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- 🧠 Utah: The past, present and future of Embedded Finance
🧠 Utah: The past, present and future of Embedded Finance
The future of embedded finance is better lending, compliance, I wanted to understand what makes Utah banks so strong in this area. PLUS: Visa benefits from cross border & Adyen still crushing.
Welcome to Fintech Brainfood, the weekly deep dive into Fintech news, events, and analysis. Join the 39,947 others by clicking below.
Hey, Fintech Nerds 👋,
Whether it’s Uber enabling Pay by Bank for a 40% discount or Stripe enabling Stablecoins again, it feels like we might be back.
Actually, back, not that “OMG, we’re not actually dead!
Don’t believe the funding charts showing Fintech is down, they’re a lagging indicator.
But it’s really a story of two markets.
Some companies stuck at $5 to $6m, running out of options and runway, hoping to land well. Others delivering, growing and succeeding.
Meanwhile, the banks are still fighting deposit flight, are past peak profitability, and are having their lunch eaten by private credit.
And private credit might yet be in for a reckoning as some of that venture debt starts to go bad.
Yet.
Three things remain true
Visa is a beast. (Things to know 👀)
Adyen is a beast. (Things to know 👀)
Embedded finance is entering its grown up phase (Weekly Rant 📣)
Here's this week's Brainfood in summary
📣 Rant: The past, present and future of Embedded Finance. Lessons from Utah.
💸 4 Fintech Companies:
👀 Things to Know:
Uber’s 40% discount for pay by bank
🤦♂️ Correction corner: In last week’s edition, I suggested banks like Evolve had suffered consent orders. For clarity, Evolve does not have a consent order but has seen numerous high-profile issues with its programs.
Weekly Rant 📣
Utah: The past, present and future of Embedded Finance
While the Fintech world was in New York (for New York Fintech week.)
I wasn't.
Instead, I got an "MBA" in Industrial Loan Charters (ILCs), partner banking, and Fintech infrastructure in Utah.
The contrast is poetic.
Everyone knows that Fintech is a big deal in New York, and Jon Zanoff is doing the best community-focused event, so you must be there.
Not as many know about Utah's Fintech scene. If you're an operator, VC, or banker. You should.
(Especially if you care about embedded Finance and finding the right sponsor bank!)
This is more of a field note than a pure Rant, because I'm still processing it all.
But check this out.
Utah has.
15 out of 24 Industrial Loan Charter (ILC) banks
85% of ILC assets
The HQ of E*Trade, Bill.com, Galileo, Finicity, Atomic, and MX
7,500 working in Fintech (for context, the UK estimates it has 76,000 and has ~12x the GDP)
The hottest job Market in the US, according to Moody's and the WSJ
It's a top 5 State for job growth, housing affordability, 24% of the population is a minority
It is weirdly entrepreneurial. It was the home to Visa founder Dee Hock
On that last point, one founder told me, "You going door to door selling a religion people don't want, in your teenage years, often in another country, and see if you learn how to sell and be a founder."
Salt Lake City has the highest economic mobility of any city nationally. If you want to start a family and have your kids do better than you, it is literally the best place in the US.
Most Fintech companies you've heard of probably partner with some tiny bank in Utah if they do lending.
If you believe the future of Fintech is better lending, compliance, and better-Embedded Finance, you must understand what makes Utah banks so strong in this arena.
After a week there, Utah has a long way to go to stand out on the world stage. But it has some unique selling points that could get it there someday.
ILC's BaaS and Lending as a Service
Infrastructure unlocks progress
Benchmarking Fintech bubs
How Utah can grow
My time in Utah, your time to consider it.
It's worth unpacking the ILCs and Infrastructure parts a little more.
1. ILCs, BaaS and lending as a service.
a) An Industrial Loan Charter(ILC) bank is a state-chartered bank but does receive FDIC insurance. Meaning they are FDIC-insured and FDIC-regulated. When created in the 1900s, the goal was to help company workers get a loan if the commercial banks weren't offering them. You can see this heritage in BMW and Toyota, who have ILCs. ILC's heritage of serving the underserved continues today. This happens across two fronts.
