Payments Unpacked: The Evolution of Embedded Banking

From his early days at Google to launching Uber Money and co-founding Synctera, Peter Hazlehurst has had a front row seat to the evolution of embedded finance. Once a fringe concept, embedded banking products are the future of commerce, allowing businesses to connect and deliver better experiences to their customers without large technology teams or resources.

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In this episode of "Payments Unpacked" Yuno Chief Business Officer Carol Grunberg sits down with Synctera Co-founder and CEO Peter Hazlehurst to discuss the origins of Google Pay, the rise of vertical SaaS companies, and why companies like Synctera want to build the "Shopify for banking" experience.

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Transcript:

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Carol Grunberg:
Hello everyone and welcome to "Payments Unpacked", where we unpack stories, strategies, and big ideas shaping the payments industry. I'm Carol Grunberg, your host and Chief Business Officer at Yuno. Yuno is a infrastructure company where we use payment orchestration to make it easy for businesses to accept and manage payments anywhere in the world. And I couldn't be more excited to kick off today's episode with Peter Hazelhurst.

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And I've had the pleasure of working with Peter when we were both at Google together. Peter is not only like an incredible person, he's also a seasoned leader and an innovator in FinTech, payments and e-commerce. He is the co-founder and CEO of Synctera He drives partnerships between FinTechs and community banks to enable world-class financial products, which we're gonna dig into as part of this conversation.

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And previously, Peter led Uber Money. He managed global payment flows and spearheaded key innovations also at Google Payments, which we'll also dig into, which included Google Wallet and Pay by Gmail. And Peter also held executive roles at Postmates and at Yodely, as well as providing advisory contributions to fintech startups. So Peter brings deep expertise in transforming ideas into thriving businesses.

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Peter is based in the Bay Area, and he's also an avid investor. So whether you're tuning in for inspiration, knowledge, or simply curiosity, you're in the right place. So get comfortable, and let's jump right in. So Peter, why don't we start where our journey started, which is this incredible thing which not a lot of people know about. And so why don't we actually start with the Google Payments card?

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What exactly is the story behind that and how did that come to be?

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Peter Hazlehurst:
So it's kind of a wild thing. we had joined, or I had joined Google at the end of 2011. And it was the very, very early days of commercialization of NFC and the ability to have this chip that was called a secure element store payment credentials on your phone that could then be transmitted via tap and pay to a device for payments. Tap and pay had been in market in physical cards in Europe earlier. And the tech is really old. The tech is from the Minitel in France. So NFC, RFID, all these sorts of family of payment products have been around for quite some time, but no one had really figured out how to make it work on the phone. And one of the huge constraints on the phone was this challenge, which was there wasn't very much storage in the phone. And updating the phone secure element could only be done over the air and could only be done over SS7, which is the text messaging protocol.

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So it was extraordinarily unreliable. It didn't work very well. And we being Googlers just sort of said, we'll come up with a new solution. And at the time you could basically have one visa, one MasterCard, and you could sort of maybe fit an American Express card in there. And we had all these users of Google Wallet, which was the backend payments infrastructure for Play. AdWords billing, all that sort of stuff. And obviously they had lots more cards than just one. So the solution, which was quite elegant was we ended up buying a company called TXFIA. And TXFIA was a payment processor. And what they had done and what they had built was this ability for payments to be routed and rerouted. And so what we did at Google is in your phone, we actually deployed a Discover card.

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So when you were tapping and paying on your phone, looked like you were paying with an American Express card or a chase card or whatever, but it was actually a discover card in the, in the secure element. That discover card was routed back to Google and landed at TX via or our payment processor. then in turn e-commerce charged your underlying card, whether it was your American Express or whatever you thought you were paying with. And I tried to do all of that and run the risk management of all of that in sort two to three seconds or less. So from a user's point of view, suddenly everything that they had in their wallet that they've been using on Google Play and everywhere else suddenly worked. From the network's point of view, we did the first version of tokenization. So we were basically storing and walleting and credentialing all of your payment instruments on Google and issuing a token, AKA a Discover card. And that was what was in your phone.

