“Money is the greatest stress in people’s lives. It's not remodeling a home. It's not getting married. It's not transitions in life, whatever they might be. It’s simply money and decisions associated with money,” Galileo CEO Derek White told attendees at last month’s combined Tearsheet Big Bank Theory, Embedded and Challenger conference.

With that backdrop, White said it’s paramount for financial institutions, fintechs and non-financial companies considering embedded finance opportunities to create consumer experiences that are more human, open and connected. In a fireside chat with Tearsheet Editor Zack Miller, White shared his view on how companies and the wider financial services ecosystem can do just that.

Read highlights of their conversation below, or watch the full session.

https://www.youtube.com/watch?v=g2N1Swv8I\_8

Zack Miller: So we're talking about human, open and connected. What do those mean to you, Derek?

Derek White: Well, let's start with human. Throughout my career, I've always been fascinated with how people, humans interact with money. It started from the day my dad lost his job, and my brother and I had started a little business. We handed our paycheck over to our dad. That was my first recognition of what money was.

Money is the greatest stress in people's lives … money and decisions associated with money. Behavioral economics teaches us that we as humans don't like making decisions. The human element of this is understanding how humans make decisions, how humans interact and how money laces through every part of our lives; some of our biggest decisions in life hinge on money.

Human-centered design has emerged in financial services, and that's great to see. But there's still an enormous amount that can be done. When we talk about the future of finance, it's about the end user, that is the consumer or the small business owner that’s making decisions about their business, as well as their own personal finances and how they blend together. How are you designing an interaction platform that enables those entrepreneurs, those startups, those founders, those small businesses, to be able to manage both aspects of their lives and the six software platforms they use to run their business?

This embedded theme is not just about fintechs. It's about humans, it's about businesses. And it's about money. So the human element is around understanding how banks, brands, financial institutions, monetize human interactions. And the monetization of human interactions happens in only two ways—either with a tap on the glass, or signing a paper. And in the institutional businesses, there's still a lot of paper. And so designing the migration of those experiences, transforming and rebuilding historical financial services into a human-centered view versus a product-centric view is huge. Unlocking that design of the end human user experience and connecting it across products, across experiences, across silos requires the next part, which is open. Transforming and rebuilding historical financial services into a human-centered view versus a product-centric view is huge.

ZM: With open, it sounds like there’s some connection to data there and the value of data. What do you mean by open?

DW: When we talk about open, it’s about ecosystems, open innovation, open data, open banking, open infrastructure—all terms that speak to creating data and freeing captive data. Look at how the ecosystems have evolved. What used to be captive data within an organization was tied to their physical footprint. That data associated with their captive customers was their intellectual property. Increasingly, organizations are opening up their data.

But if you look at Europe, it's largely driven by regulation that has required the opening of data. The future is all about the ability to free that captive data, but then to also be able to capture the data that is out in the open ecosystem. As an example, how many interaction platforms do you have in your home, Zack? Just think about how many compute interaction devices you have now that connect you as a human to the broader interweb that is open. And rewind the clock to just a couple of years ago as to how many you had versus how many you have today. Many people will have a phone, a tablet, a watch, a health monitor, a workout machine, a security camera, a thermostat. So we have 10-plus devices that are then creating 10x data. So if you think about a human walking around and each of us is creating 10x data. That’s a lot of data. The power for organizations is figuring out how to combine their data with the data that sits outside of their organization and harnessing it to create better customer experiences. The power for organizations is figuring out how to combine their data with the data that sits outside of their organization and harnessing it to create better customer experiences.

Then that's where the third part comes in—connected. How do you connect the open data, the open platforms, the open ecosystem—how you connect that back to the point of interaction?

ZM: So let's dive into that connected piece. That's the third of the triumvirate. Is that more about the ecosystem of the fintechs and banks and how they serve their clients and customers?

DW: Well, there's so many aspects to connectivity. There is the ecosystem. In 2012 or 2013, there were a number of us in London that were trying to build the innovation ecosystem of London. Believe it or not, there was this inferiority complex that London wasn't this innovation ecosystem that perhaps Silicon Valley and other parts of the world were. We had all the great institutions, academia, the headquarters of financial institutions, but there was this feeling that it wasn't connected. So we did a lot to connect the ecosystem and create the fintech capital that London became.

But additionally, I'll just use the business that I run today, Galileo, as an example. We connect humans and businesses to create the future of finance. We announced with our Q3 earnings that we have 89 million user accounts on our platform. And those are humans interacting with a financial product on our platform. Underneath those 89 million end user accounts on our platform, there are 150 entrepreneurs, creators, builders, innovators, disruptors that had a dream. We translate entrepreneurs’ dreams into business reality by connecting them into the infrastructure of money and the ecosystem to be able to build a business.