Serving their fintech and nonbank partners, who often struggle to find banks willing to build a financial product partnership.
Secondly, the banks and fintechs jointly serve the underserved end consumers and smaller businesses.
ILCs are exempt from the Bank Holding Company Act. TL;DR, if you're a bank, you're regulated (and priced as a stock) like a bank. This is why you don't see many Big Tech companies buying federally regulated banks.
But you do see Block Inc. has an ILC in Utah and runs a high % of its lending through local banks like Celtic.
Block that owns the music service Tidal, creates hardware Crypto wallets, and whose payments app CashApp.
Some incredible logos run their lending programs between Web Bank, Celtic, and Finwise, the "Big 3" of Utah lenders. Affirm, Ondeck, Intuit, Toast, Stripe, Prosper, Dell, and Yamaha alone.
b) Context: Fintech program de-risking. Every Fintech program is de-risking, and that's the Utah bank's ace in the hole.
As the broader partner banking and lending space comes under pressure and regulatory action, these quiet Utah companies see a "flight to size and scale." A theme I often hear from them is that they're having no problem generating demand; the hardest part is filtering it.
The flight to quality has 4 parts.
Programs are trying to exit partner bank relationships that have received regulatory pressure or "gone bad."
That's creating a rush for scale and quality, so the good ones lack capacity.
Being "picky" as a partner bank is actually good marketing because programs want a stable partner. They won't have to exit in 6 months' time.
And finally, most companies now want multiple partner banks instead of a single point of failure
Many companies don't realize how one bad apple ruins the bunch for everybody. Imagine if you're a Fintech program, and your partner bank has 30 partners, and only one of those triggers a regulatory response. You'd assume the bank would be in trouble, but now so is every other program of that bank.
Suddenly, you have 29 programs trying to get away from their existing partner to someone new. Then, when they get to the new partner bank, burned by that experience, they'd almost want their bank to be picky.
They'd also want more than one bank to partner with to spread their risk.
Growing Fintechs had not historically built to support splitting volume across two banks. Heads up to founders: Build the plumbing in at the beginning! You'll thank yourself later.
Net/net. Fewer banks, with more demand, are being more picky.
The consequences are rapid, and they're playing out in real time.
c) Why ILCs for lending? It's about control over the underwriting approach. You could secure a lending facility out of a major bank, which will often whitelabel their vanilla underwriting model. So, if you're a SaaS business and your clients are fairly vanilla, this is low risk and low effort.
By contrast building a more bespoke underwriting program offers a greater share of the unit economics. It's more effort, but if you're building something like Stripe Capital, you liklely want to use alternative data to drive an underwriting decision.
Ultimately, this risk is owned by the underlying bank partner, but Utah ILCs like Web, Celtic, and Finwise were pioneers in working with their programs to build more bespoke lending products. The bank still oversees all lending and is the legal lender, but a way to think about it is they "outsource the marketing and technology" to their brand programs.
d) The Utah regulators get embedded lending. Sutton Bank has been a successful "BaaS bank" that is now seeing regulatory enforcement actions. It was the only "BaaS bank" in Ohio, and as someone said to me last week the local regulators hadn't seen that animal often.
Before the novel activities supervision program by the federal regulators, there was no focus on banks that did this type of activity. Most community banks were sleepy, and their risk looked similar year in and year out. This meant they were low-risk and on a 1 to 3-year examination cycle from their State or Federal regulators.
Take a hypothetical bank that fits this bill and have them open up a couple of programs. In the first 12, 18, or 24 months, the exams might appear to have no problems, but those issues build up. Then, we see a wave of consent orders follow as regulators catch up.
Contrast this with Utah.
Where ILCs and lending as a service has been commonplace since 2008/2009 at least.
e) Benefitting from the flight to quality. As the rest of the industry moves into lending programs, the Utah banks move the other way to payments. With long-term, well-earned reputations, they have the pick of the litter in Fintech programs. However, as lending businesses, they can and should grow only so fast. Payments are the natural next move.
Great community banks are doing embedded Finance outside of Utah; it's just that Utah has a great history and wedge.