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Some of the networks weren't super thrilled about this, to be fair, and thought, you know, I don't want to be fronted by somebody else's card, which then yielded the actual work on tokenization where each of the issuers and the processors and the networks introduced a way of producing tokens from the network for the card that worked dynamically. But it was a matter of convenience. so building that was really the first stage. And then what we realized is even if every person with an NFC phone got the solution, they also had to have like these three amazing possibilities. There was only one phone it worked on, which was from Samsung. There was only one credit card that it worked on, which was from Citibank. There was only one network that it worked on, MasterCard. And there was only one infrastructure provider for us data. The universe of those users was pretty small. And so is our backup strategy we introduced a physical piece of plastic. And basically it did the same thing. When you swipe that card in the app, you would say, I want this card to be an American Express card, or I want it to be a chase card. From the merchant's point of view, was whatever was the instrument at the time. And I think we tested both with Discover and ultimately MasterCard.

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We got it in people's hands. It was working great. And then more elegant solutions came out in the form of tokenization. and our friends at Apple who didn't have a horse in the race actually converted the iPhone 6 into this device that was perfectly optimized for NFC. Then all these hardware manufacturers updated their platform. And what we did, which was really important, is we broke out the secure element. So we just said, you don't have to be stuck in the chip on the phone anymore. You can be stuck. NFC is now free. So in Android 4.4, suddenly you could do payments on any Android 4.4 device. It didn't have to come from Google, didn't have to come from Samsung or whatever. And that really just sort of dovetailed a way of creating this new infrastructure, which was payments with your phone. But it was pretty clunky. Like I remember we were doing training with McDonald's and you'd walk into a store and nobody had done it before as an end user. So you had no expectation of what should you do with your phone. And we had people trying to swipe the phones.

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And you're like, no, no, swiping doesn't work. You have to tap it. And they're like, but how's it going to tap? And you're like, just hold it nearby. It'll be fine. And then we had to raise the noise velocity of the terminals so people could hear the tap. And on and on it went. And to be fair, I think in reality, well, we had a really good experiment with Google Wallet and subsequently Android Pay that then became Google Pay and then it's back to Google Wallet.

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It was really Apple basically saying, it's part of the phone. just works. You don't have to think about it. And we'll do all the heavy lifting that really started to take the product category mainstream. And now, now at second nature, everybody taps and pays kind of everywhere. I just went to Europe. I didn't use cash or a card anywhere, like literally anywhere. It was all tap and pay. The only thing that doesn't really work great is tap and pay with an ATM machine.

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And it works for home root networks. So like if you take your chase card, you can in the chase app say, I want to use the next ATM machine and tap and pay and it works. B of A does the same, but you can't walk up to somebody else's ATM machine and say, I want to use a tap and pay cash withdrawal yet. And when that happens, then we have ubiquity. So it's still a little bit closed networking, but it's really close.

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Carol:

‍But to be fair, I remember the early days of search, people would just stare. They didn't know where to enter their search query.

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Peter:
yeah, well, and the fact that people still don't realize you can write search queries in maps.

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Carol:
So they're still right. So we've come a long way, but we've got a little ways to go. yeah. Yeah. I still listen to you and I live those days with you and I still, like, it is still really innovative though. So the whole story.

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Peter:
Totally. It was crazy. I mean, we built effectively a marketer style pipe payment processor in six months from the acquisition. And we had a really talented team, the team from TX via several of those folks have been very successful alums and Neil and Jonathan started money 2020. And Neil has gone on and done a bunch of conferences. So has Jonathan, both of them in serial investors.

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Carol:
It's unbelievable.

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Peter:
That was a pretty cool period of time. And what was nice is we were unbound by convention. And that was what was cool about Google. You could go and do something really creative. And we had the backing of a big organization to sort of have the heft needed to encourage the networks to participate.

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Carol:
Really interesting. So I'm going to go on now a little bit fast forward, skip a journey or two, but I'm going to move on to Uber money. And I remember, I don't know if you remember this, but I remember being in Mexico city of all places. And, um, and this was circa now 2018, very correctly. And you were building out a team there. think you had a pretty large team, your Uber money team. So can we talk a little bit about that and the vision you had and

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Peter:
Yep.

