LFP031 – Payments & Non-Bank Banking with Rich Wagner CEO Advanced Payment Solutions

APS Logo Stacked

I am delighted to be joined by Rich Wagner founder and CEO of Advanced Payment Solutions (APS). In a world where some of the largest Fintechs were formed only a few years ago it’s rare to meet one that has been going for 11years,

Rich WagnerAPS is one of Europe’s most innovative payment solutions companies. A leading challenger to High Street banks (they tell me), APS provides fast and secure banking solutions and focus on providing easy to use banking products to individuals, small businesses and the public sector, specialising in business expense and current accounts, prepaid (debit) accounts and lending products.

You, like me may not have heard of APS but in terms of impact:

– Over 1.2 million Cashplus (current account) cards have been issued to date

– Serving 50,000 SMEs

– Providing banking solutions for benefit recipient for 30% of the local authorities in the UK

– APS has processed over £3 billion payments to date

APS is also the fastest growing provider of payment solutions to local government – its prepaid card and current account, run in partnership with MasterCard, supports over 1 in 5 of the UK’s local authorities with their social care programmes, handling over £180 million worth of benefits payments each year.  This year APS became the first non-bank to team up with the Post Office – allowing customers to access their accounts from Post Office branches.

Originally the main focus of the show was to be on payments, however as we spoke it broadened out to be much more “banking without banks”.

Topics covered include:

– APS origin out of Rich’s personal experience in the nightmare of trying to get a bank account when he arrived in the UK in 1999

– a discussion of Bill Gates quote about “banking being necessary but banks are not” – in particular it’s fundamental misunderstanding of the nature of money which is “bits in bank computers”.  No banks, no money. However all the services in terms of manipulating those bits is up for grabs

– APS “non-bank bank account” – you get a sort code, debit card and in essence a bank account – the only thing they don’t do is clear cheques .  The assets sit wholesaled behind the scenes in a bank (NatWest)

– APS is regulated as an “electronic money issuer” which licences them to take customer money but the funds must be “safeguarded” – not used as with banks. So whilst APS is not covered under the FSCS guarantee fund there can be no “run on” APS as all customers money is available (and not leveraged out eg with the run on Northern Rock).

– safeguarded funds are high up the credit payout list at a bank so will pay out before other direct bank accounts

– see the FCA’s FAQ for more on electronic money issuers [odd phrase..?!]

a must-listen to deep-dive into KYC – problem? opportunity?, and the Emerging Payment Association’s initiative in re the public agenda.  How APS use this to get application times down to minutes rather than days

– the cost of KYC in terms of existing banks cutting back on who they would give accounts to – the example of HSBC who after billion dollar fines wrote to 2,000 or so SMEs withdrawing their banking facilities [followed of course by the lawmakers then moaning about how banks don’t support SMEs]

– Rich’s 3-fold topology of the payments world (be it #oldFS or #newFS); firms typically live in one of three boxes – merchant acquirers (who enable shops etc to take your payment in the first place); players (eg banks, APS) who issue you with cards or initiate payments for the individual (eg Transferwise) to enable you to pay in the first place; the element that sits in the middle that provide a guaranteed payment network to link it all up (eg Visa, Mastercard)

– Bitcoin (et al) as the fourth category being an attempt to create a whole new ecosystem (which is more holistic than the existing system)

– many “Fintech” payments attempts really not attacking any problem that needs fixing – eg I have never had a banking payment fail in my life.  ApplePay et al as a utility thing (as well as the usual “profits and self-interest for a tech giant” angle), an alternative way (rather than a cheaper way as with eg Transferwise) … and, as of writing, if you tap-and-pay on the London Underground and your phone runs out of battery you are screwed when you try and exit the gates at the other end :-O … see TfL cautions users over pitfalls of Apple Pay

– Android phones and tap and pay

– interchange fees (the amount the merchant acquirer has to pay to use the system) and EC ~ten-fold driven reductions from ~2.5% to 0.25% [and note there is no equivalent reduction in the US where fees are still as high as 3%]

– the real problem in banking being their nature as vast unmanageable conglomerates who are being salami sliced

And much much more 🙂