ZM: That's awesome. So I'd love to hear from you Derek, what are consumers saying right now and how is that informing Galileo’s strategy as you’re six months into your tenure?

DW: We conducted some research recently to see what end customers want to complement our platform data. A lot of that external research is what you might anticipate, but there are a couple of interesting nuggets. The first one is that the average person has two and a half accounts. The second one is that 21% of adults today use a digital-only bank as their primary provider.

That’s a pretty big shift, and part of that is driven by COVID. Pre-COVID, Zack, 50% of the banks in the United States did not have an online checking account opening. You physically had to walk into a physical branch just because it wasn't possible to do it online. Now COVID has changed that. And so digital is a possibility, and it's one thing to have an account. But one in five adults in the United States have their primary account with a digital-only bank that has no physical footprint. That's a pretty big trend.

The second one is that there's about a 15 percentage-point satisfaction difference between digital-only and traditional brick-and-mortar banks. Customers have an 80% satisfaction rate on digital-only accounts versus a 65% on traditional banking.

Now we don't have a direct parallel for this because this is the first time we've done research. But Cornerstone published data that said in January of 2020, 4% of Gen Zers and millennials consider a checking account with a challenger bank as their primary account, but by December of last year, it was 15%.¹ So that's starting to move. Two key points from our research are: 21% of adults today have a digital-only account as their primary account (as noted), and 61% of consumers are actively considering moving to a digital-only bank.

That's pretty significant in itself. And then what's interesting is if you ask these participants where they would consider doing their banking, they give the categories that you might have considered in the past: internet and wireless providers, employers and national retailers and warehouses, but the No. 1 category surprised me—streaming providers. Forty-eight percent of people said they would consider having a financial services product, an embedded product related to streaming services. So pick your platform, whether it's Netflix, Prime, Paramount+, HBO and add in financial services.

¹https://www.forbes.com/sites/ronshevlin/2021/02/01/challenger-bank-chime-hits-12-million-customer-mark/?sh=58c714b123f5

ZM: What do you see as some of the key challenges and opportunities for these new players to move into embedded finance?

DW: The first is being really focused on and staying true to the mission and the impact that you want to drive and the value proposition that will deliver that impact. The second—the essence of strategy—is recognizing what you don't do. And I think this is a great principle of leadership, of human leadership, as well as in running a business and recognizing as a leader, what you're great at and what you're not great at and surrounding yourself with people that are great at just what you're not good at. In the same way, a business must understand that they don't have to do everything.

This concept of open architecture, open ecosystems has made it so that you don't have to have everything captive. So understanding the impact that you want to have, how tightly coupled that is with the value proposition, but then how connected that is to what you actually own and build yourself versus what you can partner to deliver. Being clear on what you want to build and deliver and own, I think is pretty critical.

And lastly, how do you build trust in a distributed world? The blockchain, crypto, DeFi world is a great analogy for human interaction and how as a company driving embedded finance, it comes back to human interaction. And how do you build trust in a human interaction where there may only be one human involved? And that human is the end user above the glass. How much of our day-to-day is us and the glass? So really thinking through the connectivity of the impact of the value proposition to where partners can play and how that then translates into trust and how you build trust, not just on a single transaction level, but how trust is built repeatedly through every interaction. I think it's incredibly important.

ZM: Awesome. We're getting near the end of our time together. I also wanted to talk to you about the different approaches the U.S. and Latin America have taken versus the U.K. and Europe in terms of regulating open banking. What do you see playing out and what do we need to do to achieve the promise of open finance?

DW: The promise of open finance is really all about connecting the ecosystem. There are great examples in China of where the ecosystem was allowed to flourish, just take person-to-person lending and person-to-person payments. I ran a joint venture consumer finance business in China a couple of years ago. And at one point there were 1,200 P2P finance businesses that were allowed to bloom without licenses. This proliferation of person-to-person finance businesses was permitted and that lasted for maybe 24 months. And then all of a sudden regulation was brought down and 29 businesses were licensed and allowed to operate and essentially 1,100 closed overnight.

In Europe the regulation has played a big role in opening up open data and open banking and allowing the movement of data. We see the sandboxes in Latin America and an appetite for open banking. Understanding just where the humans are interacting and how that then traces through into the plumbing of the financial services industry is critical to understanding where on that value chain, new product innovations can be created. And each geography is very different. And that's one of the greatest learnings that we can get—whether it's out of China, whether it's out of Europe, whether it's out of Latin America. Looking across markets is one of the greatest ways to bring innovation to your own market.

Watch the full replay.