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Carol:
You built something pretty cool with that group. So what was all that about and what did you build out with that UberMoney team?

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Peter:
So what people don't quite understand is how big of a payments team Uber had. It's a little bit smaller now because of COVID and changes and stuff like that. But effectively, we were PayPal inside eBay. did money flows in 70 countries. We had tax in 70 countries. We had resident currency cash in all the markets. We were doing, I don't know, $2 billion a week in spend. There was money flowing everywhere. And the infrastructure to do that was all homegrown.

So the cool thing about Uber was it's a builder company. And we built our own ledger, we built our own payment orchestration, we built all of that infrastructure that allowed us to work across the world with adyen in one market, Stripe in another, Dlocal in some markets, you name it. We were connected to every sort of acquirer every sort of processor.

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Carol Grunberg:
Which by the way is the perfect reason why payment orchestration really comes in handy when you have all the great different players that you need to connect to.

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Peter:
It is. This is the thing, right? So if you have more than one processor or acquirer, you need some sort of ledger on your own to keep track of everything. Because nobody wants to do the accounting and reconciliation per ledger. It's too painful. We were lucky. I had a huge engineering team. We had a huge engineering team. And one of the things we identified as a barrier to growth was supply side. So how many drivers on the ecosystem.

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The opportunity we had was to speed up the money flow to the driver. So in the Western world, all the trips are digital, meaning you put a card on file, you get in, you get out, you get a receipt, and you don't really think about the money. So we pioneered this concept of checkout, let's check out. And it was great. In the developing world, all the trips were in cash or a huge majority were in cash. So at the end of every trip,

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You have this dance that happens of what's the price? What are you going to pay? Is there a negotiation of, did you pay a tip? Does the driver have change and all of that sort of stuff? So the first thing we built and spent a bunch of time on was Uber Wallet and Uber Cash, which was a medium by which the credits and debits could transition either through the consumer's account. So they'd have a credit on file if they got cash back or on the driver's side, they would be able to manage the money flow.

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Then the second part of that then became, okay, well, now if you're in the wallets experience for the driver, how fast can you get the money to them? And Uber was pretty pioneering when it started with weekly payouts by ACH. And we were doing a lot of them, millions a week, millions of payments to millions of drivers. And then we introduced daily payments so they could pay 25 cents and we'd pay them every single day. And then we came out in the US with the first high scale implementation of MasterCard send and we paid drivers in real time and we charged them 50 cents and the drivers were using it all day long. Basically the balance of the average daily balance of a driver's account was almost zero because basically they would earn and spend, earn and spend, earn and spend, earn and spend. But this money was earned on us and then pushed a card over to Bank of America or Chase or Wells Fargo or whatever.

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And that was super inefficient, quite expensive. But it turns out we actually had to cap the number of times per day at five. Because if we didn't, people would have done it like five, 10 times a day.

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Carol:
So they would get a writer and immediately get paid and transfer to their bank account?

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Peter:
Yeah, exactly. Because they needed the cash. So and then the preemptive side of it was if the start of the day you don't have much money and you need to fill up your car with gas, what do you do? And so that's where we introduced this what we call the backup balance, which basically allowed the driver to go negative up to 100 bucks to buy gas.

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Carol:
So they would draw against this balance every day.

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Peter:
That's right.

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And the goal really was to be effectively like a USA or a bank on behalf of the drivers, which was fee free, optimized for them, rewards that matter to them, like 10 % off gas, things like this, with a goal of encouraging the driver to stay on the platform more. And it was really interesting because we had a lot of effort to do to change driver behavior. And the most obvious interesting one was to send a Western Union money home somewhere, broadly speaking, it's somewhere between 9.95 and 20 bucks just to move the money. And so the drivers in their head thought it cost me 20 bucks to send money home, but they don't actually do the math right. So they're missing out on the fact that they'll go to an ATM machine at the Western Union location. And those are exorbitantly overpriced at like 10 bucks per withdrawal. And then they forget that they're not driving while they're sending the money.