2. Infrastructure
a) Open Finance. Finicity, MX and Atomic were all founded and HQ'd in Utah. MX and Atomic have positioned themselves as more open to bank partnerships than Plaid appeared in its early days (although this has since changed dramatically).
Why does this matter?
Banks are remarkably good at what one person described as "malicious compliance." Open finance providers that screen scraped and didn't do deals with banks ended up with services that occasionally didn't work. Banks' ability to slow-walk the offering until they get paid or benefit is not to be underestimated, even in a regulated open banking market like the UK.
Finicity found FDX, which has a shot at becoming an open banking standard. MX was built with banks and has done well in the community space where others struggled. Atomic has large banks as clients and focuses on the propositions that will help banks attract deposits in a market where deposit flight is a real issue, fees are being hit with regulation, and net interest margins are compressing.
This is true for their non-Utah competitors too.
The point here is about the starting posture.
b) Payments and Lending. Utah is home to Galileo (now a division of SOFI), a company that would be delivering rule of 50 growth on the stock market if it had a different exit route. Along with Marqeta, they ushered in the Fintech revolution by being API-first and open to new programs.
Meanwhile, Loanpro started as the SaaS lending engine for the "gallery of misfits." It offers student, solar, auto, BNPL, and even airline loans. As a result, they had to look at a loan as a series of inputs, outputs, a lifecycle, and configurations. (Pro tip: You can map any financial product onto this mental model)
Now, every company is trying to do something new in lending or is facing regulatory pressure on their lending program; LoanPro is quietly powering some giant names. Every bank is trying to modernize and get off their existing core provider. LoanPro is a piece of that puzzle.
c) Where are the consumer brands? Outside of Bill.com, I can't name a giant consumer-facing brand with an HQ in Utah. It's all very backstage, under the radar, and humble. Utah really is a place where if you know, you know.
It wants to change that.
It wants to stand out on the global stage.
Can it?
Should it?
Note: For all the companies I didn't name or are not based in Utah. You matter, too; you all have unique and wonderful stories to tell. Don't be that PR person or founder.
3. Utah vs the world.
The debate for the hottest Fintech Hub in the US is wide open. Silicon Valley has tech cornered, New York has an energy to it, and quietly, Miami is powering cross-border and capital markets in a way many people ignore.
But as people quietly begin to feel the pressure of high inflation and high real-estate prices in California, New York, Miami, and Austin, you have to ask where next.
Utah benefitted from a pandemic influx of talent. But I created my own little scorecard for why folks should consider it now that the pandemic trend has passed and even begun to reverse.
Ecosystem: Will you bump into another founder, VC, or someone interesting in a way that feels like magic.
Talent: When you do, will that person be an A-player or a copy+paste business school type?
Government support: Uniquely in Fintech, the ability to get clear regulations is critical.
Great PR / Mindshare: Do you hear about it constantly, or is it understated?
Liveability: Does talent want to live and work there? Can you afford to start a family there?
These are my subjective takes. The methodology is loosely based on the research, data and anecdotes I see and hear writing this newsletter and talking to you all. No single table could ever fully do justice to the complexity of this topic.
SF wins at "ecosystem" no contest. Since the 1970s, the Bay has become the headquarters of everything, from Apple, Meta, and Google to Stripe, Intuit, and Plaid, and don't forget Visa (which pre-dates the tech boom). It's a global talent magnet and is liveable but not very affordable. If anything Fintech just gets overshadowed by Tech, and whatever is in vogue right now.
For PR and mindshare, the UK punched way above its weight and did for a while have the best PR and government support (although neither of those things is as accurate today; they were in 2010 through 2015 when the ecosystem got going).
New York has some incredible Fintech companies and momentum. It is a world-class talent and cultural hub, but it's a hard place to get a house and raise a family in.
I haven't included Dubai and Singapore, which both have intentionally created Fintech ecosystems. They win on the ability to legislate and actively work to build a Fintech ecosystem.
Utah has a bit of everything except the strong PR.
Utah has talent, VCs, and a pay-it-forward vibe that's the most I've ever experienced. Where SF is "Are you interesting?" and NY is very "here's 5 intros, where's mine" transactional, Utah is kind of just nice about it.
