the problems we're solving for them. It's giving them an offer in the right place at the right time and just making it easy for them. So I think that's where we compete with the banks. We're just making it easy for them. They can get the offer they need. They can select the capital amount that they want. And then everything is simple. It's baked into the rest of the reports. They can see it coming out. They don't need to track another thread in their life about, oh, I took a capital loan from one of the three banks four months ago. And kind of, they don't need to remember anything. It's just automatic.

Hemmo Bosscher - 00:39:23:

No, exactly. Have you done any research or like polling into those that don't take the capital product and reasons why?

Jason Downing - 00:39:30:

We've done more research about customers, why they take the capital product and the reasons, lots of different reasons for different businesses. But lots of, oh, I need a cashflow for stock, for example, for busy trading periods. We see some businesses open new locations using those loans. So they want to kind of a proper capital investment and to go and set up like another site. And then just general, kind of, cashflow challenges. There was, I don't know, something happened, a fridge broke or they needed to replace something or struggled to make payroll that month.

Hemmo Bosscher - 00:40:06:

Yeah, that's intuitive to understand. Do you expect that with behavioral change that these, your offering will be more compelling going forward or are there other things you're thinking about doing to differentiate from the sort of more traditional, I put on my suit, I go present my business plan to the local bank. And what else can you do to make it smoother?

Jason Downing - 00:40:25:

I think, again, it's meeting them where they're at and further embedding that flow. So at the moment, we have a capital flow. You can go to the page, you can get the offer. It is paid up 2 - 3 days later. It's paid up the same day if you have a bank account with us. But then I think it's baking it back into some of the other products that we offer. So, hey, you're doing your invoicing. Do you need capital here? And really kind of showing them that it's available. Maybe they don't need all of it. Maybe we can get them to take some of it and just kind of play the game out with them and make sure that it's simple for them.

Hemmo Bosscher - 00:40:57:

Is there a next financial product you're particularly excited about or a feature?

Jason Downing - 00:41:01:

I'm excited about revolving credit. I think the closer that we get to that, the better and just because it provides security for the merchant, you can say, hey, you don't need all of this money now. You might need it in the future. Just take the bit that you want. And I think we're getting closer and closer towards that.

Hemmo Bosscher - 00:41:18:

That'd be exciting. Yeah. And really useful, I think, for the business owners, for sure. Zooming out, if you look at the Epos business, what would you consider major threats for you today?

Jason Downing - 00:41:26:

So, I think the market is getting more competitive. And I think that kind of squeeze in the middle of, well, we're offering this full platform, but the guys at the bottom are getting slightly better. The guys at the top are getting slightly better. I think it's finding our niche and really serving customers well.

Hemmo Bosscher - 00:41:43:

That's clear enough. And then my next question is on, now that you've seen some adoption of these embedded financial products, has it changed your business model or drastically changed the bottom line? What are you seeing there?

Jason Downing - 00:41:54:

So I think it's slowly changing the business model. These products are incremental revenue and certainly they're not yet eclipsing payments revenue. So that's kind of still the big one for us. They do lift our career, of course, like we're generating money from them. And for each merchant that adopts them, the merchants do become slightly more sticky, especially on the capital side. On the banking side and the card side, we need to expand the USPs further, I think. Because you take a bank account with us, great. But frankly, we haven't invested the same amount of money a Monzo or a Starling has yet.

Hemmo Bosscher - 00:42:31:

Right, yeah. Mind you what you're saying with capital, the revenue payoff is just immediate. It's additional without necessarily changing your business model in the short term.

Jason Downing - 00:42:38:

Super easy. Another product, point and click, you go for it. And because it's running on your rails, very easy to set up in terms of implementing the components and, kind of, re-reference.

Hemmo Bosscher - 00:42:49:

That's cool. And do you remember the reception at the time? I know Capital, for example, tackles a real problem that your customers have. So I assume it's quite intuitive. If I, for example, if I own a bar, that I get that offer because I get that offer through multiple channels from other parties. Was reception immediately intuitive? Like, oh yeah, hey, this makes sense that you guys offer this? Or was it like, huh? It's just some April Fool's joke? Or how did that go?

Jason Downing - 00:43:12:

The customers were very happy to go and explore, understand, and phone us if they wanted more clarification. Really easy, nice digital experience. And I think the magic there is fully embedding it into the back office. And we see other providers and other point-of-sale companies where they have it, but it's just this clunky flow. And yeah, you still have to fill out the paperwork.

Hemmo Bosscher - 00:43:33:

The redirect, yeah.

Jason Downing - 00:43:34:

The redirect.

Hemmo Bosscher - 00:43:35:

We'll get in touch.