And all we wanted to do is put the push money in the app. So they didn't have to stop driving. They just send the money. It would be great. But it was a lot of this behavioral change that in their head, they thought 20 bucks was, I mean, it seemed expensive, but it was, you could make it work.

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Carol:
Are you saying they could do a remittance from their wallet to a bank account and across border?

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Peter:
Yeah, so we spent a bunch of time working with the Western unions and the money grams of the world as well to unblock in app money flow. But ultimately what UberMoney was about was a combination of a really important payments platform to do money flow between riders and drivers or eaters and drivers and restaurants. It was the bank account or the wallet for the driver. It was the bank account or wallet for the consumer.

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Carol:
I see.

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Peter:
And by putting it in the consumer's hands and then launching UberPay, which was an open API to push money to the wallet, we suddenly launched another couple of hundred payment methods in a year because we didn't have to do the integration anymore. We would let Alipay code to us or you name it. And as the global enabler, we were the unblock for growth internationally and by product category. So you wanted to do alcohol delivery for UberEats.

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You got to do a bunch of licensing and you got to get it working right. You can't just suddenly say, I'm going to send do a transaction to debit somebody's account to buy alcohol. The pandemic made a lot of that stuff a lot easier because they relaxed a bunch of the regulations. but the payments team at Uber was really fantastically creative and I was lucky to be able to sort of steer them on this path of launching a digital bank for the drivers. We'd launched in the U S we'd launched with my, with BBVA in Mexico.

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We're on a path to launching in Brazil. And then sadly COVID hit. And rider volume dropped precipitously quickly. And the necessity to have bells and whistles on payments lowered. And we focused on just the core plumbing at that point.

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Carol:
Fascinating. I love it. Wow. Okay. So thank you for sharing that background. And I want to get into Synctera. So I love what you guys are doing. You made some fabulous announcements recently with some partnerships you're doing in Brazil. But what is the background on Synctera and you deciding to co-found the company? Can you tell us a little bit about the background on what you're doing and kind of your vision for going forward?

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Peter:
Well, I mean, it's basically imagine the Uber payments team reorganized into a mini PayPal, which is Synctera that basically goes to companies like Uber and says, you don't have three, 400 engineers sitting about idly just wondering what else to do today. Don't build that infrastructure. Come to us. We're a one size fits all API stack that allows you to do banking, payments, card acquiring. push to card, wires, ACH, the full stack of everything. And then we help you find a bank that will be your sponsor bank.

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And for the banks, we do all of the accounting, the billing, the reconciliation. We're a mini core banking system. And this merger of these two-sided marketplaces, fintechs and brands on one side, banks on the other, is this platform that Synctera is, which is the glue between these two disparate sets of users and communities. Banks wanting really strong compliance, want to balance the books down to the penny every single day, sometimes twice a day. And the fintech saying, I want to go as quick as possible, but I also want to make sure I have resilience and potentially have a second bank or a third bank as my sponsor that I can rotate between. And that's really what Synctera was inspired to do. We obviously started small and did a bunch of early stage startups.

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When we came to market at Money2020 and whatever that was, October of 21. Since then, most of those early stage folks have unfortunately not hit escape velocity. A couple of them have done really well, and we're really happy for those guys. The market today is really sort of bifurcated between what I'll call embedded finance opportunities for vertical SaaS. So think about folks like doing spa management platforms, where if you're a spa owner, it's not a sticky app. Basically, you just need payments and scheduling. so spa owners basically float between spa platforms every three to six months, because there's always an incentive to switch. But if you had their bank account, if you're doing payroll, if you're giving them a loan, they become much stickier clients. And in vertical SaaS, much akin to Uber with paying its drivers.

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The stickiness and the retention benefits are super fantastic and help build a much more stable business. If you look at Square and you look at Toast and others, their principal value prop in the ecosystem now is Square Capital and Toast Capital and other products that provide lending to restaurants or industry specific vertical products. And it makes the payment side sticky. So you don't make tons of money on payments.