The ILCs, infrastructure companies, and depth of Fintech nerd'ery inside the banks is astonishing. People are willing to meet. You will get that meeting with that company, and it will be the right person.
If the goal is to stand out on the world stage, how do they do that?
4. How Utah can grow.
a) Building on the embedded finance successes. Most people know about Utah banks. However, not everyone understands what made them successful. Utah can and should make this copy and pasteable for two reasons.
Growing responsibly as a bank means there are only so many programs the Utah banks can take on simultaneously.
Community banks are a dying breed. Embedded Finance fixes this, and the best practices are known by those doing it the longest.
b) Intentionally building a physical location and funding support. I've consistently seen the benefit of a physical space, event, and funding. L39 was an intentional play in London to create a "space" for Fintech in the financial district (Canary Wharf). Eventually, companies like Revolut would headquarter there.
In 2016, when we founded 11:FS and launched the Fintech Insider podcast, we were based in (and recorded the episodes in L39.)
Barclays Rise in New York* was a direct attempt to use this model, to create a center of gravity for the NY Fintech ecosystem. To this day most of the key NY Fintech week events and happy hours happen in its presentation space.
(*I was on the founding team of Barclays Rise working for Derek White at the time, who's now the CEO of Galileo, a Utah company)
If it worked for London, and it worked for NY, could it work for Utah too?
The Stena Center for Financial Technology is building its event series (Fintech Exchange) and accelerator program. The CEOs regularly meet with the Governors office and are actively trying to build an ecosystem. There's a network of founders, Fintech companies, and talent.
c) Doing way more PR and events. Utah is the home of Silicon Slopes and annual retreats for select gatherings by funds and VCs, but it doesn't feel like there's a Fintech week or happy hour. If you go to New York Fintech Week, everything is walkable, and you can see many companies there. Fintech Xchange is an attempt to build this, and I'm curious to see if it takes off.
Utah is pretty awful at PR. Maybe that's why they invited a British guy over to look at what's happening there. But it's also a part of what makes them special. Utah banks made a name for themselves by not growing too fast.
Slow and steady wins the race. Utah, as a Fintech hub, will likely follow suit.
d) Immigration and inclusion. While 24% of the population is a minority, net migration is still much more beneficial to Austin and Miami than somewhere like Utah. There are limits to what States can do here, but this is where being proactive on the international stage can be helpful. If you've ever met the Dubai, Singapore, or UK international trade bodies, they bend over backward to try and help companies set up internationally. There's way more that can be done here.
Likewise, on diversity, the leadership is still very white and male-dominated. Now look at West Coast tech, where that is slowly changing. Utah is a way more tolerant place than it might appear to be, but it's not winning at representation.
e) Will Utah be the next Fintech hub? No, but it might be the one after. If I had to bet on the next Fintech hub for the US, at a push I'd say it's Miami, because it's becoming the home of cross-border payments and everything is cross-border. But right after that, tucked away in 2nd, being humble and all nice about it, is Utah.
And in 10 years, when Miami is far to expensive to live within 30 miles of, Utah will have a ton of land, an airport that is actually usable.
5. My time in Utah.
If there's one thing I'm addicted to, it's learning.
I learned more about embedded Finance in a few days than in some years. You get to talk one-on-one with people, and they share their knowledge, and as a Fintech Nerd, I love that.
Then the nice people asked me to pull no punches and say the quiet part out loud.
It feels like kicking a puppy because they're so nice. So here goes.
I fear Utah is too humble to go global and too rules-following to break the rules. But they're also willing to embrace change and have deep intellectual honesty.
Utah isn't New York, it isn't Miami, and it isn't London. But it's not trying to be. If it's going to go global, it will do so because it exports entrepreneurialism, a surprising openness to outsiders, and an ecosystem of founders and operators who are helpful without being transactional.
You don't have to live there.
But you probably should consider at least visiting if you're a Fintech nerd, investor, or operator.
If we find a way out of the mess with embedded Finance and "BaaS," we can learn a lot from Utah regulators, banks, and infrastructure companies.
ST.
