What BaaS and embedded banking mean for an incumbent bank

KeyBank is a Cleveland-based regional bank with more than 1,000 branches across the United States, ranking among the 25 largest banks nationally.

In an interview with The Financial Revolutionist, Jon Briggs, KeyBank’s Head of Commercial Product, describes the evolution of BaaS and embedded banking from an incumbent’s perspective—detailing how KeyBank is positioning itself to become a leader in BaaS and embedded banking through thoughtful partnerships and product strategies.

This interview has been edited for length and clarity.

Jon Briggs, Head of Commercial Product: You were at Fintech Meetup; what was shocking to me is the number of BaaS providers that are in the market and entering the market, as well as all these point solutions on the fintech side. Stepping back and looking at the ecosystem in totality, and I envision there to be a lot of consolidation over the near term. I also look at it as being a massive positive for a bank that is forward-leaning from a technology perspective.

The Financial Revolutionist: Would you situate KeyBank as a forward-leaning bank from a technology perspective?

Yes, I would. We've actively had a fintech strategy for the past eight years. We've really built a competency around being able to identify and partner and bring to market what I would consider to be best-of-breed partners and providers that are very complementary to our core offering as a bank. 

I love how it positions Key. Our history—as well as how, where, and when we’re investing—positions us really well in the market to be able to serve a lot of these technology companies and fintechs. 

How do you situate Key historically?

We right now have north of 13 different fintech partners, enabling everything from solutions we're bringing and selling directly to our clients in the market, to infrastructure partners that are helping power part of our strategy.

When we say fintech partnership, it has a commercial flavor; we often place equity within these companies as well, which allows us to better understand their roadmap.

On the banking side, we're also building a lot of our own technology to be able to meet the needs of these companies. Just to step back and define embedded banking, we're unique because we're a bank in the space and we probably have a slightly different definition, because in my view it encompasses all the Banking-as-a-Service capabilities.

At the end of the day, we believe in a future that includes more vertical SaaS companies, more fintechs that are solving some of the more pressing workflow and automation problems that businesses are facing today, and we don’t see that slowing down. So what we're focused on doing is taking every service that we offer today as a bank and positioning it in a way to be extended through these platforms.

I'm wondering how you define embedded banking versus BaaS.

For the bank, embedded banking is all the core banking services that any business needs—and the money movement capabilities, card acceptance, card issuing, lending, cross border capabilities… Go down the line, those are the products that are being consumed. 

There's a whole host of services that these clients also need to be able to bring some of these strategies to life. A lot of this is the risk services around KYC as an example. Those are just inherently part of our strategy, because if we're delivering merchant services or card acceptance capability, we have an expectation around risk, so those Banking-as-a-Service-type capabilities are just inherently part of our offering.

Going back to KeyBank’s history: When you embarked on this fintech journey, to what extent was there internal resistance to that, especially as it relates to relinquishing control through embedded banking and partnerships?

We've learned a lot on that journey. So how we set up our very first fintech partnership is very different from the last one that we did. As a bank, we don't compromise from a risk-appetite perspective, so we expect that to extend through to our third-party partners as well. That’s been the case from the beginning. What's different today versus back then is the speed at which we're able to bring client fintechs or partners through that process, and stand them up on the platform.

As we're thinking about the needs of our clients, it's always through the lens of “build, partner, buy.” Often, our fintech partners are helping us significantly advance our roadmaps in a very truncated period of time. For us to be really good at that, we’ve organizationally got to be really good at identifying them, partnering with them, contracting with them and ingesting their capability into the bank. 

And as far as risk goes, I imagine that your partnerships now have more muscle to them—perhaps in terms of your capacity to audit the fintechs and make sure that they're compliant with your own risk profiles. 

There's what I call a risk maturity curve that these companies have gone through. We have a different set of expectations and a different set of stakeholders we manage—with regulators included as well as our clients, whereas a fintech new into the market doesn’t always have that discipline built up yet. Whether it's around servicing or around risk management, a lot of work we do early on is helping those partners come up the curve to our standards pretty quickly. That speaks to why we do it selectively.

As far as acquisitions go: You mentioned that you anticipate some consolidation in the market. To what extent is Key an actor in that?

That’s a good question. I can't speak to any conversations we're having now or would expect to in the future, but what I can tell you is that “build, partner, buy” has a really deliberate framework and strategy around it. I think we've demonstrated that as a bank historically, with the acquisition of XUP Payments, Laurel Road, GradFin, AQN Strategies. If history is a predictor of the future, I would expect to see more of that out of us. 

What else do you anticipate from Key’s perspective in the coming year?

What we're focused on is we want to be the leader in the space, and we see a big opportunity for a bank of our scale with our breadth of capability to be one of the dominant players. That’s what we're focused on: putting a lot of people, capital, technology spend into this space. And it's because we firmly believe we have the client base within our technology vertical, as well as the competency, to really be successful.