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Payments is fairly commoditized and when it all gets said and done, it's a bit scheme, not a points game. And it seems like as a merchant, you're paying, you know, 2.9 and 30 cents and stuff like this. When, when you narrow that all down, maybe you end up at 20 to 30 bits on the other end as pure profit. So you have to find where's the rest of the money going to come from. And that's where lending and banking and bill pay and all these other surfaces come into play. And that's what we do at Synctera. We make it really easy to add banking to something else whether you're a law firm practice management solution or a dentist platform. You guys have all seen care credit every time you go to the dentist. And because there's a lot of people that go to the dentist that are debit card only and don't have $2,000 to fix the broken tooth that the dentist discovered. Care credit steps in as a third party credit provider. But what if the supplier of the scheduling software for the dentist offered this as well?

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One less thing for the dentist to think about, money flows better, the customer is happier, and everybody wins. That's where Synctera steps in and makes it easy.

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Carol:
So do you believe a world exists where any type of organization could have a banking offering?

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Peter:
Yeah, I do. think the end state for us, which is still several years away, is Shopify for banking, where it's as easy as going to Shopify and saying, hey, I want to launch a digital wallet for my scout group, or I want to launch a digital wallet for my Facebook friends. We're not there yet. And there's a bunch of work we need to do to standardize all the compliance and make it very box safe from a compliance perspective. But we're not that far away.

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And banking is obviously way more complicated than e-commerce in terms of the rules and the regulations. But I think we have a really strong opportunity to build something really fun. That's easy to engage and it's cheap. It's pay as you go. It'll be five bucks a month type of sort of thing. No upfront fees. And then just like Shopify, there'll be the, Hey, I'm a big brand. want to have the deep access to the API. So I don't want your standard UI or any of that stuff.

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Carol:
Well, figuring out how to make it happen is certainly you're the right person to do this, Peter. So I have no surprise that this is going so well. And also I do want to ask though

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I saw that Synctera recently partnered with Webull. Can you talk a little bit more about that?

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Peter:
So WeBull has launched in Brazil and I think Mexico and Colombia digital brokerage services as well. And what we're doing for them is offering them US dollar bank accounts for their end customers. So imagine you're a customer in Brazil and trading in the US is expensive and moving money to the US costs you 6%. What we can do and then and you've got tons of inflation. So even if you just kept your money stable in Brazil, your Brazilian rialto, the dollar is falling over time. What we make it easy for those customers to do is open an account at a bank in the US, in this case, Sterns Bank, and make it easy to facilitate money flow from Brazil to the US so they can keep their money dollar domiciled. And that creates a hedge against FX, creates a hedge against inflation and so forth.

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It's true international banking is the product really. We did the same thing with BTG Pactual, which is the largest investment bank in Latam. We've seen quite a bit of interest in foreign companies or brands offering banking in the US because it's a safe haven currency. Everyone talks about stable coins, blah, blah, But the reality is the stable list coin is the US dollar. If you're in emerging markets, or high inflation, high effects challenged market like Argentina or Colombia. Moving dollars to US is really good. Take for example, the Canadian dollar, which I think has fallen seven or 8 % in the last month against the USD. We actually help a number of Canadian organizations open US dollar bank accounts for the same effects hedge and value hedge as well.

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Carol:
Fantastic, Peter. OK, so this was such a fascinating discussion. So if I could sum it up, the key takeaways would be, let's see. So tap and pay is replacing cash, especially in Europe and APAC. If you could have more than one payment processor or quire, you would need a ledger or payment orchestrator to keep track of everything and manage reconciliation.

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Vertical SaaS platforms like Synctera are helping merchants and fintechs integrate banking products and making their apps more sticky. And in the future, we can expect Shopify-like banking for essentially any type of experience where businesses can integrate financial services. They need to grow on demand. Pretty much sum it up, you think?

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Peter:
I think that was an amazing effort. Yes. mean, who needs chat GPT? You're amazing. That was perfect.

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Carol:
This is such a pleasure. It was wonderful to see you again.

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Peter:
Great to talk to you too, Carol. Thanks for the time.

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Carol:
Thank you.

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