4 Fintech Companies 💸
1. Belong - Leveraged Stock investing for UK millennials
Belong (be long) provides an initial boost loan to invest in stock market index funds. Users pay off the loan over time while benefiting from the effect of compounding. This type of leverage has historically only been available to wealthy UK citizens, but Belong is bringing it to the working middle class.
🧠 There's a lot to like here. First, it's beautifully designed. Second, the simplicity of the loan and the focus on index products are sensible. Third, the "millennials have time but not money" marketing package is a masterful stroke. The all-female founding team also put work into the FAQs, detailing how customers are treated and how Belong is regulated. Very well executed.
2. Protiv - Contractor worker incentive platform
Protiv allows contractors to create budgets for projects (like construction), set a budget, notify workers of upcoming jobs, analyze results, and then pay any bonuses. The service integrates with existing employees of record, accounting and CRM tools and aims to ensure workers can clearly see how their performance creates the bonus. The workers get a mobile app to track their progress against goals.
🧠 This is the ideal vertical SaaS use case. Budgets and tracking turning into bonus payments would be manual. Providing real-time tracking can help concentrate minds and give a sense of transparency.
3. Pactio - Private equity workflow SaaS
Pactio helps private equity and debt funds manage complex workflows and avoid manual work. It can help structure a complex transaction, ensure accurate documentation, and sync calculations across multiple "sources of truth."
🧠 Private markets are being disrupted by Fintech in a quiet revolution almost nobody pays attention to. Despite the money involved, private market transactions are still incredibly manual. Often, these companies are founded by people who've worked in that job and rage-quit to start something new and solve the issue they had. The service already has users at Big 4 accounting firms and major private equity funds.
4. Bavest - Alternative financial data platform
Bavest provides financial professionals API access to alternative data like climate, ESG, and sentiment data. It helps asset managers automate their research process and helps Fintech companies present more complete data in stock trading apps to their users.
🧠 Typically, this data is out of reach unless you go to the largest rating agencies (like Moody's). Providing developer-friendly API first data and quant models opens that aperture.
Things to know 👀
Visa did $8.8bn in revenue with a net income of $5.1bn; revenue was up 10% YoY, and net income was up 17%. While payment volume was up 8%, cross-border was up 16% YoY.
🧠 Everything is cross-border. As consumers and businesses travel again and net migration continues to increase across the Americas, any company close to that sees it in payments. Revolut is moving into Mexico for a good reason. FX is historically more lucrative than domestic.
🧠 Europe has been a key growth driver. 40% of Visa's revenue still comes from the US, but Europe and the UK have started to shift that. Visa was arguably behind Mastercard in Fintech and lost a few big bank logos in the 2010s, but that's turning back around.
🧠 You're not paying enough attention to Visa's Tink acquisition; they will quietly be a big player in pay by bank. Eventually. Tink is the European Open finance company that was historically deeper with banks in smaller markets. It works with Revolut and Adyen, and is now opening in the US.
🧠 While it's not dominant in pay by bank (compared to Truelayer in the UK, Stripe, and Plaid in the US), Visa can offer incentives, AKA Visa bucks, to change that. Visa is also naturally placed to partner with the banks, while some open finance providers are viewed with more skepticism. They just signed data access deals with Capital One, Fiserv, and Jack Henry. This battle is far from over, but don't underestimate Visa long-term.
🧠 Visa direct is outperforming other push payment types. JPMC will integrate Visa Direct into its merchant capabilities for push payments. Unlike RTP, FedNow, or wallets such as Venmo and Zelle, push-to-card has 98% coverage and it generates revenue for the bank. FedNow has to compete with wallets, pay by bank, and push to card. Despite it being "cheaper," it's not always the right answer. I suspect FedNow will, in time, be the underlying rail for most pay-by-bank transactions.
🧠 Their next growth area is B2B flows. Corporate card spending has grown, but the vast majority of B2B payments are noncard-based. Domestically, "pay by bank" for B2B is underexplored for ACH and Wires (especially when FedNow comes). Internationally, the world is crying out for an alternative to SWIFT, and I still suspect Stablecoins will be a part of that answer.