Jason Downing - 00:43:36:

Definitely embedding it, is the magic there. And making it happen. On the banking side, the magic, I think, is getting them at the top of the funnel. And really getting them to buy into the business. Later, I think we'll do much more fun things around expense cards and, kind of, helping you to manage some of those more complex use cases.

Hemmo Bosscher - 00:43:56:

You think behaviorally that business owners in the UK, are there culturally, in running their entire business through a Neobank or a platform like yourselves? Do you know what I'm getting at? Like, are they there to sort of separate their ties with the traditional old school brick building bank altogether?

Jason Downing - 00:44:12:

From the conversations we've had? I don't think they care that much. Like, they just want the job to be done, and life to be simple. So I think they're happy to cut ties, as long as it works, as long as it's stable. I don't think it's more of a concern in mind on this day. I'm certainly thinking that's true for the UK, but I think it's more true for the US. The US is much more just, hey, if it's working and the rate's good, move forward.

Hemmo Bosscher - 00:44:37:

Of course, good for me. We do it. Like the way I see it, the US is a few years ahead of the UK, which is two years ahead of continental Europe and the rest of the world.

Jason Downing - 00:44:45:

And certainly the uptake of capital in Australia has been exceptionally good. Where it seems like there's a little less competition. Maybe there's competition from the banks, but those digital experiences to get the capital.

Hemmo Bosscher - 00:44:59:

The lesson is if you want to be successful in embedded finance, you do the Anglo-Saxon markets first.

Jason Downing - 00:45:03:

Yes, I think so.

Hemmo Bosscher - 00:45:04:

And then you look at the rest of it. Okay, good lesson. And by switching gears to partnerships, obviously we've partnered for a very long time. So I won't ask you, ‘how important is a good partner?’ I think that's not a very interesting thing to talk about. But one thing I do find interesting to think about is how do you look at sequencing your product roadmap in parallel to your partners? Like how much are you relying on a partner's vision for what the infrastructure they're building versus how much are you leading and dictating your own roadmap and saying to this partner, like, hey, you can help us here and there, but other than that, we got it.

Jason Downing - 00:45:36:

I think there's two answers. One is you have to go in, eyes open. So, especially embedding payments and then embedding financial services, you have to understand how these businesses function, right? Like it's one thing kind of going to Adyen and saying, hey, yeah, I want to start a payments business. But if your organization knows nothing about payments, you're still going to make some silly mistakes, I would say. I think you have to have some expertise in-house to kind of have the right conversations and know the game that you want to play out. And then the other angle, I think, is understanding where the market's at and what the expectation from the customer is. And in that sense, you know the game you want to play and you understand the business that you are, and where you want to fit, like, I mean, back to the neobanks, I'm not a neobank. Like my business is not a neobank. And I have to play a slightly different game to say, well, look, the experience is going to be wonderful, but it's going to be all the jobs that you need to do and nothing more at this point in time. And really kind of focus on the needs of the customer instead of anything.

Hemmo Bosscher - 00:46:39:

Since you touched on the neobanks, how do you look at it? Because some of them are now looking at rolling out payments, even in person, do you see that as a big threat? Or do you think, like we've differentiated so much as the operating system for this type of business owner and that's more a nuisance than a threat?

Jason Downing - 00:46:54:

For now, a nuisance, but maybe a threat in the future because we have so much more depth about how to run a business on the platform. Just doing payments, fine but actually, if you want to build those efficiencies in, and we have so much data that as we start to layer over these AI tools, we can really genuinely help someone run their business. And I think payments for some of those other providers, it's the first stepping stone, yes. But they're going to have to invest a lot more to make the next kind of step.

Hemmo Bosscher - 00:47:24:

No, it's an incredibly competitive space now, I think. So, it's very hard to break into that. You touched on earlier that it's important also to evangelize payments in your own business. If you partner, for example, with an AT&T, you want to roll out embedded payments. If I were at a software platform looking to embed payments, and I want to successfully convince my board or whoever signs off that this is the right strategy, that we should go full force into embedded payments, what advice, having done it successfully yourself, what advice would you have for me? Where to start?

Jason Downing - 00:47:54:

I would start clearly with unit economics. Like, how does it run as a business for one merchant? And then, obviously, how do you scale up? And those unit economics can be positive from day one, right? Like if you buy the hardware and devices on financing, like most people do, like everything can work out beautifully. But again, payments have a downside, like the forward and the risk elements. And I think that's the message that has to come across carefully as well to the board, that you can make revenue here, but you have to be careful not to lose revenue over here and just understand what the drivers are. And then I think the last positioning factor for that person would be, how do you sell it? Because like we say, the market's really competitive. Where do you fit? Are you adding extra value somehow with all the downstream reports or something else? What are the segments of customers that you want to target? And then how do you grow the business up?