Adyen delivered €438.0m revenue in Q124, up 21% YoY, and is on track to grow its EBITDA from ~40% to ~50% in 2026. 80% of this growth came from existing customers, and its churn is less than 1%.
🧠 If Adyen delivers on its plan, it will be a Rule of 70 company. 20% revenue growth and 50% EBITA would put it in a league of its own, even for payments companies that are historically high margin.
🧠 It has sticky, growing customers. Customers are sticky because Adyen delivers a mix of scale, cost, and quality. Historically, the market was a case of picking two of those three. People who think payments are a commodity miss that cost is just one component. Conversion at checkout, fraud prevention, tokenization, and reconciliation are areas where value accrues.
🧠 Consistently, companies willing to invest in infrastructure are set up for long-term growth. Adyen grows through R&D, not M&A. Owning the infrastructure means they have high upfront capex but lower long-term costs to serve their clients. Contrast this with PayPal, which dwarfs Adyen by revenue but is seeing customer churn and has 10 businesses in a trench coat.
🧠 Consistently, when public companies DO invest in long-term growth and R&D, the market sells. Meta is getting dinged for investing aggressively in AI, and Adyen got dinged for investing in the US market entry (now its fastest-growing market), and the same thing happened to Klarna.
🧠 It takes bravery to be a public growth company. The market literally only cares about this quarter. That's why many companies end up in share buybacks instead of investing in R&D and manage decline instead of growing. Or if they do grow, it's with M&A that they become a corporate mess.
🧠 This is why founder-led companies outperform. As long as a founder has board backing, they will think long-term. Meta's recent resurgence is largely due to Zuck, and I'd say the same for Klarna and Adyen. Even Capital One's CEO is the founder, and look at their long-term trend. Honorable mention for Satya Nadella, who is not the founder but has the bravery of a founder-level CEO. Few others do.
Good Reads 📚
Every year, the CEO of JP Morgan Chase writes an annual letter to shareholders, which reads like a manifesto for the future of the banking industry, economy, and the United States. Pour respect on this, and then go read it. Here are some highlights.
🧠 The press all picked up that it says AI. That's the least interesting part. Honestly, they created a senior job title. Whoop-tee-doo.
🧠 Far more interesting is what it says about BASEL III's "Endgame." Jamie bemoans that BASEL III in the US would require banks to hold 30% more Tier 1 capital than their European counterparts. This would, in theory, make US banks less profitable and less attractive on the global stage. This is a nuanced critique of how the regulatory sausage gets made, the thrust of which I actually agree with, especially tied to the next point.
🧠 There are some policy suggestions here I also agree with. Proposes stress testing private credit, which frankly, feels like its in a late-stage bubble. Proposes re-looking at the overlapping jurisdictions of regulators and simplifying. Again, I agree.
🧠 Between the lines, it suggests an economic contraction is coming and will suck. The current economy, it argues, is driven by debt-fuelled spending on infrastructure, chips, and the overseas war effort. This is unsustainable. The unwinding of ZIRP will take time; not everything has come out in the wash yet.
🧠 It suggests quarterly earnings are sucking the life out of public markets. Public market transparency is a good thing, but the rise of for-profit "proxy advisors" often means that large shareholders aren't voting, but proxies are. Those proxy advisors have their own opinion of what good governance is and if they have undue influence over the ability of shareholders to hold management teams accountable. This feels like a big deal, and I can't believe I learned about it in a shareholder letter.
🧠 This is still my favorite annual letter. Stripe's is good, Jamie's is better. It makes me wonder if he hasn't retired at 69 because there's simply no way to plan a succession from the GOAT. Even if he's wrong about Bitcoin.
That's all, folks. 👋
Remember, if you're enjoying this content, please do tell all your fintech friends to check it out and hit the subscribe button :)
(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.
(2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a *. None of the above constitutes investment advice, and you should seek independent advice before making any investment decisions.
(3) Any companies mentioned are top of mind and used for illustrative purposes only.
(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel—strong opinions weakly held
(5) Citations may be missing, and I've done my best to cite, but I will always aim to update and correct the live version where possible. If I cited you and got the referencing wrong, please reach out