Hemmo Bosscher - 00:48:48:

Do you view the fact that everyone's doing it as a good enough reason to get in on it just by itself?

Jason Downing - 00:48:54:

I mean, I think it's a reason, Hemmo, but just like you see everybody doing it, especially tap-to-pay. I like, I've got a mobile app, I'll put tap-to-pay on it. But does the customer care at that point in time? Is it enough? Like, do they want to go to KYC again for the fourth time with some other provider?

Hemmo Bosscher - 00:49:11:

I don't think anyone does. No.

Jason Downing - 00:49:12:

So I think you have to be careful to frame it around the use case that you're trying to solve.

Hemmo Bosscher - 00:49:17:

Okay, very clear. Right. So JC, you touched earlier on the fact that you see payments as foundational to all these other products. Can you talk about that a little bit more and maybe where they might create a flywheel effect?

Jason Downing - 00:49:26:

Yeah, of course. So you've embedded payments into your business. And for us, it's in-person payments. So I've shipped you a card reader. You're taking payments. Everything's great. Then there are products that I can layer on top, payments products that I can layer on top. So, pay-by-link, maybe I can send that with an invoice, like e-commerce transactions, maybe I can embed it into your website and then, kind of faster settlements, so, maybe I could charge you something extra if you want your money the same day and that might be helpful for stock purchases, this kind of stuff. So there's kind of a whole payments line of business that just by doing the basic thing, you can then kind of add extra items on top. And that is good for the merchant because they get a single report. It's single pricing. And everything's kind of together for them. And then once that's all, you can roll into the embedded finance solution. Do the capital and then go deeper into everything else. And because it's on a single stack, there's no messing around and moving money. There's no complexity, you can just step by step.

Hemmo Bosscher - 00:50:29:

Yeah, and I guess if you didn't have the payments layer, the capital would feel sort of out of left field, more of like a tactical thing. Okay, I understand. Switching gears, we talked at the very beginning about the fact that Epos Now serves many verticals. You said, look, even within verticals, business owners run their businesses in entirely different ways. You also employ a large sales force. Is the instruction you give them different depending on what vertical they go to market in? Is it a different set of people that go talk to restaurant owners versus the owners of dry cleaners? Or what do you think about that?

Jason Downing - 00:50:59:

There are slightly different sales motions, but broadly it's the same. So the way that we optimize the platform for each merchant will depend on the sector, and then they get features turned on and turned off depending on who they are. But the general kind of USP of, ‘run your business successfully’ and ‘use our platform as your operating system’ remains the same. And payments broadly remain the same too. So if you're a retailer, it's kind of simpler. You scan it, you pay, everything's done. If you're in the hospitality business, it's slightly more complex with tips and all these other kinds of more nuanced features. But the core underlying framework remains the same. And as we kind of add new features, so recently we added offline mode. Perfect for both types of business. Like if you fall offline for whatever reason, retail, you still need to take the payment. How often have we been to a store and they're still like, my card reader's down. And you have to walk away without paying. Like you're sad, they're sad. It's not good for anyone. And the same with our hospitality business.

Hemmo Bosscher - 00:52:00:

Do you see terminal types, any nuances between verticals? Like if I work at a bar, do I want something exceptionally shock and waterproof and I don't care so much in the dry cleaners, fewer accidents happen?

Jason Downing - 00:52:10:

We do. And I think it's our advice back to the merchant. I don't think the merchant knows enough about whether they buy this one or that.

Hemmo Bosscher - 00:52:18:

What's available. Yeah. 

Jason Downing - 00:52:19:

They're generally saying, hey, this one fits best. And our recommendation is that we go for it. Got it.

Hemmo Bosscher - 00:52:26:

Hey, thanks so much for your time, Jason. Are there any last words from your side, things you'd like to highlight, say to our audience?

Jason Downing - 00:52:30:

Thanks for the time too, Hemmo. Yeah, our side, really we're excited to continue focusing on the embedded finance world, making things easier for merchants and moving forwards into the future together with Adyen. If you want to hear more, check out our website, eposnow.com. And if you want to connect personally, I'm on LinkedIn as well.

Hemmo Bosscher - 00:52:49:

Thank you so much, Jason. Have a lovely day.

Jason Downing - 00:52:50:

You too.

Hemmo Bosscher - 00:52:52:

Thank you to our guests for sharing their insights. There's lots to digest from today's conversations, but if you take away one thing, let it be this. Early adopters of embedded finance aren't just adding revenue. They're redefining customer relationships and building stickier, higher value business models. Thank you for listening.